British banks are increasingly dumping the accounts of financial technology firms, charities, small businesses, and foreign nationals to reduce the cost of complying with tougher capital and regulatory requirements, according to a study commissioned by the Financial Conduct Authority (FCA).
The study conducted by consultancy John Howell & Co for the FCA revealed that the changing financial landscape has led many banks to review their business, and often resulted in them choosing to focus on their core business. The de-risking practice seems to take a bigger toll on small businesses compared to larger ones.
The report says that two unnamed large UK banks are shutting down as many as 1,000 personal accounts and 600 corporate accounts to mitigate risks.
Banks also considered various benefits and costs of maintaining accounts that are not always associated with the financial crime risks of the customer that includes the credit risk presented by the customer and the profitability of a relationship.
Commenting on the findings, FCA said: "It is important that banks retain flexibility in setting up appropriate systems and controls to ensure they comply with legislation as well as in making commercial decisions on whether to provide banking facilities that are consistent with their tolerance of risk. However, banks should not use AML as an excuse for closing accounts when they are closing them for other reasons.
"We note that banks, like all firms, are subject to competition law, in particular the prohibitions on anticompetitive agreements and abuse of market power contained in the UK Competition Act 1998, and in the Treaty on the Functioning of the European Union. They should be mindful of these obligations when deciding to terminate existing relationships or decline new relationships."