“UK Treasury watchdog reports that Big banks closed just under 142,000 small business accounts last year…”, as reported in City A.M..
Fact: Big banks have been protected from having to justify sharp practice that misuses laws designed to avoid 'tipping off criminals’, as a tool to whitewash unscrupulous internal policies. Empirical research suggests that a majority of such cases are not in any way related to criminal activity, but stem from arbitrary criteria set by the banks that then use “risk appetite” as a further excuse to exclude customers they deem less valuable when compared to big businesses, for example, or undesirable for political or competitive* reasons.
(*a vested interest in a given business would benefit from a rival business being constrained by lack of access to operating services.)
In reality, the story is even worse than reported: many SMEs have their banking facilities terminated while they still have funds in credit on deposit, which leaves their money locked in a closed account to which they now have no access or recourse. Many cases report that big banks then use lengthy bureaucratic process that make recovery of their credit balances extortionately difficult for SMEs, only to be told by their bank that they will ‘concede to returning a part of their balance’, with no legitimate justification for why the remaining percentage is withheld. In any other industry, this would be called theft.
As Conservative MP and Committee Chair Harriett Baldwin stated: “The fact that only three lenders included ‘risk appetite’ in their criteria indicates these discussions are not be systematically recorded - leaving questions over whether decisions to de-bank certain businesses, based on what banks perceive as a risk, are happening informally”. In other words, these policies and criteria are not set by the regulators but by the big banks themselves.
Positive change: it is possible that banks have been overzealous and adopted disproportionate risk aversion in their decision-making, but any policies that withhold private or commercial assets do require urgent public review and oversight.
Account closures effectively cut off access to basic services that should be a fundamental right and force otherwise legitimate customers to find unregulated alternatives. This in turn spawns the development underground of shadow markets that put everyone at risk of supporting criminal activity. In an effort to counter this trend, Valhalla Network will empower businesses and boost financial inclusion.
We are looking forward to seeing new regulations that will force banks to provide clear reasons for terminating accounts and provide a minimum 90-day notice period to affected businesses. Further controls to ensure transparent and fair practice in recovery of credit balances and a closure process that protects client reputations will also be welcome.
Small, local banks committed to serving SMEs and their communities are needed now more than ever...
Oliver Studd
with thanks to Alex MacDonald-Vitale & Mark Jolly