Unlock the Publisher’s Digest for free
Roula Khalaf, editor of the FT, selects her favorite stories in this weekly newsletter.
More than 140,000 businesses had their accounts closed by the UK’s biggest banks last year, according to figures published by a parliamentary committee on Tuesday.
Among the reasons given by lenders for closing the accounts of small and medium-sized businesses were concerns about financial crime and fraud, customers’ failure to provide requested information and banks’ risk appetite.
The closures equate to around 2.7% of the 5.3 million accounts held by SMEs at the eight banks that provided data to the House of Commons Treasury Select Committee as part of an inquiry into small business access to financing.
The banking sector has come under increasing scrutiny over account closures following the controversy over the “debanking” of politician Nigel Farage in July, which led to the resignation of NatWest chief executive Dame Alison Rose.
The incident has led to broader questions about why banks close the accounts of individuals and small businesses. In December the Treasury committee asked lenders to declare how many SME accounts they hold, the number of closures in the last year and the reasons behind them.
The figures are based on responses received from the big four UK banks – Barclays, HSBC, Lloyds and NatWest – as well as Handelsbanken, Metro, Santander and TSB.
All banks cited financial or economic crime issues as a reason for closing accounts, but some did not separate this category from cases where customers had not passed all due diligence checks, making it difficult to compare data from different institutions of credit.
NatWest said 97.1% of SME account closures occurred because of “concerns about financial crime or fraud, or because of NatWest. . . be unable to comply with its regulatory obligations by continuing the [customer] relation”.
HSBC said nearly two-thirds of closures related to customers’ financial strength or dormant accounts, with only 34% linked to concerns about financial crime, such as money laundering.
Only three of the eight banks – NatWest, Barclays and Santander – provided account closure figures relating to their “risk appetite” at 1.4%, 4.8% and 10.2% respectively. Santander’s figure, however, included accounts closed for “non-compliance with policy”.
Harriett Baldwin, the commission’s Conservative chair, said: “The fact that only three lenders included ‘risk appetite’ in their criteria indicates that these discussions may not be systematically recorded, leaving questions about whether debanking decisions of some businesses, based on what banks perceive as a risk, are happening informally.”
The committee believes that “any company engaged in legal business activity in the UK should be able to find a bank that offers them a bank account,” it added.
Martin McTague, national president of the Federation of Small Businesses, said the scale of account closures revealed by the committee was “very concerning”.
It called for the Financial Conduct Authority regulator to publish data quarterly “with appropriately defined reasons for each closure so that meaningful comparisons can be made and monitored over time”.
In recent months SMEs have raised wider concerns about their treatment by banks. In December, the FSB lodged a complaint with the FCA alleging that banks were unfairly requiring directors of its members to provide personal guarantees for business loans.