The Treasury Committee is calling on the Financial Conduct Authority to force banks to be more transparent in their decisions to debank small businesses.
A report from the Treasury Committee’s inquiry into the effects of debanking on small businesses found that some have been denied banking services based on the type of work they do, from firms that specialize in defense to small pawn shops.
MPs said the financial watchdog should force firms to send to the Treasury Committee the number of trading accounts they have closed each quarter broken down by reason.
It comes as more than 140,000 small businesses have been unbanked by major lenders in the last year, often immediately and without explanation.
UK lenders have closed more than 140,000 small business accounts, according to official figures.
The number of closures – based on figures from Barclays, HSBC, TSB, Lloyds, Santander, NatWest, Metro and Handelsbanken – has sparked scrutiny over how lenders make decisions to close accounts.
Debanking came into the spotlight last summer after private bank Coutts closed Nigel Farage’s account, raising concerns it was happening to other people and businesses.
A This is Money investigation revealed that dozens of charities, choirs and residents’ associations – many of them considered micro-businesses by the Department of Business and Trade – had their bank accounts suddenly and without explanation closed.
MPs on the Treasury Committee have condemned the unfair debanking of legitimate small businesses.
The Treasury Committee said: ‘The Committee strongly believes that any small business doing legitimate work should be able to access a bank account.
“Members of all parties condemn the debanking of legitimate businesses in several ‘undesirable’ sectors, including defence, pawnshops and amusement machines, where MPs heard that banks have closed or denied accounts based on the nature From his job”.
Dame Harriett Baldwin, chair of the Treasury Committee: “banks and regulators are making a difficult world for small businesses unnecessarily harder”
At least 4,214 of last year’s more than 140,000 closures were attributed to “risk appetite,” even though this has no clear and consistent definition within the industry.
The investigation found that banks do not formally track whether a company’s or industry’s reputation was taken into account when companies were debanked, but instead use “broad terms” to define the reason for closure.
Her Majesty’s Treasury assured the Committee that legislative changes would be introduced to end business debanking in the form of a statutory instrument.
Treasury Committee chair Dame Harriett Baldwin said: ‘There is no hiding the fact that smaller businesses have fallen on hard times in recent years.
‘Unfortunately, what we have discovered throughout the investigation is that there are some cases where banks and regulators are making a difficult world for small businesses unnecessarily more difficult.
‘Banks and regulators can’t wave a magic wand and solve all the problems facing small businesses in this country, but they can certainly do more than they currently do. I hope that banks, regulators and the Treasury take good note of what we have discovered.”
Small business owners left in the dark about debanking
The Federation of Small Businesses said the FCA should require more information from banks to establish the main underlying reasons for closures.
According to the Federation, small business owners should also be given a three-month grace period to find a new supplier if their bank account is to be closed.
Martin McTague, national president of the Federation of Small Businesses, said: “A sudden closure of an account can be devastating, crippling a business and often forcing business owners to use their own money or go into debt to pay for everything, from vital supplies to rent and staff salaries.
‘Small business owners have been left in the dark, with no information about what happened, which, as you can imagine, makes it impossible to appeal or clear up misunderstandings.
‘Instead, they feel abandoned and isolated, with no option to talk to anyone who can help them.
‘Owners of merchant accounts that are under review should be given the opportunity to address any concerns.
«Once a bank has decided to close an account, account holders should be given a three-month grace period to find an alternative provider.
‘The FCA should also require more information from banks to determine the main underlying reasons for such closures, so that we can see if there is a disproportionate impact on customers from certain backgrounds or types of business.
‘We are pleased that the Treasury Committee report recognized the power imbalance between a small business customer and their bank.
‘The FSB has proposed that the FCA should shed light on the extent of debanking, collecting and publishing quarterly data, with defined reasons for each closure, rather than using vague and overly broad categories.
“We therefore strongly support the Committee’s recommendations on improving transparency and consistency.”
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