UK customers being debanked over costs and reputation worries, MPs say

UK banks could be wrongly labelling customer accounts as a fraud risk to cover up concerns about costs and their reputation, a group of MPs have argued in a study into debanking.

Some customers are being “wrongly categorised” and left in the dark when their accounts are shut down unexpectedly, they said.

The report, produced by the All-Party Parliamentary Group on Fair Business Banking, argued that banks are more driven by profit and reputation, rather than tackling financial crime, when they decide to debank a customer.

It means that certain ethnic, industry or political groups are being “frozen out” of the UK’s banking system, the group said.

This is because their accounts can be problematic for a bank if they are perceived as higher risk, such as cryptocurrency firms, jewellers, bookies and politicians, according to examples given by the MPs.

The group also argued that reputational risks have become of “paramount importance” for the banking sector, in some cases over and above financial crime.

Figures from the Financial Conduct Authority (FCA) show that there were around 185,000 accounts closed in 2022 to 2023 due to financial crime reasons, up from about 72,000 in 2017 to 2018.

Banks said the reason for the rise is that they are getting better at identifying a potential crime, helped by advancements in automation and artificial intelligence (AI) technology.

“This is unlikely to be the full story though,” the MPs argued.

“Too many banks remain open to banking high value customers even when there is a suspicion of economic crime.

“At the same time there is growing evidence that banks may be wrongly using the label of economic crime to offload customers merely because they represent little or no profit for the bank.”

MP William Wagg, the co-chair of the All-Party Parliamentary Group, said that having a bank account “is an essential part of modern living and needs to be viewed as akin to utility, like water or electricity”.

The parliamentary group also called on the financial regulator to do more to make sure that people are not being debanked for the wrong reasons.

A spokeswoman for the FCA said: “Under the law, banks and building societies can make commercial decisions about which customers they serve.

“We have said before that it might be time to look at whether all individuals, businesses and organisations should have the right to an account but it would be for the Government and Parliament to legislate for that.

“Within our remit, we are clear that banks should treat individual customers fairly and act proportionately to tackle financial crime. If we find firms are not doing that, we will act.”