BRAC Bank challenges UK authority’s decision to cancel Saajan’s licence

BRAC Bank has challenged the UK authority’s decision to cancel the business registration of BRAC Saajan Exchange Limited (BSEL), a subsidiary of the bank, despite incurring losses for the last few years.

“We’ve appealed before an English High Court challenging the decision and the hearing is scheduled to be held in July,” Selim RF Hussain, managing director and CEO of the bank, told the Business Insider Bangladesh on Monday.

Hussain hoped BSEL will get its UK licence back and be able to restart operations soon.

On May 26, 2021, BSEL received a letter from Her Majesty’s Revenue & Customs (HMRC), which is responsible for collecting, paying, administering and enforcing taxes, cancelling its business registration with immediate effect on account of multiple alleged breaches of regulations.

Accordingly, all transactions were immediately stopped and the Financial Conduct Authority or FCA, which is the conduct regulator for financial services firms and financial markets in the UK, was informed, according to BRAC Bank.

The bank in its annual report for 2021 said that BSEL has strongly rejected the allegation of breaches through a team of high-profile lawyers.

“BSEL strongly believes that HMRC’s decision was unjust and lacks substance and is mostly on the basis of incorrect assumptions. This view is supported by the lawyers,” reads the bank’s annual report.

According to BRAC Bank, BSEL does not agree with these alleged breaches based on the following facts:

1. The Company has a robust and modern governance structure in place to ensure compliance with the regulations. This consists of three lines of defence; i) Business/Operations, ii) Compliance, iii) Risk and Internal Control.
2. On top of this structure, the Company has a Risk and Audit Committee (RAC) mandated by the Board to provide assurance to the Board on the adequacy and effectiveness of the company’s system of internal controls. The Committee comprises three independent advisors in addition to senior representation from the Company. The independent advisors are of high repute and experience in the AML/Compliance industry.
3. Additionally, BSEL engages external auditors to review the Anti-Money Laundering and Sanctions compliance programme and governance framework on an annual basis.
4. The above-mentioned three lines of defence structure, the constitution of RAC and engagement of external auditors are not very common in the organisations of BSEL’s size and capacity and are parallel to large financial institutions/banks.
5. None of these multiple compliance and control functions have identified anything to suggest the action taken by HMRC is even remotely reasonable.

Without any income since the date of cancellation, in the months following the operation was scaled down to essential activities only. For example, for work involved in the appeal, dealing and liaising with FCA, reconciliation activities, liaising with partner banks, collection and recovery and other critical activities in order to remain operational.

Headcount has reduced significantly across the whole company, and all other cash expenditures curtailed. All of the remaining eight EU employees left the business over the course of the year. The Bangladesh operation was reduced from 47 to 13 and the UK headcount was reduced from 26 to 11. The company has borne some exceptional costs, in particular legal fees amounting to £150k within the year and £45k on redundancy costs in the UK and Italy. Legal expenses are set to continue to ramp up in the first quarter of 2022.

Prior to the cancellation, BRAC Bank said BSEL’s business was on track to return to profitability following the difficulties of 2020. Total remittance to all receiving counties of £114.6m was achieved and this was set to continue to grow. This included remittance from the relationships with MoneyGram and Visa Payments, all other cash-based aggregator partners had been previously de-risked.

However, the financial results obviously bear the consequences of the prevailing events. As such, for the full year turnover fell by 75 percent to £1.69mn and although expenses were reduced by £2mn compared to 2020. Yet, the resulting loss for the company was £1.6mn, up from £0.27m a year ago.

“The primary objective in the time since the cancellation has been to remain operational in order to be able to challenge the HMRC decision and any potential fines until such time the appeal hearing takes place,” said Hussain.

Together, with the support from the parent company, it is a remarkable testament that BSEL has remained operational during this period in order to prepare itself in the best way possible to achieve a positive outcome from the appeal, he said.

He said due to the fact the company has retained some key employees and maintained positive relationships with several key agencies, upon a successful appeal BSEL will be able to resume trading within a very short period of time.

BSEL believes that the future outlook for the business is still positive. Out of the 300 agents that were onboard at the time of closure, the business has identified 60-70 long-established, high-volume Bangladeshi agencies with whom BSEL would restart its relationship and from which it could reasonably expect up to an average of £15mn remittance per month. Retail agencies have not been de-registered since the closure in the expectation that the business can and will resume, said BSEL.

The company has always had a strategic goal to spread its service to several more countries, to this end the EU is still a part of the longer-term where a significant opportunity still exists.

“However, all plans aside, the immediate focus for the business is to prepare for the hearing. A clearer picture of the future of the company is completely dependent on a positive outcome. The company is confident that a positive outcome will be achieved and the management is determined to have these alleged breaches dismissed, clear the name of BSEL and bring the company back to the market,” BRAC Bank said in its annual report.

BRAC Bank was one of the pioneers in opening an exchange house – BSEL - in the UK to provide remittance services for non-resident Bangladeshis in the UK and Europe. The company used to provide remittance services and cross-border payment solutions for South Asian migrants living in the UK and Europe. BSEL offers a wide range of payment services principally to Bangladesh and Pakistan but also to India, Sri Lanka and Nepal. Revenue is earned through a combination of transaction fees and foreign exchange margin.