In November 2023, the Telegraph published a story entitled, “Nigel Farage helps get new word into the dictionary”. The word in question? Debanking.
Whether you call it “debanking”, “de-banking” or “de-risking”, being unexpectedly deprived of a bank account is a major hassle. So, how common is it, and what options do you have if it happens to you?
What is debanking?
Nigel Farage’s exit from Coutts last year made headlines after it triggered a legal battle, plus a renewed focus on the power of the banking sector. But what is debanking?
Quite simply, it’s when high street banks – some would say rather abruptly – close individual and business bank accounts, citing (or not) reasons like “risk appetite”, “KYC concerns” or “outside of business strategy”.
Why are clients getting debanked?
A simple answer to this question is unclear, but according to data published in a Guardian article last summer, banks close roughly 1,000 accounts every day. Having worked in the banking sector for nearly two decades and having seen some of these trends up close, my money is on the following “supposedlies” (if that’s even a word!).
Reason 1: You're seen as a money-laundering risk
Banks have been under intense pressure to invest more capital into building AML platforms that adhere to PRA/Basel-III guidelines, so they’re increasingly sensitive to client activities.
It is my understanding that banks are becoming wary of activities that even remotely appear out of the ordinary or “fishy”, preferring to debank clients rather than provide remedial options.
Reason 2: Your bank has no appetite for international markets
In general, traditional banks are becoming more local rather than global. This is partly the result of persistent regulatory overreach that demands high street banks closely scrutinise their international clients.
I can tell you from personal experience that due diligence around client onboarding and maintenance (KYC/KYB) varies widely between clients, industries, countries and transactions. As a result, large banks have become very averse to relatively small clients with global currency exposure. Instead of examining each case closely, they take a cookie-cutter approach: if you don’t fit into a neat box, you could find it very hard to open an account – or get debanked later.
Banks often fall back on a strategic statement like “the best solution for every citizen in X country” – and if you’re not based in that country or a pedigreed business owner, you risk losing your account.
Reason 3: You're a high-risk/low-reward client
Banks, like other businesses, chase profits aggressively, which can make it difficult to scale and maintain a healthy client base at the same time. As a result, many pursue a risk-versus-reward approach to client acquisition.
Let’s look at a practical example of that in action. Imagine you’re a high-net-worth individual (HNWI), and you’ve made the news because your company has accepted funds from a supposedly questionable source. In that scenario, banks will put you into a high-risk account ecosystem that requires additional oversight, documentation and enhanced transaction monitoring. And if you don’t leave enough money on the table, banks will, for lack of a better phrase, offboard you.
Now, if you run a financial institution, this will seem like a fair strategy. After all, why take that risk? Unfortunately for the human beings who depend on their services, many banks have lost their client-centricity and become increasingly inflexible, taking a cut-and-dried approach to closing accounts.
Reason 4: Your bank is facing intense regulatory pressure
Banks face consistent pressure from regulators worldwide to follow guidelines that require them to deploy profit margins and working capital to safeguard shareholder investments and, ultimately, client interests.
As a result, banks cannot take on more clients that require additional due diligence. They simply don’t want to invest in the extra resources. Banks want simple businesses that make them money and are satisfied with chatbots and other customer service technologies instead of real human support.
Debanking: The verdict
In my opinion, debanking is likely to endure in the financial world. Collectively, the following points mean traditional banks won't necessarily have to change their offboarding tactics.
The rise of BaaS (Banking as a Service)
Banking as a Service (BaaS) is a big win for banks. They can aggregate flows and only have to deal with a single counterparty while automating things like customer service.
De-risking via collaboration
Alternative banking has taken off in the past few years because banks have begun collaborating with fintechs that follow their KYC requirements, reducing risk and offering them working capital and loan options.
Widespread digitisation
Digitisation is gaining momentum across industries and societies. While regulators are beginning to support digitisation, banks struggle to decouple from traditional approaches.
Increased regulatory freedom for fintechs
Payments, lending and currency-exchange regulations worldwide are being liberalised to include alternative banking providers, which are increasingly accepted as viable substitutes for traditional banks.
What are your options?
Many countries currently do not have debanking regulations. Because of this, banks have an almost unfettered right to terminate relationships for ambiguous reasons without offering their clients opportunities to stay on board.
If you are being debanked, here are your immediate options.
1. Find an alternative
This may be easier said than done, but finding a banking alternative might be the only way to ensure your business or personal transactions don’t stop. One solution is an FCA-authorised fintech like Interpolitan Money.
Here at Interpolitan Money, we support debanked clients by opening business and personal accounts in as little as five working days. Account onboarding happens online and includes an enhanced due diligence video call with our compliance officer.
Because we’re a fintech rather than a traditional bank, we have a higher risk appetite and can offer stable alternative banking solutions for a wide range of non-traditional businesses. You can read more or apply for an account by clicking here.
2. Seek a legal recourse
The legal route is a long, drawn-out battle which, in my experience, is not only time-consuming but also doesn't come with a guarantee of success. However, you may be able to reassure your bank by providing it with a letter of reference from a reputable law firm, which may help satisfy the bank’s due diligence procedures.
3. Create a “Plan B”
As a business, you can open multiple accounts – one with a traditional high street bank and another with a fintech like Interpolitan Money. By doing this, you reduce the risk of being debanked.
Hedge against debanking with Interpolitan Money
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