By Isabel Woodford
(Reuters) – dLocal, the Uruguayan fintech facing allegations of potential fraud from a short-seller, has applied for a UK regulatory license, the company’s chief executive told investors in a recent call reviewed by Reuters, amid claims it dodged rigorous regulatory oversight by relying on Maltese regulators.
Nasdaq shares in dLocal – which is backed by major tech funds including General Atlantic, Tiger Global and D1 – have dropped nearly 50% since short hedge fund Muddy Waters published its report, which dLocal has denied.
Speaking in a closed-door call hosted by Goldman Sachs, dLocal CEO Sebastian Kanovich said that a full license with the UK regulator (FCA) was pending, citing the UK’s exit from the European Union.
“We are in close consultation (with the FCA), we already filed our application,” Kanovich said.
He did not specify what stage they were at with the application – which can take around 12 months – or which of its entities would fall under UK jurisdiction.
Payment companies operating in the UK need to be regulated as electronic money institutions, and those with an existing European license need to have applied by Dec. 31 to continue operating uninterrupted, according to the regulator’s website.
Kanovich was also asked repeatedly by the call’s host why he would not issue a written rebuttal regarding the alleged use of customer funds, despite verbally blaming flaws in Muddy Waters’ methodology and offering alternative mathematical calculations.
“We have been advised not to engage in a tit for tat,” he responded, adding dLocal was only engaging privately with stake holders.
An attendee of the call, who asked to remain anonymous, shared the recording with Reuters.
The FCA declined to comment. Neither dLocal nor Goldman Sachs responded to a request for comment.
Muddy Waters told Reuters that Kanovich’s explanations for the multi-million deficit in merchants’ accounts “were so implausible, we literally laughed out loud.”
The company’s CEO was also asked why dLocal had nearly $6 million in funds trapped in disgraced crypto exchange FTX, which dLocal failed to withdraw before the exchange’s collapse.
Kanovich responded that dlocal had used stablecoins to move funds out of one African country in a bid for efficiency, relying on FTX “to liquidate those stablecoins and get dollars and send them to our banks.”
He added: “We took that learning and I think it’s very unfortunate.”
Other payment companies like Checkout.com have also experimented with stablecoins like USD Coin, which is pegged to the U.S. dollar, to allow businesses to accept payments in digital currencies without a bank.
(Reporting by Isabel Woodford in Mexico City; Editing by Nick Macfie)
