Watchdog’s Farage-inspired ‘de-banking’ review reveals a million adults have no current account
Not a single account was closed in the past year primarily due to a customer’s political views, an initial review by the Financial Conduct Authority (FCA) reveals. But data supplied by brands has thrown a surprise spotlight onto basic bank accounts and the “higher than expected” 1.1 million adults without a current account.
The regulator said, based on information supplied by banks, building societies and payments companies, no firm closed an account between July 2022 and June 2023 primarily because of a customer’s political views.
Indeed, regulations ban firms discriminating on this basis, and when credit institutions and payment firms provide any service, they’re not allowed to discriminate on the basis of race, sex, religion and other protected characteristics as part of equalities legislation.
However, the Nigel Farage de-banking fiasco suggested he had been dropped from Coutts – part of the NatWest Group – due to his political views. However, the banking brand maintained his accounts were closed because he wasn’t ‘wealthy enough’, with this revelation by the former CEO Alison Rose to a BBC journalist making the headlines.
It later transpired the bank noted a “reputational risk” in having Brexit campaigner Farage as a client, and flagged concerns over his political views. Rose resigned, the BBC apologised over the misleading report and the Government even stepped in. It implemented an increased minimum notice period before accounts are terminated (from 60 to 90 days) to increase transparency when it comes to accounts being terminated.
The FCA also initiated a preliminary review in August 2023 “recognising the increased public concern about payment accounts being closed without fair justification”.
However, it noted that UK law doesn’t include a universal right to a bank account for individuals or businesses, and cited “tension in financial systems between risk management and access”.
The FCA report read: “As long as they comply with the relevant rules and legislation, firms can decide whether to provide a payment account based on commercial and risk factors”.
It asked 34 firms to provide information on the number of accounts terminated and suspended (both personal and business); the number and type of consumers declined accounts; the reasons for these decisions, and complaints received on this issue between January and June 2022, July and December 2022, and January to June 2023.
What did the FCA’s bank account access and closure review reveal?
There were four cases and four complaints relating to ‘expression of political or any other opinions’ as the reason for the account closure or complaint. But when the FCA delved further, this wasn’t the primary reason, rather customer behaviour, such as racist language directed at staff.
For personal accounts, in the period from July 2022 – June 2023, firms in the centre of the range reported declining between 0.1% and 6.7% of applications, suspending between 0.1% and 2.3% of accounts, and terminating between 0.2% and 3.4% of accounts.
By far, the most common reasons for closing, suspending or declining an account was because it was inactive/dormant or because there were concerns about financial crime.
The FCA noted there were 3.7 million incidents of fraud in England and Wales in the year ending December 2022, making up 40% of all crimes in those nations.
Authorised Push Payment (money transfer) scam losses totalled £485.2m in 2022 according to UK Finance, while the National Fraud Database reported 409,000 cases of fraudulent conduct in 2022. Meanwhile CIFAS members prevented more then £1.3bn of fraud losses in 2022.
“Given these figures and trends, it is understandable that credit institutions’ financial crime alerts and reports of suspicious activity are increasing in volume”, the FCA stated.
However, it added: “In some instances, the way firms have responded to money laundering and other financial crime risks has led to problems for legitimate customers accessing accounts or other banking services. This is often called ‘de-risking’ (or sometimes ‘de-banking’).
“Banks have told us that this helps them comply with their legal and regulatory obligations in the UK and abroad. However, we are clear that effective money-laundering risk management need not result in wholesale de-risking.”
Basic bank accounts and customers without a current account
The findings also shone a spotlight on basic bank accounts (BBA) and the number of people without a current account.
BBAs were introduced in 2016 as a ‘safety net’ for individuals who might not otherwise be served by standard current accounts because, for example, they have poor credit history or low incomes. Currently nine of the largest credit institutes must provide a BBA to eligible UK personal customers, with these accounts coming without fees, charges or an overdraft.
There are 53 million adults in UK and 50.8 million have a current account from a bank, building society or credit union.
There are 4.1 million using a BBA as their main day-to-day account – that’s around 8% of all adults with current accounts.
According to the FCA’s latest Financial Lives Survey, there are 2.1% of UK adults (1.1 million) who do not have a current account (‘unbanked’). While this is down from 2020 (2.5%, 1.2 million), the FCA said this may be an underestimate due to the demographic features associated with being unbanked as they’re harder to reach and less likely to respond to surveys.
Those aged 18-24 are twice as likely to be unbanked (4% compared to 1.9% for those over 25 years old) and account for one in five (21%) of all unbanked. There’s a strong link to deprivation, with adults in the most deprived areas (3.6% unbanked) being six times as likely to be unbanked as those in the least deprived areas (0.6% unbanked).
It is also higher among some groups, including Muslims (10%), those who are long-term sick, temporarily sick, looking after the home, or carers (7%), those with no educational qualifications (7%), those for whom English or Welsh is not their first language (7%) and Asian and Asian British (6%), as well as those with learning difficulties (6%).
Further, the number of unbanked people is higher in some regions: Southern Scotland (6%), Outer London West and North West (5%), Greater Manchester (4%) and West Midlands (4%).
The FCA said given the availability of BBAs, “the number of people currently without an account is, on the face of it, higher than we would expect”.
Its report read: “Although we can point to some successes in increasing access to the banking and payments system, the picture on unbanked consumers is mixed and we are not complacent. We remain focused on those consumers who still do not have access to an account, not least because many of them are in vulnerable circumstances too. This requires action by a range of partners beyond the FCA as regulator.
“So, we will commission further work to try to understand some of these underlying and interrelated issues about unbanked consumers, including credit institutions’ provision of BBAs.”
Nikhil Rathi, FCA chief executive, added: “The time is right for a debate on how we balance access to bank accounts with the threat of financial crime, as well as firms’ reasonable risk and commercial appetites. An important question for policy makers is whether all individuals, businesses and organisations should have the right to an account, as is the case in some other countries.”
It will undertake further work, including:
- Further follow-up to provide assurance of the accuracy of the data reported to it
- Additional supervisory work to be sure of firms’ conclusions on accounts closed for political reasons and closer analysis of accounts closed for reasons of reputational risk
- Further review of declined applications for and terminations of basic bank accounts
- Further research into the reasons why 1.1 million people in the UK are unbanked and the characteristics of this population
- Engagement with consumer groups and organisations to understand their experiences and impact of account declines, terminations and suspensions where these are within our regulatory remit
- A financial inclusion sprint in Q1 2024 focussed on improving consumer access to financial services.