The Financial Times and the Times have reported today that more than 140,000 UK SMEs were "de-banked" last year. This is according to the data published on Tuesday by a parliamentary committee.
To assist those whose accounts have been closed, Gherson's financial crime, investigations and regulatory team have written blogs entitled "Why has my bank account been closed?" and "Why has my business bank account been closed?".
Who can be 'de-banked'?
Unfortunately, whilst recent cases of 'de-banking' have attracted the media and public attention, the experience is not limited to high-profile politicians in the UK.
Specifically, de-banking often affects both individuals and businesses who are (sometimes wrongly) classified as high risk and are therefore considered as posing too many threats to the relevant banks.
Unfortunately, this approach, which is shared by most banks, may result in account closures, even for individuals and businesses that have been operating lawfully and in full compliance with all the relevant regulations.
This is obviously an incredibly frustrating and damaging event.
Extremely risk-averse approach
Understandably, banks are now generally taking an extremely risk-adverse approach with regards to offering banking services to both individuals and businesses, especially if they operate in sectors deemed to be "high risk".
Banks will often carry out extra checks, involving more extensive due diligence and automated profiling procedures to learn as much as they can about any perceived high-risk individual or business client. These steps are typically taken both prior to and during the course of the customer-bank relationship.
In an effort to mitigate risk, safeguard their reputation, and comply with regulatory frameworks, financial institutions can choose to pre-emptively terminate individual or business-bank relations to ensure their own protection. This can happen even in circumstances where an individual or a business is operating entirely lawfully and in compliance with all relevant regulations.
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 terrain many financial institutions and their individual and business customers must navigate to gain and maintain access to basic banking services.
What can I do to mitigate the risk of the bank closing my business account?
There are some techniques, methods and strategies that can be applied to reduce the risk of businesses being de-banked, including, but not limited to:
- Keeping detailed information on source of funds to hand, including, where possible, official documentation that can be provided to any financial institution, if requested.
- Respond to any request for documentation from the relevant bank (taking advice, if necessary).
- Ensuring that you have compliant policies and procedures in place; and
- Ensuring that you register with the appropriate body for any applicable AML supervision, if required by law.
What can I do if the bank closes my account?
In the unfortunate event that the bank closes your personal or business account, there are various steps you can take to try and resolve the situation:
- Filing a complaint with the bank in order to find out the bank's reasoning for closing the account.
- Filing a complaint with the financial ombudsman service (however, note that this route may not be appropriate in all circumstances).
- Seeking legal advice in the event that you have exhausted any and all internal processes specific to your bank; and
- Filing a Data Subject Access Request to learn what information the relevant financial institution holds on you or your business (although in the case of a business this will be limited to information about individuals (e.g. company directors) rather than the business itself).
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.
