Debanking is emerging as a genuine worry for many growing businesses – so banks need to step up
In the last year, a new word has crept into the UK business and political lexicon: de-banking. Although it has quietly been an increasingly worrisome issue, de-banking only really came to prominence in the UK in 2023 in the wake of a mini-scandal that involved a well known politician. In addition to costing the chief executive of one of the UK’s leading bank their job, it also brought to attention how some banks are withdrawing or refusing banking services
Wrong kind of customer
First, the scandal. Nigel Farage is perhaps best known as the leading proponent of the UK’s decision to leave the EU in 2016. Not surprisingly, being the leading advocate for Brexit, Farage had become something of a lightning rod – lionised by some, loathed by others.
So when he discovered that his account at leading private bank Coutts (owned by NatWest) was being closed, Farage used a Data subject access request (DSAR) to obtain a 40-page dossier from Coutts to understand why. The request revealed that Coutts’ reputational risk committee had accused him of “pandering to racists” and being a “disingenuous grifter”.
It concluded his politics were “at odds with our position as an inclusive organisation”. The episode cost both Coutts and its parent group, NatWest, their chief executives and a third-party review recommended that NatWest improve its communications with customers over account closures.
A can of worms
But the episode did more than simply put a few noses out of joint; it also shone a light on the growing problem of debanking elsewhere in the economy, and particularly smaller businesses. In short, critics argue that not only are banks refusing service to new customers, but are also closing existing accounts with little warning. And in both instances, the reasons are spurious and arbitrary.
Banks have long argued that the UK’s current Anti-Money Laundering (AML) and Know Your Customer (KYC) regimes have placed on them a growing compliance burden. They say that the threshold for suspicious activity has been lowered and as a consequence the numbers of accounts that either been closed or applications refused has risen.
However, there is growing evidence that many legitimate businesses are having services refused or withdrawn. According to a Treasury committee report into SME finance earlier this year, the practice of closing accounts is growing. During its inquiry, MPs received evidence that ‘More than 140,000 small businesses had been debanked in the last year – often with little to no notice. At least 4,214 of the closures were attributed to ‘risk appetite’ without a clear and consistent definition within the industry.”
This is getting worse. Recent figures show that UK lenders have been increasingly trigger-happy in closing accounts, with almost 350,000 shuttered during 2022—almost eight times more than they closed five years earlier., has been a particular spike in the last year, with the figures released today showing a 44% increase between 2022/23 and 2023/24.
This includes an 81% year-on-year surge in the volume of debanking complaints made by businesses (367 complaints in 2022/23 to 666 complaints in 2023/24).
Banking on reform
The current system is flawed, not only in allowing this to happen, but also failing to offer adequate recourse for those companies affected. While individuals like Farage can use the DSAR system to find out why they been debanked, this does not extend to companies. As a result, most are left completely in the dark as to why the bank has asked them to re-bank. Although a director can make a request, this will only pertain to particulars relating to that individual, not the company as a whole.
We see the impact of this practice up close all the time. We have had a number of clients approach us recently explaining that their banks have undertaken their typical account review of the client’s banking activities, and then subsequently asked the client to re-bank – typically within 30 days. There is no way a client can have another facility operational in that time without extraordinary support or a very simplistic ownership structure.
The knock-on effects of debanking can be catastrophic: Imagine having an established business with a trading history and multiple employees together with future sales contracts signed, only for a banking partner to simply ‘pull the plug’ without consideration or justification.
Banking services are the lifeblood of any business – without them the company simply cannot function – can’t take payments, make payments to suppliers, manage payroll, change currency. It is literally mission critical.
This matters: those in government and business – not to mention the financial sector – who like to trumpet the line that ‘Britain is open for business’ ignore this at their peril. Whether we like it not, business can’t be done without banks. Those banks that fail to engage in this debate – and only one agreed to co-operate with the government’s consultation on the issue (well done, Santander) – will surely find their places in the economic life of the country taken by competitors willing to protect and serve their customers.
Author Paul Beare is CEO of Paul Beare Ltd, which supports the needs of overseas companies setting up and operating in the UK. Paul Beare Ltd is part of the IR Global professional network.