Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Love him or loathe him, Nigel Farage has an indisputable knack of channelling ill feeling into a consequential campaign. Brexit happened in large part because he tapped into popular resentment about immigration; now the UK — and much of the world — is up in arms about “debanking”, after his own self-publicised removal as a client of Coutts pushed the topic of banks’ closing customers’ accounts up the news agenda.
Debanking may indeed be happening too often, but in most cases it is an understandable response to the riskier world we live in: war, geopolitical tension, poorly controlled immigration and more polarised societies are driving an underground economy of drugs, people smuggling and terrorism.
The UN reckons that as much as $2tn is now laundered globally each year, although the very nature of the activity suggests such figures may significantly underestimate the problem.
The black market in money has long fuelled organised crime, and the US has led the global effort to tackle the problem. From the 1970s onwards, it has passed a series of ever stricter laws on bank secrecy, terrorist financing and know-your-customer requirements that have set the worldwide agenda.
But tighter rules tend to mean louder protests when those affected feel hard done by. And so it is in the UK at the moment, where complaints about being deprived of a bank account are spiralling.
A parliamentary inquiry found in February that eight of the UK’s biggest banks had last year closed the accounts of 140,000 small businesses, or nearly 3 per cent of those banks’ total SME customer base. Last month, the banking ombudsman, which has jurisdiction over customer service shortcomings, revealed a 44 per cent surge in complaints about debanking from businesses and individuals.
The trigger for Farage’s ousting from Coutts was messy. An internal memo had found that his views were “at odds with our position as an inclusive organisation”, a position that sounded unacceptably like politically motivated debanking. At the same time, a decline in his wealth deposited with the bank also diminished his economic appeal as a client, all the more so given his status as a “politically exposed person”, or Pep, which required expensive monitoring. Either way, the case brought particular attention to the broader treatment of Peps. Charities, sex workers and a range of other small businesses have also complained of being debanked in the UK.
A backlash is playing out in the US, too. Earlier this month, Kansas attorney-general Kris Kobach led an initiative by 15 Republican attorneys-general, who wrote to Bank of America about its debanking of a number of non-profit organisations, on the grounds that they constituted — in the words of the bank — “a business type we have chosen not to service”. The letter said this “discriminatory behaviour is a serious threat to free speech and religious freedom, is potentially illegal, and is causing political and regulatory backlash”. BofA said it banked “over 100,000 [US] non-profit organisations affiliated with diverse faith communities”.
A US Treasury report last year expressed concern at the trend of “de-risking” by banks, though it recognised that complex reasons lay behind many decisions to close client accounts.
Some bankers say they feel caught in the middle of efforts by lawmakers and regulators to prevent money laundering on the one hand, while being criticised on the other for managing those risks in a way that curtails services. Getting it wrong can be expensive. In 2019 UBS was hit with a €4.5bn penalty in France, subsequently reduced, while US authorities imposed a $1.9bn penalty on HSBC in 2012. Both cases involved lax anti-money laundering procedures.
Also fraught is the area of ESG-based financial risk assessment. Last year Florida passed legislation that specifically banned ESG factors being used in state-connected investment mandates; banks that used such factors, for example to curtail business with fossil fuel groups, would themselves be blacklisted by state entities or otherwise penalised. Many other states are expected to follow suit.
There may be scope for innovative responses to the financial exclusion that can result from hardline risk assessments. France’s central bank intervenes whenever someone is debanked or cannot access banking services in the first place, for example. Since 1984 it has had the power to instruct a commercial bank to provide a basic service. Money-laundering risks need to be carefully policed, but a safety net of this kind feels like a sensible facility to detoxify the debanking debate.
patrick.jenkins@ft.com
