On 21 February 2024, the All-Party Parliamentary Group (APPG) on Fair Business Banking published a report on de-banking.

The report was commissioned to explore the extent of the problem of de-banking and then, if problems were identified, to suggest remedies. The work was prompted by a growing number of individuals, companies and trade organisations approaching the APPG with complaints about how banking facilities were being withdrawn, or refused, for reasons they considered at best unreasonable, and at worst, unlawful. The report supports the APPG’s wider purpose of creating a ‘balanced financial system that supports enterprise and tackles financial crime’.

The APPG’s work commenced in June 2023. It found that thousands of customers are being de-banked or having facilities refused every month, often due to financial, regulatory and reputational pressures facing banks. 

Costs

The report explains that the common characteristic connecting the groups being de-banked is that their perceived risk profile is outside the norm. Examples provided include cryptocurrency businesses, politicians, jewellers and yacht brokers, who are seen as problematic for banks for different reasons. The regulatory and legal obligations on banks for such groups make it more expensive to bank them; for example, more anti-money laundering checks are required, more ongoing monitoring and more due diligence is required at the point of onboarding. With no way of avoiding these costs, the report notes that the obvious commercial solution is to simply avoid the customer.

To address this, the report sets out recommendations for tackling the issue of de-banking although it notes that there is no simple, one-size-fits-all solution. It states that regulators must communicate with banks about the costs of compliance, proportionality and efficacy, and that the industry should consider introducing a ‘Basic Bank Account’ for small businesses. This could limit compliance costs for banks by, for example, setting limits on balances or turnover on the accounts. However, such a move would require the backing of the regulator, and if the banking sector and the regulator were not prepared to introduce such a service, the APPG suggests that the Government would need to intervene to legislate for the change. For existing customers, there should be protections to stop banks withdrawing facilities purely due to cost. The reports that this would require some fundamental changes: banks would need to be transparent about their actions, and if the cost burden of maintaining a customer relationship becomes onerous this should be explained to the customer and alternatives provided.

Reputation

Within the FCA Handbook, the Financial Crime Thematic Review section encourages firms to consider their own reputation, the reputation of their customers, their staff and their industry as a whole, when assessing risk.

In the report, the APPG recommends that both the industry and the regulator should take a far more principled stance, as “Reputation should not be a consideration when it comes to the most basic of banking services – a current account”. It states that the regulator must reverse its position on reputation and issue guidance that requires banks to disregard the consideration – in all cases other than unlawful conduct – when providing access to the financial system. Presented correctly, the report notes that such a move would provide banks with protection from criticism for doing no more than acting as a financial utility provider.

Financial crime

The APPG report notes that banks have an obligation to fight financial crime and must “police their customer base, both existing and prospective”, as they are the first line of defence against money launderers, terrorists and other national and international criminals. However, it warns that despite the money spent by the industry to meet these obligations, it is still not clear whether the system works. Accordingly, many banks remain open to banking high value customers even when there is a suspicion of economic crime, while at the same time there is growing evidence that banks may be wrongly using the label of economic crime to offload customers merely because they represent little or no profit for the bank.

The report notes that, while the APPG welcomes the Government’s proposals to mandate that banks must explain to their clients (where lawful) the reasons for any de-banking, finding the correct balance that both protects the innocent from being unfairly treated while allowing the authorities to pursue those suspected of wrongdoing should not be impossible. It encourages the Government and the FCA to keep this area under review, although it suggests that the Government’s current proposal to leave the banks to decide what information to provide to customers being exited will not work. It also suggests that the authorities consider adopting a financial crime regime that is more focused on the movement of money rather than moving on clients, and notes that “In the world of AI, and with vast resources available to banks, there must be a way of better policing transactions so that suspect monies can be frozen, and then action taken against parties, only when and if any suspicions are found to be well grounded.