Airbnb is under scrutiny from the City watchdog over fears inadequate controls on its payments system leave it open to exploitation by money launderers or terrorist financiers.

The Financial Conduct Authority is assessing whether the holiday rentals service, which is preparing for a $30bn (£23bn) US flotation, failed to put in place measures to catch criminal activity over its UK payments network.

Both Airbnb and the FCA have discovered gaps in the company’s financial systems in the last year. If Airbnb’s controls are deemed to have been insufficient, its UK payments arm may face fines of up to 10pc of its revenue.

Airbnb Payments UK, a subsidiary of the American tech giant, handles billions of dollars of customer payments made through Airbnb outside of the US and EU, and is licensed by the FCA as an electronic money institution.

In July 2019, the FCA told electronic money institutions including Airbnb to review how they protected customer funds, after a review of other regulated payment providers found many were not adequately ring-fencing people’s money, potentially creating problems if a company were to go bust.

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Airbnb alerted the regulator to gaps in compliance and said it was taking steps to fix the problems. The FCA then conducted its own review of how the firm safeguards its customers’ money.

The watchdog found that Airbnb had taken appropriate steps. However, the same review identified “certain issues with APUK’s [Airbnb Payments UK’s] anti-money laundering and counter-terrorist financing systems and controls”, the company said.

In August, Airbnb handed an analysis of its compliance with money laundering laws to the FCA and outlined the steps it was taking to correct the problems. It is awaiting a response from the regulator.

The review was disclosed in the fine print of Airbnb’s stock market prospectus, which was publicly filed last week ahead of a Nasdaq flotation that is expected to raise around $3bn and value the company at $30bn. Reports and cybersecurity researchers have previously raised concerns that Airbnb could be used as a way to launder money through stolen credit cards.

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In 2017, it emerged that Russian-­language forums were being used to find hosts willing to split profits on fake bookings. At the time, the company said it deployed automatic detection systems that used hundreds of signals to score reservations for risk and stop suspicious activity.

Airbnb registered $38bn of bookings last year. Airbnb Payments UK is the company’s main arm for processing payments outside the US, although as of this year, bookings within the European Economic Area go through a subsidiary in Luxembourg.

There is no suggestion that specific cases of money laundering or terrorist financing have been discovered, but failure to comply with anti-money laundering laws may mean a fine of up to 10pc of Airbnb Payments UK’s annual turnover, which was £444.5m last year.

Airbnb, which suffered from a plunge in holiday bookings when the pandemic struck, has recovered in recent months. It is to embark on an investor road show after last week’s filing, with a flotation on Nasdaq expected next month.

The FCA did not comment.

Airbnb did not respond to requests for comment.

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