Insight & Analysis

Debanking, derisking and the costs of banking

Published: Aug 2023

Debanking has become a hot topic in the UK and has highlighted the disruption account terminations can bring to businesses and individuals. The issue has parallels with the derisking in correspondent banking and the unintended consequences of money laundering and know your customer regulations.

Imagine trying to open a bank account and being asked to provide documentation stretching back 18 years. Would you be able to provide it? Probably not. This, unfortunately, is not a hypothetical situation and is the kind of request individuals in the UK have been facing. The issue has come to light as part of the ‘debanking scandal’, the wider implications of which could have a serious impact on businesses and their ability to operate.

Grant Shapps, a Member of Parliament in the UK, recently revealed he was asked to provide 18 years’ worth of payslips before he could open an account. And Jeremy Hunt, the Chancellor of the Exchequer (the UK’s finance minister), was unable to open an account with neobank Monzo because he is also a ‘politically exposed person’ (PEP), a designation that requires additional compliance and anti-money laundering checks.

Such screening is part of the worldwide regulatory agenda to ensure financial institutions are not conduits for the proceeds of illicit activity and serious organised crime. Such checks carry a cost, and some banks are choosing not to take on the risk – or the cost – of banking such customers.

This issue has come to the fore with the case of politician and former Member of European Parliament Nigel Farage, whose account closure spurred a campaign against banks for terminating the accounts of businesses and individuals. Farage was no longer a PEP, and he said his account was closed because of his political views. This, if proved to be the case, would be against Regulation 18 of the Payment Accounts Regulations which make it against the law not to provide a bank account on the basis of religion, race or other protected attributes, like political beliefs.

Since Farage went public with his case, many others have come forward with similar stories, which are a mix of account closures related to PEP status, anti-money laundering rules, and suspected closures based on political beliefs.

Anas Altikriti, CEO and Founder of The Cordoba Foundation and critic of Middle Eastern governments, has been debanked several times for what he suspects are political reasons. He told Sky News: “A bank account is essential as your water supply. Imagine the water company telling you we don’t like your political views so we’re going to stop your water supply.”

According to data garnered by a freedom of information request by the Mail on Sunday newspaper, more than 1,000 accounts are being closed every business day. And this represents an increase from 45,000 account terminations between 2016 and 2017 to a jump of over 343,000 between 2021 and 2022.

Politics aside, this points to the wider issues that are at stake and the balance that needs to be struck between financial inclusion and access to financial services on the one hand, and the need to comply with regulations intended to prevent financial crime on the other.

This has parallels with the derisking that took place among correspondent banks when they reduced the relationships they had with other financial institutions. This came in the wake of some hefty fines, such as BNP Paribas’s US$9bn fine in 2014 for sanctions violations. With such large fines looming over the industry, many banks chose to cut relationships with countries, businesses, and markets they deemed to carry too much risk – or costly to fulfil the regulatory requirements of banking such customers.

On the other side of the equation, the consequences also come at a high cost: account terminations cut people and businesses out of the financial system and can have a serious impact on their livelihoods. While the UK debanking scandal may seem like an issue restricted to a few politicians, the wider implications could affect any business that is deemed to0 risky – or costly – to bank, and an issue that could affect everyone.

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