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Roula Khalaf, editor of the FT, picks her favorite stories in this weekly newsletter.
Whether you love him or loathe him, Nigel Farage has an undeniable talent for channeling negative feelings into a campaign with consequences. Brexit came about in large part because it exploited popular discontent over immigration; Now the UK – and much of the world – is in uproar over “debanking” after his self-announced resignation as a Coutts customer brought the issue of banks closing customer accounts into the news agenda.
Debanking may indeed happen all too often, but in most cases it is an understandable response to the riskier world we live in: war, geopolitical tensions, poorly controlled immigration and more polarized societies fuel an underground economy of drugs, people smuggling and terrorism Ahead.
The United Nations estimates that up to $2 trillion is laundered worldwide each year, although the nature of the activity suggests these figures may significantly underestimate the problem.
The black market in money has long fueled organized crime, and the United States has been leading global efforts to address the problem. Since the 1970s, a series of increasingly stringent bank secrecy, terrorist financing and know-your-customer laws have set the global agenda.
However, stricter rules tend to lead to louder protests if those affected feel disadvantaged. And so it is at the moment in the UK, where complaints about de-banking are on the rise.
A parliamentary inquiry found in February that eight of Britain’s largest banks had closed the accounts of 140,000 small businesses last year, representing almost 3 percent of those banks’ total SME customer base. Last month, the banking ombudsman, which oversees customer service deficiencies, reported a 44 percent increase in complaints about debanking from businesses and individuals.
The catalyst for Farage ousting Coutts was chaotic. An internal memo noted that his views were “contrary to our position as an inclusive organization,” a position that sounded unacceptably like politically motivated debanking. At the same time, the decline in his assets invested with the bank also reduced his economic attractiveness as a customer, especially since he was considered a “politically exposed person” (Pep) and required extensive monitoring. In any case, the case has drawn particular attention to the broader treatment of Peps. Charities, sex workers and a range of other small businesses have also complained about being debanked in the UK.
There is also a backlash in the USA. Earlier this month, Kansas Attorney General Kris Kobach led an effort by 15 Republican attorneys general who wrote to Bank of America saying it had debanked a number of nonprofits on the grounds that they constituted them – in the In the words of the bank – “a type of business that we do not want to serve”. The letter states that “this discriminatory behavior poses a serious threat to free expression and religious freedom, may be illegal, and will provoke political and regulatory backlash.” BofA said it deposited “over 100,000.” [US] non-profit organizations belonging to different religious communities”.
A U.S. Treasury Department report last year expressed concern about banks’ “derisking” trend, although it acknowledged that there are complex reasons behind many decisions to close customer accounts.
Some bankers say they are on the one hand in the middle of efforts by lawmakers and regulators to prevent money laundering and, on the other hand, criticized for dealing with these risks in a way that limits services. Getting it wrong can be costly. In 2019, UBS was hit with a €4.5 billion fine in France, which was later reduced, while US authorities fined HSBC $1.9 billion in 2012. Both cases involved lax anti-money laundering procedures.
The area of ESG-based financial risk assessment is also difficult. Last year, Florida passed a law that expressly prohibits the use of ESG factors in state-related investment mandates. Banks that use such factors to restrict business with fossil fuel companies, for example, would themselves be blacklisted or otherwise punished by government authorities. Many other states are expected to follow suit.
There may be scope for innovative responses to the financial exclusion that can arise from rigorous risk assessments. The French central bank intervenes whenever someone loses their bank account or has no access to banking services at all. Since 1984 it has been authorized to commission a commercial bank to provide basic services. Money laundering risks need to be carefully monitored, but a safety net of this kind seems a sensible way to detoxify the debanking debate.