While recent cases of debanking have attracted headlines, the experience is not limited to high-profile politicians in the UK. The uptick in debanking or "derisking" – as banks describe it – is a trend that is playing out internationally, and is driven by the more challenging conditions we now live in.
Greater regulatory and compliance oversight means that financial institutions have intensified their risk profiling procedures. This profiling does not have a concrete set of rules and is largely left to each institution to develop and implement.
In this article, we go back to basics and examine some of the reasons why an individual or small business may have been debanked and what can be done about it.
Who can be debanked?
There will always be situations (e.g. where there are anti-money laundering or terrorism financing safeguards) where banks are legitimately able to close an account and withhold the reasons for the closure.
This was recognised in a February 2024 report by the All Party Parliamentary Group on Fair Business Banking titled "De-Banking Report". This report analyses the potential reasons for debanking under the headings of costs, reputational and financial crime.
Costs: The report notes the high compliance costs to banks and observes that offering business accounts to some business might not make financial sense. The report focuses on businesses operating in the cryptocurrency sector and suggests introducing a "Basic Bank Account" for small businesses, with banks being transparent about their actions.
Reputational risk: The report is critical of citing reputational reasons, noting that reputation has taken a position of outside importance both for the banks and regulators. It recommends that the regulators reserve their position on reputation and issue guidance to disregard it as a consideration in all cases except those involving unlawful conduct. This would be a sensible approach.
The foreword to the report neatly summarises the issues, noting that "To properly address this problem will require a radical reassessment of what it means to be frozen out of the financial system and whether we need to start considering access to banking facilities to be a fundamental right, akin to a utility, rather than a discretionary services provision.".
As we have previously argued, access to an adequate bank account and banking facilities needs to be considered a fundamental right, rather than something that can be offered (and taken away!) at the whim of the banks.
What can I do to limit my chances of being debanked?
It is in the public interest that banks should be able to close a customer's account if there are financial crime concerns.
However, so long as banks can close a customer's account for vague reasons such as reputational risk or costs, there will always be situations that are unjust for the customer.
There are some strategies that can be applied to reduce the risk of being debanked, including, but not limited to:
- Keeping detailed information on the source of funds, including official documentation, to provide to any financial institution if requested.
- Respond to any request for documentation from the relevant bank (taking advice if necessary) in a timely manner.
What can I do if I am debanked?
In the unfortunate event that the bank closes your personal or business account, there are various steps you can take to try to resolve the situation:
- Pursue a complaint with the bank and try to find out the bank's reasoning for closing the account.
- Pursue a complaint with the financial ombudsman service (however, note that this route will not be appropriate in all circumstances).
- Ask for legal advice if you have exhausted all internal processes specific to your bank; and
- Pursue a Data Subject Access Request to learn what information a financial institution holds on the business (in the case of a business, this will be limited to information about individuals rather than the business itself).
Could incorrect information held about me on compliance databases be affecting my ability to obtain banking services?
We have previously written a series of articles on what to do if you fear wrong information about you stored on a compliance database is affecting your ability to obtain banking services, including "Information on a compliance database file is wrong".
NAVIGATING BANKING CHALLENGES
Bank account closures are not limited to political figures in the UK and affect many thousands of lawful individual and business customers every year. These cases have exposed the difficult balance many financial institutions and their customers must navigate to gain and maintain access to basic banking services.
To assist those whose accounts have been closed, Gherson's financial crime, investigations and regulatory team have previously written several articles
Why has my bank account been closed?
Why has my business bank account been closed?
140,000 SMEs "de-banked" last year – why could I have been de-banked?
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.