Debanking: Number of account closures since 2016 skyrockets as banks take tough line on financial crime
The number of bank accounts being closed climbed to nearly 350,000 last year as banks adopted an increasingly vigilant stance towards their customers.
According to data from a freedom of information request submitted by the Daily Mail to the Financial Conduct Authority (FCA), the number of accounts being closed has increased from under 50,000 in 2016 to 343,350 last year.
Despite the increase, the number of account closures for financial crime makes up less than 0.2 per cent of personal current accounts in the UK.
An FCA spokesperson said: “ We have seen firms increase their monitoring of accounts over the past couple of years, which may account for the increase in the figures.”
The data covers nearly 250 banks that shut accounts due to financial crime. It revealed that almost 90,000 people have been categorised as politically exposed persons (PEPs) by the banks.
PEPs are individuals in prominent public positions. Financial institutions have to conduct stricter checks on PEPs, who are deemed more likely to be involved in corruption or bribery.
The issue of ‘debanking’ has become prominent in recent weeks after Natwest’s controversial closure of Nigel Farage’s account. However, many groups have argued that there has been a problem ongoing for years.
Back in July 2021 the Treasury Committee wrote to the FCA about the issue of “blanket de-risking“, warning that bank accounts were being closed for “no apparent reason”.
MPs from the Fair Business Banking All-Party Parliamentary Group (APPG) have launched an investigation into the scale of account closures. The APPG said that many businesses and individuals have been in touch to say their account had been closed with little or no explanation.
In order to clamp down on the problem, the Treasury has announced plans to increase the termination notice period to 90 days and require banks to explain why accounts are being closed
Exceptions will be made where the rules conflict with banks’ obligations to clamp down on financial crime.
Kate Troup, financial regulation partner at law firm Fladgate, suggested there may be some difficulties in applying the new rules alongside existing financial crime obligations.
“There is likely to be some tension between complying with the obligation to provide reasons for closure and not tipping off a client that an AML report has been made about them,” she said.
“If closing bank accounts becomes significantly more difficult it may mean that banks are more circumspect when taking on new clients, and so this may have unintended consequences,” she continued.
A UK Finance spokesperson said: “When dealing with financial crime issues firms are often restricted in the information they can disclose.
“The government has recently announced there will be an increased notice period and more information provided around account closures. These are important changes and we will be working with the government and other regulatory bodies to implement them,” they continued.