FCA chief: Many questions remain around ‘de-banking’

Receive free Financial Conduct Authority UK updates

We’ll send you a myFT Daily Digest email rounding up the latest Financial Conduct Authority UK news every morning.

The writer is chief executive of the Financial Conduct Authority

It’s rare for the most unassuming but vital of financial products, the bank account, to make news. But this summer, reports that banks were closing accounts based on their customers’ political beliefs prompted public concern — understandably so.

The law is clear: banks or building societies cannot discriminate against personal account customers based on their lawfully expressed political views. Yet stories proliferated about people whose accounts were closed or who were denied one in the first place — from a parental rights group to those from religious minorities, shooting associations and defence companies. 

What started as murmur became a chorus, seeming to imply that every person and every business should get the account of their choice, regardless of financial crime checks or the commercial interests of the bank in question. 

So-called de-banking is not new. The Financial Conduct Authority looked at it in depth in 2016 and set out ways to lessen the impact on customers. But in the face of widespread concern, we decided to revisit the issue. 

So far, data from 34 banks, building societies and payment companies does not point to a systemic problem of people being de-banked because of their political views. According to that information it has not been the primary driver for any personal account closures. We will undertake further checks to be doubly sure and to understand more about what are described as “reputational” factors behind a number of closures. 

These may well be legitimate. There are banks who have long declined accounts to businesses that conflict with their company’s policies. But reputational criteria should not be stretched too far. 

What our work has shown is that financial crime and banks’ tolerance for risk are the main causes of closure for actively used accounts. That’s why we need an open conversation about getting the balance right. 

In the face of rising financial crime, the FCA is working with the government and others to clamp down on the misuse of financial services. There is a risk, however, that as parliament introduces measures such as a new offence of failing to prevent fraud, banks err on the side of caution. 

Conversely, we’ve seen innovative payment companies grow fast, as part of the UK’s burgeoning fintech scene, but then retreat and offload customers. Do we want to slow that growth or take a bolder approach to risk? 

Other countries face the same challenge. The US, for instance, has begun a discussion about how to ensure financial crime controls don’t impede access to services. 

New powers and technological change may help. The UK’s online safety bill will potentially require social media and tech platforms to do more to protect people from scams. Would it also be fair for them, like banks, to compensate consumers who have been defrauded?  

A secure and trusted digital identity, already in use successfully in India and Sweden, is another tool. More reliable data and greater proactivity on fraud checks from Companies House, also being debated in parliament, would help. And harnessing the power of artificial intelligence could be a game-changer, so long as it doesn’t result in a blanket “computer-says-no” approach. 

Our report throws up broader questions, too. We will do more, for example, to understand how different customer groups are affected. We are already reviewing the treatment of people who exercise prominent public functions. Expatriate Britons are also significantly affected and do not benefit from the same protections as UK residents.

Businesses, charities and their trustees, and political parties seem more likely to have accounts refused than individuals. But they have no legal right to an account. Only government and parliament can change that. 

More than a million people in the UK don’t have a bank account. Since 2016, nine banks and building societies must provide basic accounts. But in other countries access to one is a right, including for businesses.  

Has a bank account today become more of an essential utility than a commercial service, and if so should it be treated as such? Who should bear the costs if we move to an effective universal service obligation? 

If we are to end the phenomenon of de-banking then those questions — together with how we balance risk, innovation and commercial freedom — urgently need to be answered.