UK banks face backlash over mass closure of defence firms’ accounts

Last year alone, UK lenders Santander and Lloyds terminated 300 accounts linked to “public administration and defence” entities, as disclosed to the Treasury Select Committee. Conservative MP Harriett Baldwin, in a letter to The Telegraph, raised alarms about the practice of ‘debanking,’ cautioning against its detrimental effects on small and medium-sized enterprises (SMEs), pawnbrokers, and particularly defence firms.

While some banks cite ethical concerns regarding their association with arms companies, closures often occur for reasons as mundane as account inactivity. Baldwin criticized the vague justification of ‘risk appetite’ used by banks for such closures, stressing the legality of the firms’ operations.

The issue gained significant attention following private lender Coutts’ closure of former Brexit Party leader Nigel Farage’s account, which was revealed to have political motivations. Subsequently, there has been a surge in complaints to the UK’s financial ombudsman service regarding unfair account closures.

In response, the UK parliament proposed legislation aimed at protecting customers from ‘debanking,’ mandating lenders to provide a three-month notice and explanation before closing accounts, except in cases of anti-money laundering or anti-terrorist-financing measures.

MPs argue that the closure of defence firms’ accounts is not only jeopardizing national security by impeding defence procurement but also hampering economic growth by undermining SMEs’ financial stability.

A parliamentary inquiry revealed that last year, eight major UK banks closed the accounts of 140,000 small businesses, constituting nearly 3% of their SME customer base, further fueling concerns about the broader impact of ‘debanking’ practices.