February 10, 2015 / 1:59 PM / 5 years ago

UK banks wrongly shunning customers in dash to cut risk, watchdog says

LONDON (Reuters) - Banks are wrongly shunning some customers and need to take a more targeted approach to applying rules aimed at tackling money laundering and channelling cash to terrorists, Britain’s markets watchdog said on Tuesday.

Martin Wheatley speaks at a Thomson Reuters Newsmaker event, in the Canary Wharf business district of east London October 16, 2012. REUTERS/Andrew Winning

Martin Wheatley, chief executive of the Financial Conduct Authority (FCA), told lawmakers that banks were “de-risking” by giving a “wide berth” to whole groups of customers.

“We don’t believe that de-risking is an appropriate response to the regulations that have been brought forward so we have communicated that privately with firms,” Wheatley told parliament’s Treasury Select Committee.

“We will make a public statement about what we think of this situation,” he added.

Committee chairman Andrew Tyrie said banks’ dash to reduce their risks came at great social cost, affected a large number of people and needed to be tackled before it became a mess.

Committee members said there was a danger of money transfers being driven underground, with customers left in the dark over why they were being denied banking.

Money transfer firms, charities and other types of firms have been hit, the lawmakers said.

On Monday, Bank of England Governor Mark Carney also expressed concerns that cost effective cross-border banking was becoming extremely difficult, partly due to compliance with the new rules.

There was a risk of “financial abandonment” as some countries or firms are cut-off from the global financial system, Carney said.

Wheatley said the FCA had held talks with U.S. regulators and that an international response was needed, especially by the G20’s Financial Stability Board, which Carney chairs.

G20 finance ministers and central bank governors ended a two-day meeting in Istanbul on Tuesday saying they were concerned about the recent trend of banks ending and limiting business with categories of customers.

“We will closely monitor these developments in view of their potential impact on financial inclusion and stability,” a statement released after the meeting said.

Wheatley said he would like to see some “signalling” from the U.S. authorities on how the rules should be applied.

“They have made a number of statements in the last four of five months in recognising this issue, getting it on the table. That’s quite different from finding a solution... We don’t have a silver bullet,” Wheatley said.

It was unclear if banks, some of which have been hit by heavy fines for breaching anti-money laundering rules, were using the new rules as an excuse to avoid customers, he added.

Editing by Mark Potter and Susan Thomas

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