More than 140,000 small business accounts were ‘debanked’ last year

Big banks closed just under 142,000 UK small business accounts last year, according to the Treasury watchdog, as MPs raise questions over lenders‘ reasons for “debanking” risky customers.

The Treasury Committee found that eight major banks closed nearly three per cent of 5.3m small and medium-sized business (SME) accounts between them in 2023.

MPs cited figures provided upon request from Barclays, HSBC, TSB, Lloyds, Santander, Natwest, Metro Bank and Handelsbanken.

Common reasons given by the banks for the account closures included risk appetite, a lack of information sharing and financial crime concerns.

Banks often use the latter reason to explain why they can provide little to no information to consumers on why their accounts are being closed – as the law prohibits them from “tipping off” criminals.

However, the all-party parliamentary group on fair business banking argued in a separate report last week that banks were closing accounts mainly due to cost and reputation, rather than clamping down on financial crime.

The Treasury Committee said three of the eight banks listed a total of 4,214 closures explicitly under “risk appetite”, although categorisations differed between lenders. Barclays used six categories, while TSB had two.

“Our committee believes that any company engaged in a legal business activity in the UK should be able to find a bank to offer them a bank account,” said Conservative MP and committee chair Harriett Baldwin.

“The fact that only three lenders included ‘risk appetite’ in their criteria indicates these discussions may not be systematically recorded – leaving questions over whether decisions on the debanking of certain businesses, based on what banks perceive as a risk, are happening informally.

“We can see from these figures that thousands of small businesses fall foul of their bank’s risk appetite definition, leaving them without access to a bank account. I hope publishing this data can aid scrutiny
of the decisions taken by banks and help to ensure legitimate businesses are not being unfairly treated.”

HSBC said around two-thirds of the 26,000 UK business accounts it closed to last October related to customers’ “financial viability” or the accounts being dormant.

A Treasury spokesperson said: “We are taking action on debanking and remain committed to legislation – forcing banks to explain and delay any decision to close an account under new rules, protecting freedom of expression.

“Changes will include increasing the minimum notice period for terminations to 90 days and will require payment service providers to offer clear reasons for terminating accounts – giving customers more time to challenge a decision through the Financial Ombudsman Service or find a replacement bank.”

A spokesperson for banking trade body UK Finance said: “A small proportion of accounts are closed, and if this happens the main reasons are financial crime or fraud concerns, being unable to complete customer due diligence or an account being dormant. This is also what the FCA found when they looked at the issue last year.

“If a bank does have to close an account, this only happens after extensive review and investigation, with firms making significant efforts to contact customers to complete due diligence first.”

City minister Bim Afolami is set to appear in front of the Treasury Committee on Wednesday for the final evidence session in its inquiry into SMEs’ access to financing.