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⇑⇓ Today’s Stock Market Quotes ⇓⇑

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Uber can continue to operate in the city through an appeals process that could take months. Still, the public reproach over a loophole in Uber’s software threatens to further shake trust in the platform here and elsewhere.

Uber has long found itself in the crosshairs of authorities around the world over what critics say was a corporate culture, built under its co-founder and former Chief Executive Travis Kalanick, that tested the regulatory and legal envelope of countries where it operated. Chief Executive Dara Khosrowshahi has said he is trying to repair some of the reputational damage that strategy wrought.

In particular, he has courted London authorities after years of strained relations with city officials, regulators and competitors, including the city’s ubiquitous black cabs. London officials lauded Uber generally for what it said was progress improving the company’s internal issues.

Monday’s ruling, however, shows how the company—in a similar vein to other big tech companies—is now facing questions about its ability to police the behavior of others on its platform. It couldn’t be determined if the issue was a significant problem elsewhere, and Uber declined to comment about other markets. The company said, however, its technical and operational fix was being rolled out globally.

Transport for London, or TfL, the city’s main transportation regulator, said it had found 14,000 instances in late 2018 and early 2019 in which unauthorized drivers swapped their own photos with those of authorized drivers on Uber’s platform, allowing them to pick up riders themselves. A TfL spokesman said in some cases it believed drivers were using the loophole to allow people they knew to use their own accounts to pick up riders.

TfL said all 14,000 rides identified were uninsured and that two of the 43 drivers involved were unlicensed drivers—meaning they hadn’t been vetted by the regulator with a criminal-background check or for their driving ability. At least one ride involved a driver whose license had been revoked by the regulator, TfL said.

The regulator said it couldn’t disclose how many overall rides those 14,000 violations came from—citing commercial sensitivity for Uber. It said, though, the number of customers affected was significant.

TfL said Uber told the regulator about the unauthorized accounts this summer, but TfL found the problem to be widespread after further investigation. TfL said Uber fixed the loophole in October, but that it still didn’t have the confidence to grant it a license because drivers might find other ways to get around restrictions in the app.

“If not that loophole, a different loophole might be exploited,” a TfL spokesman said.

The regulator said Uber’s drivers in London had also been using vehicles without correct insurance in place, and that overall it was concerned that Uber’s app could be manipulated. It added that it wasn’t confident that Uber could keep its passengers safe “while managing changes to its app.”

Uber said it would appeal the regulator’s decision, which it called “extraordinary and wrong.” The company said it had been strengthening its driver identification processes over the past two months and that it would soon introduce “facial matching” to prevent what it called photo fraud. In September, Uber said it was working on a security enhancement that would require drivers to look at their smartphone camera and blink, smile and turn their head to verify their identity.

“We have fundamentally changed our business over the last two years and are setting the standard on safety,” said Jamie Heywood, Uber’s regional manager for Europe.

Paul Loberman isn’t so sure. An Uber user who lives in a suburb of London, he said he would now have second thoughts about the service, out of concern that its drivers’ identities could be false. The 48-year-old financial-services worker described the matter as a public-safety issue.

“What happens if there’s an accident or worse?” he said. Mr. Loberman also said he won’t use Uber anymore, “certainly not in London.”

David Papineau, a philosophy professor at King’s College London, doesn’t want Uber to have to stop operating in the city. “It does a good service. It employs a lot of young men who are mostly immigrants,” he said. Mr. Papineau, 72 years old, believes Uber is being treated unfairly by the TfL. “The ban is working to the interests of the traditional black cabs,” he said, adding that Uber is more convenient and more affordable by comparison.

Uber shares fell 1.5% in New York on Monday. That fall exacerbated a monthslong decline since their May debut. Shares are down by more than a quarter since Uber’s initial public offering. Last August, the company reported a quarterly loss of $5.2 billion, its biggest ever, due to costs related to its IPO and heavy competition in its international markets.

London is one of Uber’s most important markets globally. When it pushed into the city, it met stiff resistance from black-cab drivers worried about the competition and regulators who said they wanted to make sure Uber followed the rules and provided a safe environment for users.

It survived a series of legal challenges to become a part of everyday life for many Londoners. Many have embraced it as a middle ground between the city’s extensive and cheap—but creaky and jammed-to-capacity—public transportation, and the relative luxury of hailing a black cab. Yanking its drivers off the road would put extra strain on the city’s transportation networks.

Today, though, it faces a bevy of new rivals like Bolt Technology OU, an Estonian ride-hailing app that launched in London approximately four months ago. Bolt has amassed 30,000 drivers in London, according to its founder and CEO, Markus Villig.

In 2018, Uber derived 24% of the gross bookings for its rides business—or about $9.96 billion—from five metropolitan areas, which include Los Angeles, San Francisco and New York, as well as London, and São Paulo in Brazil, according to securities filings. Gross bookings are the total dollar value of rides, including taxes, and don’t account for discounts or driver earnings, Uber says. The company says it has 3.5 million riders and 45,000 licensed drivers in London.

This isn’t the first time Uber has lost its license in London.

In 2017, TfL rejected Uber’s application for a long-term license because of issues including safety and its corporate culture and governance. It pointed to Uber’s internal use of an app called Greyball, which allowed it to evade surveillance by local authorities, as well as problems with the company reporting crime to the police. Uber appealed that decision and won a 15-month license, which expired in September 2019. The regulator then gave Uber a two-month license, which expired Monday.

A spokesman for TfL said the decision was similar to its action in 2017. Uber has 21 days to launch its appeal, and can continue to operate over an eight-month period until that process is exhausted.

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