A group of MPs has accused banks of closing business accounts mainly due to cost and reputation, rather than clamping down on financial crime, amid a gulf between “debanking” and anti-fraud enforcement.
The all-party parliamentary group on fair business banking said in a report that lenders were “freezing legitimate customers out of the financial system due to their opinions or lifestyles or because of cost”.
The issue of bank account closures became a hotly-debated issue last summer after former Ukip leader Nigel Farage was “debanked” by Natwest-owned Coutts partly due to his political views, with the resulting scandal triggering the resignation of both banks’ chief executives.
Today’s report, supported by City law firm Humphries Kerstetter, comes after an 18-month investigation into account closures.
MPs said organisations with higher risk profiles – ranging from bookies and cryptocurrency firms to political and industry groups – can quickly rack up high costs for banks conducting anti-money laundering checks and regular due diligence.
The report suggested that the Financial Conduct Authority (FCA) was partly to blame for an “unprecedented rise in debanking” over the last decade.
Data from the City watchdog shows banks closed 343,350 accounts in the 2021/22 financial year “for reasons of financial crime”, the highest since it began tracking annual figures in 2017.
MPs heard testimony from industry sources claiming that the FCA had encouraged banks to prioritise their reputation over duties to customers.
An FCA spokesperson told City A.M.: “We have said before that it might be time to look at whether all individuals, businesses and organisations should have the right to an account but it would be for the government and parliament to legislate for that.
“Within our remit, we are clear that banks should treat individual customers fairly and act proportionately to tackle financial crime. If we find firms are not doing that, we will act.”
Although banks often cite financial crime concerns as a common reason for closing accounts with little or no explanation – to avoid “tipping off” criminals – MPs cited data from the National Crime Agency (NCA) showing just 341 “disruptions” of fraud in 2021, despite nearly 350,000 account closures.
One challenger bank, which asked to remain anonymous, disclosed to MPs that they closed 40 accounts “due to fraud concerns” in 2022/23, despite submitting just five “suspicious activity reports” to the NCA over the same period.
“We need to reset the approach of the banking industry so that no genuine, legitimate customers are excluded from the financial system,” said Conservative MP and group chair William Wragg.
“Having access to a bank account is an essential part of modern living and needs to be viewed as akin to a utility, like water or electricity.”
A spokesperson for banking trade body UK Finance told City A.M.: “The government has announced there will be an increased notice period and more information provided around account closures. These are important changes, which require new legislation and we are working with the government and other regulatory bodies here.
“There is a competitive market for business banking, but not every firm will have the ability to serve all prospective business customers across all sectors of the economy.”