The Treasury Committee found that banks often refuse companies operating in “undesirable” areas; industries such as defense. Photo: Tobias Schwartz/Reuters
Banks have closed the accounts of hundreds of defense companies amid concerns that lenders' internal ethics policies are jeopardizing national security.
Santander and Lloyds have closed 300 companies. the accounts were held by “public administration and defense” companies just last year, according to correspondence with MPs on the Treasury Select Committee.
Other major creditors did not provide details, suggesting the actual figure could be much higher.
While some accounts may have been closed for other reasons, such as a long period of inactivity, industry executives also reported that Members of Parliament said they were concerned about the ethical implications of working with weapons companies.
The report sparked backlash from defense experts and members of parliament.
Writing in The Telegraph, Treasury Committee chair and Conservative MP Dame Harriett Baldwin said: “We cannot allow organizations in this country to systematically divest legitimate firms or industries because their boards turn their noses up at their work. If their work is legal, they should have access to a bank account.”
She added: “Bank shareholders demanding environmental, social and governance policies may inadvertently jeopardize national security. This cannot continue.”
NatWest's closure of an account belonging to Nigel Farage has sparked a national scandal. Photo: Carl Court/Getty Images
Tobias Ellwood, former chairman of the House of Commons defense committee, said the “well-intentioned” standards could jeopardize Britain's defence. opportunities in “danger”.
He said: “To ensure that ESG recommendations do not interfere with defense procurement, the standards must be tailored to the industry's unique requirements while still being refined for ease of compliance. Let's not let well-intentioned ESG standards compromise our defense capability in a dangerous world – it's time to get to the bottom of this.”
In a report on the so-called debanking, compiled after NatWest closed an account held by When Nigel Farage sparked a national scandal, the committee found that lenders often reject companies in “undesirable” industries such as defense, pawnshops and gambling.
Research included in the report earlier this year found that 140,000 companies had been deprived of their bank accounts, usually with little or no notice.
At least 4,214 of these cases were linked to “risk appetite.” – despite the lack of a single definition for all these cases. the industry understands what this means, according to the study.
Banks also said they closed accounts due to money laundering concerns or inaction.
Ms Baldwin identified defense businesses as an area of particular concern after Santander admitted it had closed 280 accounts belonging to businesses it categorized as “public administration and defence: compulsory social security”.
Lloyds, meanwhile, closed. There are 20 such accounts in the sectors classified as “Government and Defense” and “Aerospace and Defense”.
Ms Baldwin also referred in her comments to evidence from Handelsbanken, a Swedish bank with more than 160 branches in the UK, which suggests the industry is reluctant to work with businesses responsible for supplying the Armed Forces.
She said: ” The head of Handelsbanken could not tell us whether they would provide the report to BAE Systems, despite the fact that the company is one of the largest suppliers to the Ministry of Defense.
“What the heck?” Have we reached the point where a company working to ensure our national security cannot be assured of access to a bank account?
Treasury committee report warns that harmful financial regulation and insufficient support creditors hold back small businesses from innovation and growth, which ultimately harms the economy.
He called on the financial watchdog to force banks to be more transparent about the reasons. decisions were made to close bank accounts.
The study comes as small businesses are finding it increasingly difficult to access finance.
The report highlights that the approval rate of SME applications for bank loans fell. from 80% in 2018 to 50% in 2023.
Ms Baldwin warned in her article that lenders citing risk appetite as a reason not to provide services to a firm are unsatisfactory.
She said: “There may be good reasons for closing or refusing to open accounts for businesses. , including signs of money laundering or prolonged inactivity, but we found that thousands of accounts were still closed under the embarrassingly vague “risk appetite” justification.
The committee also said the industry-funded Business Banking Dispute Resolution Service was failing to adequately resolve disputes, leaving companies with bankrupt accounts with little hope of being heard.
The service has settled only 58 cases worth more than The report estimates it will cost £40 million to operate.
The Treasury Committee said it agreed it should be closed.
Scandal debanking is a national disgrace
Dame Harriett Baldwin MP
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One of the most important responsibilities of an MP is to protect small businesses in their area.
I certainly take every opportunity to shout about the small firms in my constituency of West Worcestershire.
< p>From Frank P. Matthews' fantastically successful tree growing business to the emerging corridor of cybertech start-ups, SMEs my part of the world offers so much for our economy.
But that's not true. move away from how difficult the pandemic and energy crisis have been for small business owners. Critical government support has been provided, but they need to know that the banks will also support them through such a difficult period.
Our Treasury Committee asked small businesses across the country to tell us about their experiences with lenders, and I was stunned what we were told.
One particular issue that we heard about, I am sure, in no small part due to the campaign of this very newspaper, was debanking.
During our investigation, we found that more than 140,000 small business accounts were closed in the last year alone, with many firms receiving little or no funds. notify before they are withdrawn from a bank account.
There may be good reasons for closing or refusing to open business accounts, including signs of money laundering or prolonged inactivity, but we have found that thousands of accounts are still closed under the embarrassingly vague excuse of “risk taking.”
How did we get to the point where a company protecting our national security can't be sure it has a bank account? Photo: UK MOD Crown/PA
Representatives of the pawnshop industry told the committee that more than half of the companies in their sector were unable to obtain a bank account.
Even more worryingly, the Handelsbanken boss was unable to tell us are they ready to give an account to BAE Systems, despite the fact that the company is one of the largest suppliers to the Ministry of Defense.
How the hell did we get to the point where a company working to ensure our national security can't be sure of access to a bank account? Bank shareholders demanding environmental, social and governance policies may inadvertently jeopardize national security. This cannot continue.
It is not right that banks in this country can systematically deny credit to legitimate firms or industries just because their board of directors turns their backs on their work.
If their work is legal, they should have access to a bank account. Most lenders couldn't even tell us what was being considered before closing. Something needs to change, so we asked the Financial Conduct Authority to force banks to send it details of their debanking transactions, including the reason for each account closure.
Following the revelations uncovered during our investigation, we have received assurances from the government that they will introduce laws to combat unfair debanking. We look forward to scrutinizing this urgent work when it comes before Parliament.
Another particularly troubling issue that we received a lot of complaints about was the Business Banking Resolution Service (BBRS). For the uninitiated, this is a scheme set up by seven major banks to provide smaller firms with a formal forum to discuss unfair treatment by creditors.
Unfortunately, asking the banks to take responsibility for this initiative has fatally damaged it integrity. in the eyes of the business community.
Many small businesses we spoke to saw this as a deeply inconsistent system that deliberately made it difficult for them to resolve complaints.
It is unknown whether the banks directly influenced the decisions made by BBRS or not. there. Such an initiative lives and dies by its ability to clearly demonstrate its independence and fairness. The fact is that no one trusted it, and therefore almost no companies used it.
The government now has to decide what to replace it with. This needs to be done quickly and in a way that puts integrity at the forefront. We cannot allow another situation where banks are seen as being able to bury their own mistakes.
Small businesses employ 16.7 million people in this country, contributing £2.4 trillion a year to the UK economy.
We're not asking lenders to wave a magic wand and solve all the problems facing small businesses, but one thing certainly needs to change: banks need to stop unnecessarily complicating a difficult situation for small businesses.
< p> Dame Harriett is a Conservative MP and Chairman of the Treasury Select Committee
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