UK banks could be incorrectly labelling customer accounts as a fraud risk in a bid to cover up concerns about costs and their reputation, a group of MPs have said.
A new report into debanking, produced by the All-Party Parliamentary Group on Fair Business Banking, argues banks are more driven by profit and reputation, rather than tackling financial crime, when they decide to debank customers.
Some customers are being “wrongly categorised” and left in the dark when their accounts are suddenly closed, they said.
The study warned certain ethnic, industry or political groups are being “frozen out” of the UK’s banking system.
Nigel Farage accused Coutts of debanking him over his political views last year
PA
This is because their accounts can be problematic for a bank if they are perceived as being “high risk”. Examples given by the MPs include cryptocurrency firms, jewellers, bookies and politicians.
Around 185,000 bank accounts were closed in 2022 to 2023 due to financial crime reasons, up from about 72,000 in 2017 to 2018, according to Financial Conduct Authority (FCA) figures.
Banks explained the increase as their improvement in identifying a potential crime, aided by developments in automation and artificial intelligence (AI) technology.
However, MPs argued this was “unlikely” to be the “full story”.
They added: “Too many banks remain open to banking high value customers even when there is a suspicion of economic crime.
“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.”
William Wragg, co-chair of the All-Party Parliamentary Group and Conservative MP for Hazel Grove, said: “We need to reset the approach of the banking industry so that no genuine, legitimate customers are excluded from the financial system.”
Mr Wragg also said having a bank account is an “essential part of modern living” and should be viewed as “akin to utility, like water or electricity”.
The group argued reputational risks have become of “paramount importance” for the banking sector and has called on the financial regulator to take further action to ensure people aren’t debanked for the wrong reasons.
James Russell, Managing Partner at Humphries Kerstetter, the City law firm which supported the new report, said: “All parties, the regulator, the banks and the Government need to ensure that companies and individuals have access to a well-functioning financial system.
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“There is clear evidence that people and businesses are being ejected from the financial system with no discernible action being taken by the relevant authority to investigate and establish whether there is any foundation for such ejection.
“This is not good for individuals, business or the UK financial system as a whole.”
A spokeswoman for the FCA said: “Under the law, banks and building societies can make commercial decisions about which customers they serve.
“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.”