The wrongful closure of hundreds of bank accounts belonging to defense companies puts national security at risk, Conservative MPs claim.
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Politicians in the UK are concerned about the effects of ‘debanking’ on the country’s security and economic prosperity.
UK lenders Santander and Lloyds closed 300 accounts belonging to “public administration and defense” companies last year alone, according to information given to the Treasury Select Committee.
In a letter featured in the Telegraph newspaper on Wednesday, the Conservative Member of Parliament (MP) Harriett Baldwin warned against the effects of ‘debanking’ on SMEs, pawnbrokers and defense firms.
Some lenders retract their services because they are worried about the ethical implications of working with arms companies, according to senior executives. Bank accounts may also be closed for more mundane reasons, such as inactivity.
“There can be good reasons for closing or denying accounts for businesses, including signs of money laundering or prolonged inactivity, but we found there were still thousands of accounts being closed under the disconcertingly vague justification of ‘risk appetite’,” said Ms Baldwin in her letter.
“It is wrong that banks in this country can systematically debank legitimate firms or industries because their board turns their nose up at their line of work. If their work is legal then they should be able to access a bank account,” she continued.
The debate surrounding ‘debanking’ has intensified in the UK since private lender Coutts closed the account of former Brexit Party leader, Nigel Farage, last year.
Farage obtained documents proving the closure was in part politically motivated. The bank’s memos claimed that his right-wing views of him were “at odds” with the lender’s “position of him as an inclusive organization.”
The incident prompted the resignation of Dame Alison Rose, CEO of Coutts’ owner NatWest, and Coutts’ CEO Peter Flavel.
There has since been an uptick in complaints made to the UK’s financial ombudsman service about bank account closures that are considered to be unfair.
Figures published at the end of last month showed individuals and businesses made almost 3,900 of these complaints, an increase of 44% compared to the previous financial year.
In March, the UK parliament proposed a draft law to protect customers against ‘debanking’.
It states: “The government has been unequivocal in its view that customers should not see a payment service terminated on grounds relating to their legal freedom of expression.”
If the proposed bill is passed, lenders will have to give customers three months’ notice and an explanation before closing their accounts.
This won’t apply to customers who are denied services because of anti-money laundering or anti-terrorist-financing safeguards.
Speaking of the closure of accounts belonging to defense firms, Ms Baldwin argued that the trend was weakening Britain’s defense capabilities by slowing down defense procurement.
This was a sentiment supported by the former chairman of the Commons defense select committee, Tobias Elwood.
“Let’s not allow well-intentioned ESG standards to jeopardize our defense capabilities in a dangerous world – it’s time to get this sorted,” he said.
ADVERTISEMENTMs Baldwin stressed that ‘debanking’ was also harming economic growth by undermining the financial capacities of SMEs.
In February, a parliamentary inquiry found that 8 of the UK’s biggest banks had last year closed the accounts of 140,000 small businesses, or nearly 3% of those banks’ total SME customer base.
