You hear the letterbox snap shut and head into the hallway. There, on your doormat, sits an envelope from the bank. Inside it, you find a brief letter explaining that your account has been closed, plus a cheque for the account balance.
You're bewildered: why has this happened? What should you do now?
Unfortunately, you’ve just been debanked – and you’re not alone. According to the Financial Conduct Authority’s (FCA) own figures, banks closed more than 343,000 accounts in 2021-2022 – over 1,000 every business day. That’s a huge 729% increase from the number of account closures in 2016-2017.
Last summer, after several high-profile account closures, the FCA began investigating why banks were offboarding customers. Earlier this year, the Treasury Committee SME Finance inquiry found that 2.7% of small businesses had been debanked in 2023, losing access to more than 140,000 accounts in the process.
In this article, we’ll explore the results of both investigations, provide helpful insights and explain what to do if you’ve been debanked or are at risk of losing your account.
Businesses left in the lurch
While a business bank account isn’t legally required to run a company in the UK, it's certainly best practice. Having a business bank account makes you look professional, reassuring customers of your legitimacy and trustworthiness. A business account also separates personal from company finances, which can help protect your assets and make tax time easier.
So, it follows that losing a business bank account means you forfeit all these advantages, sometimes very suddenly. If debanking happens without warning, you might not have any time to prepare for change, which is even more inconvenient – and if you have employees or suppliers to pay, this can feel catastrophic.
Why are banks offboarding clients?
At first glance, recent headlines seem to suggest that individuals and businesses are debanked unfairly. However, in September 2023, the FCA investigation concluded that banks had not denied service or shut accounts based on their clients’ political beliefs.
So, why does debanking happen?
The answer to that question is complex. Banks offboard clients for many different reasons, including low account use, account misuse, unresponsiveness and suspected fraud. Sometimes they also take a risk-versus-reward approach to politically exposed persons (PEPs) because of the expensive enhanced due diligence required to keep PEP accounts open.
Eight major institutions took part in the Treasury Committee inquiry: Barclays, Handelsbanken, HSBC, Lloyds, Metro, NatWest, Santander and TSB. All of them justified debanking on numerous grounds, including financial crime concerns, businesses not meeting verification requirements and lack of information-sharing.
In 4,214 cases, three of the banks listed “risk appetite” as the reason for account closure. Taken at face value, this seems like a low number – but some industry experts believe it hints at a less formal assessment mechanism for debanking.
What is risk appetite?
From a financial perspective, “risk appetite” means the amount of risk a bank is willing to take on behalf of a client. Unfortunately, there’s no universal strategy or legal framework for risk appetite in the financial sector. All banks must adhere to anti-money laundering and counter-terrorist financing laws, but beyond that, risk appetite varies between institutions.
There is some evidence to suggest that banks have become more risk averse in the wake of new Prudential Regulation Authority (PRA) rules based on Basel III standards, which came into force in January 2022. Designed to make banks more resilient, these incoming rules may also have triggered a review of risk appetite at many major organisations, leading to the account closures seen in 2021–2022.
Unfortunately, banks don’t make their risk appetites public, so there’s no easy way to check if you’re likely to be debanked (or accepted as a client in first place). However, there are several factors that can make it hard to open or keep a bank account, including:
Being a PEP, or someone related to or associated with a PEP.
Doing business with partners in high-risk countries.
Large transactions that trigger additional due diligence.
Going forward, banks may face continued scrutiny from the FCA, HM Treasury and other official bodies as they investigate services provision in the industry. In the meantime, there are things you can do to minimise the chances of being debanked or recover if you’ve lost your account.
How to reduce the risk of debanking
If you’re a politically exposed person
Politically exposes persons (PEPs) are people whose influential positions make them vulnerable to corruption. Heads of state, ministers, members of parliament (MPs), ambassadors, bank board members, high-level members of the judiciary and other prominent individuals are all considered PEPs.
Banks often also place relatives and close associates of PEPs in the PEP-by-association category.
Because PEPs are more likely to be targeted for bribery and other forms of financial crime, banks apply extra oversight, called enhanced due diligence, to PEP accounts. Over time, this can cost banks a lot of money.
If you’re a PEP, you can reduce your risk of being debanked by cooperating fully with your bank and responding for requests for information as promptly as possible. The fewer reasons your bank has to worry, the more likely it is that you will retain access to your business or personal account.
If you do business with partners in high-risk countries
Global commerce is part of modern life – and if you operate an international company, you may trade with partners in high-risk third countries from time to time. Unfortunately, these transactions will almost certainly trigger enhanced due diligence, especially if they occur regularly.
Again, one of the best ways to keep your account in good standing is to be an “open book”. Perform due diligence on all partners in high-risk third countries, and if your bank asks for information about a transaction, provide it as soon as you can.
High-risk countries for anti-money laundering (AML) and counter-terrorist financing (CTF) appear on two Financial Action Task Force (FATF) lists:
High-Risk Jurisdictions subject to a Call for Action: Also known as the FATF “black list”, this identifies countries with serious deficiencies in AML and CTF strategy.
Jurisdictions under Increased Monitoring: Also called the FATF “grey list”, this identifies countries that are actively working with FATF to solve AML and CTF strategy issues.
To find out more and view both lists, visit the FATF website.
If you make large or unusual transactions
Large or otherwise unusual transactions raise flags at the bank – especially if they're made between between unrelated parties. In other words, if you send a lot of money to someone you haven’t previously associated with, the bank will take notice and perform due diligence to make sure the transaction is legitimate.
If you know you need to send a large sum to a new individual or company, it’s sensible to let your bank know beforehand. Then, if you’re asked for documents to support the payment, send them promptly. Similar advice applies if you expect to receive a substantial payment or a series of larger-than-usual deposits.
What to do if you’re debanked
Most of the time, banks give clients at least two months’ notice before closing accounts. However, if they suspect fraud, they may offboard account holders immediately and without explanation.
In any case, losing access to your business or personal bank account can be disruptive and distressing. If you’re debanked, here’s what to do next.
1. Contact your bank
If you believe there’s been a misunderstanding, get in touch with your bank as soon as possible and explain why you believe your account should stay open. The bank may decide to review your case and reopen your account, but if they don't, you can make a formal complaint.
2. Complain to the Financial Ombudsman Service
After making a formal complaint with the bank, you’ll need to wait eight weeks before escalating your concerns to the Financial Ombudsman Service (FOS). If you don't receive a reply from the bank, or you’re unhappy with the remedy offered, you can ask the FOS for help.
3. Open a new account
You don’t need to wait for the complaints process to conclude before opening another account. One option is to choose an alternative banking provider instead of another traditional bank. Taking this approach can help you spread risk, even if your original account gets reopened.
Some alternative providers have a higher risk appetite than high street banks, which can work to your advantage if you’re a PEP, collaborate with business partners in grey list countries or regularly send or receive large payments. In those scenarios, an alternative bank account can provide peace of mind and keep transactions flowing smoothly.
Debanking is here to stay
The FCA investigation and Treasury Committee inquiry results clearly show that individuals and small businesses in the UK are at higher risk of debanking than previously thought. While frustrating, the recent increase in account closures may indicate a deep commitment by banks to more stringent AML and CTF laws, which are designed to make the financial sector more resilient and protect consumers in the process.
Many PEPs, international business owners and global travellers maintain more than one account. Opening an account with an alternative provider like Interpolitan Money can strengthen your financial strategy, making it easier to buy property at home and abroad, collaborate with overseas partners and move assets around the globe.
If you’ve been debanked or feel you’re at risk of losing your account, please contact us to find out more about tailored alternative banking solutions. We also work with a range of intermediaries, so if you’re an accountant, family office representative or lawyer working on behalf of a third party, get in touch to learn how we can make life easier for you and your client.
Ready to take control? Learn more about us or open an account today.
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