Immigration Act 2014 (Bank Accounts) Regulations 2014
(Limited Text - Ministerial Extracts only)
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Lord Newby
That the Grand Committee do consider the Immigration Act 2014 (Bank Accounts) Regulations 2014.
Relevant documents: 8th Report from the Joint Committee on Statutory Instruments
Lord Newby (LD)
My Lords, the Government recognise and welcome the benefits that migrants bring to our country. However, they also recognise the need to deter people from attempting to enter the country unlawfully and to ensure that those who are here illegally are encouraged to leave. As part of the Government’s reform of the immigration system in the Immigration Act 2014, action is being taken on illegal migrants’ access to services. Effective immigration controls require responsibility to be shared—between government, local public service providers, employers, landlords and other private service providers—for denying illegal migrants the means to establish themselves here unlawfully. That is why the Government are bringing forward this legislation to prevent known illegal migrants accessing banking products and services in the UK.
From 12 December 2014, banks and building societies will be prohibited from opening current accounts for illegal migrants unless they have first checked the applicant’s immigration status with a specified anti-fraud organisation or a specified data-matching organisation. Where this check identifies that the applicant is a “disqualified person”—that is, an illegal migrant that the Home Secretary considers should be denied access to a current account—the bank or building society must refuse to open the account. These measures will make it more difficult for illegal migrants to establish a viable life in the UK by closing the gateway to transactional banking and lines of credit.
The two orders we are considering today specify which current accounts will be within scope of the prohibition. The regulations will enable the Financial Conduct Authority to make arrangements for monitoring and enforcing compliance with the prohibition imposed on banks and building societies. Before discussing the detail of the instruments themselves, I will first remind the Committee of the Government’s intentions for the banking provisions within the Immigration Act.
The legislation is designed to prohibit banks and building societies from opening current accounts for those who are present in the UK and who require leave to remain in the UK, but who do not have it. The prohibition will apply only to illegal migrants whose details have been notified by the Home Office to an anti-fraud or data-sharing organisation. The Home Office has already specified that this will be CIFAS—the Credit Industry Fraud Avoidance Service. The Home Office will notify CIFAS of illegal migrants who have exhausted the immigration process and are liable to removal from the UK. This will not include people who have an outstanding application or appeal. The prohibition does not require banks and building societies to check immigration or identity documents presented by the customer. Instead, they will be able to undertake electronic checks against the data provided by CIFAS.
The decision to limit the scope of this measure to current accounts provided by banks and building societies ensures that the measure is proportionate. This will ensure that smaller deposit-taking institutions, such as credit unions, are not impacted by these measures. We have also decided that the prohibition should apply only to current accounts, as they serve not only as a product for day-to-day transactional banking but also as gateways to further financial services and lines of credit.
I should make it clear that, in the view of the Government, a current account is intended to be used principally for conducting day-to-day banking activities. Such an account would be expected to provide functionality to hold deposits and make withdrawals without having to give notice. It would also typically enable the customer to receive and make payments through a number of different methods, including by cheque, direct debit, standing order, continuous payment authority or other electronic payments. Withdrawals, money transfers and other payment transactions can typically be conducted through various channels, including ATMs, branches and online, mobile or telephone banking. Many current accounts also have overdraft facilities. For the purposes of the Immigration Act, “current accounts” should also include basic bank accounts.
The prohibition does not apply to savings accounts, which, in the Government’s view, are intended to be opened for the primary purpose of accruing savings and not for day-to-day transactional banking, although they may provide some of the functionality described above. Savings accounts have been deliberately excluded from the provision as they do not act as a conduit to further financial products in the same way as current accounts. This will also ensure that smaller institutions which only offer savings accounts are not unduly burdened.
I now turn to the statutory instruments themselves. Following initial publication of the Bill, the banking sector raised concerns that the range of current accounts within scope of the prohibition might be too broad and could include accounts that were outside the Government’s initial policy intention. For example, concerns were raised that accounts of large companies would, unnecessarily, be covered by the prohibition. The Government’s intention through this legislation has been to stop illegal migrants from opening current accounts in order to prevent them accessing other products such as credit cards, mortgages or mobile phones, and thereby establishing themselves illegally in the UK. We have listened to the concerns raised and agree that the legislation, as it stands, goes further than necessary to achieve this aim.
The effect of the two orders, taken together, is to limit the scope of the prohibition to current accounts that are operated by or for consumers, microenterprises—that is, companies with fewer than 10 employees and an annual turnover or balance sheet total of no more than €2 million—and charities with an annual income of less than £1 million. These categories are consistent with the definition of a “banking customer” already in common usage in the banking sector and set out in the FCA’s existing Banking Conduct of Business Sourcebook.
Including consumers, microenterprises and charities within the ambit of the prohibition is also consistent with the distinction that the FCA already makes between the conduct of banks and building societies with respect to these retail banking customers and to other customers such as large corporations. This will make it easier for the banking sector to comply with the Act and for the FCA to enforce the prohibition at Section 40 of the Act. By retaining microenterprises and charities within the prohibition, the amendment will also make it more difficult for illegal migrants to circumvent the prohibition set out in Section 40 of the Act. Illegal migrants will be unable to set up as a sole trader, for example, in order to open a current account.
In summary, the Government believe that this approach strikes the right balance between ensuring that the prohibition is appropriately targeted and minimises the burden on businesses while still preventing obvious avoidance schemes.
I turn to the monitoring and enforcement of the Act. It is important that a relevant body is equipped with the necessary authority and powers to monitor and enforce the requirements in the Act. The Immigration Act 2014 (Bank Accounts) Regulations 2014 therefore give the Financial Conduct Authority the power to monitor compliance with the Act and to further investigate firms when necessary. As the conduct regulator for deposit-taking institutions, the FCA is well placed to regulate, monitor compliance with and enforce these provisions. The regulations require banks to provide the FCA, at the latter’s direction, with information in respect of compliance or non-compliance with the requirements of the Act. They will also oblige firms to retain records relevant to compliance or non-compliance for a minimum of five years. It is also important that there are proper sanctions against individuals or institutions that fail to comply with the Act’s requirements.
That is why we are equipping the FCA with the power to levy financial penalties, of such amounts as it considers appropriate, on any firm that it considers has breached the prohibition in Section 40 of the Act or breached a requirement of or under the regulations. The regulations will also allow the Financial Conduct Authority to restrict the deposit-taking permissions of an institution that it considers has contravened a relevant requirement and to publish a statement naming any such institution. These sanctions will act as a clear deterrent and help to ensure compliance with the prohibition imposed on banks and building societies. I commend the regulations to the Committee.
Lord Tunnicliffe (Lab)
My Lords, the Opposition will not in any way oppose these three statutory instruments, but we have some small questions. The impact assessment created more questions than it answered. First, how many people will be impacted by these regulations? The impact assessment states, I think, that there are 60,000 disqualified persons and then uses a questionable bit of logic to suggest that 2,000 of them might be impacted. Does the Minister agree with that estimate or feel that the actual figure might be somewhat less?
The impact assessment implies that the net present value of the cost of the exercise is £2.7 million. I had some trouble between the pages but I think that that is what it states on page 8—that there will be £2.1 million set-up costs and £0.6 million of ongoing costs at net present value. It is difficult to feel bad about that £2.7 million as it will be paid for by the banks, but, nevertheless, it is not an insubstantial sum if the impact is going to be de minimis. The impact assessment leads one into even greyer territory when it comes to the benefits. A benefit prayed in aid was that there might be fewer people to seek out and move out of the country, and the impact assessment offered an incredibly precise estimate of the cost of exiting a disqualified person, with a range from £400 to £60,100. That is a pretty heroic estimate with no indication of where in that range these individuals might fall or how many of them there might be.
I am trying to envisage a situation whereby any individual would come into this position. It seems to me that the provision could only apply against an individual who, for all other reasons, could reasonably expect to open an account with a bank. As I understand it, when one is an asylum seeker, you may open a bank account if a bank will allow you to open a bank account. There is no prohibition against an asylum seeker opening a bank account, and these orders create no such prohibition, if I have understood them properly. I would be delighted if I am wrong. My understanding is that if you are an asylum seeker and you can satisfy a bank in every other respect, the fact that you are an asylum seeker is not a reason for prohibition.
It seems to me that any asylum seeker of sufficient sophistication to intend not to leave the country when they become a disqualified person and who wants to have a current account will have the wit to set up the account before they become a disqualified person. We know from today’s Question Time that the period that they are an asylum seeker as opposed to a disqualified person is frequently very long. It seems to me that most people who are in this situation will disappear into the black economy and not need a bank account. However, the small number who are going to do this period as a disqualified person in a sophisticated way which requires a full bank account will surely have set up a bank account beforehand. As I understand it, the order does not require a bank to close an account when it is notified that somebody who has a bank account has become a disqualified person. I would be grateful if the Minister would tell me if I am right or correct me for the record.
Lord Newby
My Lords, I am grateful to the noble Lord, Lord Tunnicliffe, for his support for these regulations. He asked how many people are likely to be affected by them. The impact assessment has made an estimate of approximately 2,000 people. As it happens, it is estimated that, in 2013, almost 2,000 people were the subject of Home Office data shared with CIFAS, who were then refused current accounts in 2013. So, in 2013, getting on for 2,000 people were refused current accounts. On the basis that this legislation extends the scope of the scheme to some number of—
Lord Tunnicliffe
In 2000, as I think the Minister has just quoted, this scheme was not in place, so I assume that those 2,000 people were refused for other reasons, such as their creditworthiness, or as potential launderers, or whatever. It was nothing to do with their being asylum seekers, as I understand the logic.
Lord Newby
Not with being an asylum seeker; but banks that were already signed up to CIFAS were already, before this legislation, as a matter of course, referring to CIFAS as regards whether a person was an illegal immigrant. The banks that were doing that already were refusing about 2,000 current accounts in 2013. It is reasonable to expect that the figure will be 2,000, or something slightly more than that, as we expand the number of banks and building societies that are covered by the scheme. It is obviously impossible to know exactly, but that gives you an idea of the order of magnitude. You are almost certainly talking about a small number of thousands rather than a few hundred or tens of thousands. I think that that must be the scale of the impact of the legislation or the process.
The noble Lord asked whether, given the cost of implementing the scheme, it was worth it. We believe that it is worth it. The annual cost to banks and building societies is only £200,000, which is relatively modest. The set-up cost, although greater in the overall scheme of things, is relatively modest.
The noble Lord asked about the situation of a legitimate asylum seeker who is going through the process and opens a bank account. What happens if, at the end of the process, they are not given asylum and are required to leave the country? We have taken the view that only new bank accounts should be covered by these regulations, and therefore if there is an existing bank account which it subsequently transpires is operated by an illegal immigrant, the law under these regulations will not require the bank to close that account. The view was and is taken by the Government that the approach we are adopting is proportionate and that to go beyond what we now propose would impose an unnecessary burden on the industry.
The noble Lord asked about one-in, two-out. I am told that this qualifies as one-in but, of itself, it is obviously not contributing to the two-out because it is a new regulation. The Government are committed over a period, taking all the activities of government, to end up with two out for every one in. This is an in, but there are lots of other outs, including some of the measures going through in the Deregulation Bill, almost literally as we speak. As the noble Lord is aware, the Government are absolutely committed to reducing the burden of regulation and we believe that the broad approach of having two out for every one in makes a major contribution to that effort.
With those responses, I hope that I have satisfied the noble Lord, and I commend the regulations to the Committee.