LONDON (Reuters) - Banks are ditching customers such as financial technology firms and foreign nationals to cut the cost of complying with tougher capital and anti-money laundering rules, an independent study for Britain’s markets watchdog said on Tuesday.
The Financial Conduct Authority (FCA), which commissioned the 73-page study of how banks were lowering their risk, warned lenders on Tuesday they could fall foul of competition law if they refuse new business or close accounts without good reason.
Banks have faced a welter of new regulation since the financial crisis, burdening them with new costs and making them more cautious. Lenders have also been fined hefty sums for breaching anti money-laundering rules.
The study from John Howell & Co found it costs 1-2 pounds to check new customers, rising to 100 pounds if closer scrutiny is required, while external intelligence reports run into thousands of pounds.
“As a result, many banks have undertaken a strategic review of their business and functions, often choosing to focus on their ‘core’ business,” the study said.
Two large, unnamed British banks are together closing around 1,000 personal and 600 business accounts a month to curb risks, the study said.
Foreign diplomats, students and businesses are all finding it harder to retain UK-based accounts, or to carry out a full range of banking across currencies and jurisdictions, it added.
Banks have little appetite to pass on some of the higher compliance costs to customers in what the study calls a “market failure”.
Some banks are closing accounts for money transmission services, pawnbrokers, fintech companies, and charities operating in countries or regions seen as presenting greater money laundering and terrorist financing risks, it added.
Britain accounts for half of European fintech start-ups, which use technology from cloud data storage to smartphones to provide loans, insurance and payment services.
But banks and investors have grown more cautious about the sector because of poorly understood business models and still-evolving regulation systems, the study said.
This is likely to worry the British government which is encouraging growth in the sector to avoid losing ground to rival centres like the United States and Australia.
Some banks spoke of “challenges” in trade-related finance, vital for greasing the wheels of the global economy.
Smaller companies working in the defence sector were also finding it hard to obtain banking services, but the British Bankers’ Association was helping to improve access.
The FCA said it will work with banks to better identify money laundering risks, boost innovation to cut compliance costs, and encourage better communication between banks and customers.
Reporting by Huw Jones, editing by Carolyn Cohn and Adrian Croft