Business Banking: Undesignated Client Accounts

(Limited Text - Ministerial Extracts only)

Wednesday 18th October 2023 Westminster Hall

[The Economic Secretary to the Treasury (Andrew Griffith)]

It is a pleasure to serve under your chairmanship, Mrs Cummins. I thank my right hon. Friend the Member for Rochester and Strood (Kelly Tolhurst) for highlighting this important issue. She has been tenacious, and I convey my distress at the frustration suffered. The industry is an historic one and is important to us. She and I have worked together in the past to support the small and medium-sized enterprises of this great nation, but not until today had I realised the importance of the yacht broking industry. I also know about her passion for sailing, which is reflected in her role as patron of the Medway and Swale Boating Association. I am sure that all her members are metaphorically, and probably physically, cheering her on today. I reassure her that I share her concern about the issue.

Earlier this year the Treasury requested that the FCA lead a review into the wider matter of de-banking, to ensure that the sector was not overreaching itself through the unfair denial of banking services—in one case, based on a customer’s political beliefs. That is not the matter before us, but it highlights my concern, and the action that I took then is replicated when we find other instances in the financial sector. A bank account, as we know, is a vital part of the way in which we operate in society.

We try to get the balance right with a commitment, which I know my right hon. Friend understands, to tackling illicit finance. It is important that we get that balance right and do not put a disproportionate burden on legitimate businesses and customers. Indeed, the world of financial regulation is fraught with well-intentioned regulations that nevertheless have deleterious unintended consequences. This is an example. Pooled client accounts have many virtues. They protect customers so that when a firm fails, their deposits and moneys are segregated. They are a vital part of how we protect consumers. It is a concern that we see banks perhaps having a misperception about the risk of those accounts and the regulation.

It is wrong—I am happy to share this with my right hon. Friend—to say that pooled client accounts are not eligible for simplified due diligence. Last year, my predecessor wrote to the chair of UK Finance, the relevant industry body, to reiterate the importance of that when it came to looking at the Joint Money Laundering Steering Group, the industry group that deals with that. My predecessor convened a roundtable with banks and the Association of Brokers and Yacht Agents to help to develop and improve mutual understanding and iron out the issues.

Banks can apply simplified due diligence to pooled client accounts where they assess the risk of money laundering and terrorist finance to be low. My right hon. Friend gave us some really good examples of that. I am not sure that there are many Russian oligarchs sailing up and down; delightful though Medway and Swale Boating Association is, I am not sure it is the destination of choice for illicit ill-gotten gains. We will, at my right hon. Friend’s urging, continue to work to improve the guidance notes and work with the industry to make sure we can achieve the objectives that she talks about.

I am also happy to give my right hon. Friend the assurance that she seeks. She has been very patient and tolerant. I understand her and her constituents’ frustrations, but there will be no further delays. After having consulted earlier this year, we intend to look at how we can improve and reform the anti-money laundering procedures. As I say, we are dealing here with the law of unintended consequences. I believe that we can reconcile both objectives through better guidance and greater clarity and, where necessary, adjusting the regulations.

My message to those banks and financial intermediaries is that they should continue to engage. I know that they also do so with my noble Friend Baroness Penn. I hope that by so doing, and with that collaborative approach, we will “chart a route”—someone has been getting creative—to an effective resolution that steers us into calmer waters and that, once we are through this, it will be plain sailing.

Question put and agreed to.