Small and medium-sized enterprises (SME) are being ‘debanked’

Small and medium-sized enterprises (SME) are being ‘debanked’

The Treasury Committee has ‘condemned unfair de-banking of legitimate businesses’ and are highly critical of ‘substandard processes’ taken by banks.

A recent report has advised that in the last year more than 140,000 SMEs have been ‘debanked’ with the majority advising that they received no warning. Subsequently the committee is calling for the Financial Conduct Authority (FCA) to force banks to be more transparent about the process they go through when de-banking a company, and that the whole system needs to be overhauled.

The report contained a breakdown of closures of SME accounts by banks, led by:

• Barclays (78,750)
• HSBC (25,395)
• NatWest (20,400).

The Banks cited fraud and financial crime, as well as a failure to comply with information sharing under ‘know your customer’ regulations as the main reasons for account closure in the overwhelming majority of cases. However, three banks (NatWest, Santander and Barclays), cited ‘risk appetite’ as another reason for the closure of some accounts.

The FCA must provide clearer instructions on the use of ‘risk appetite’ and ‘reputational risk’ criteria. SMEs conducting legal operations must have access to banking services and banks should not be able to use risk appetite assessments to close accounts.

The economic secretary to the Treasury has advised that legislative changes were being worked on ‘in the form of a statutory instrument’, and that this is expected by the summer of 2024.

With SMEs making up for over 99% of the workforce the report said that ‘access to finance for SMEs must not be jeopardised further.’

The report also called for the government to find a way to support the 55,000 SMEs currently served by the Business Banking Resolution Service (BBRS).