In our previous newsletter we highlighted the difficulties encountered by Harbour Key and clients dealing with HMRC. However, dealing with banks is also becoming increasingly more difficult, whether it is opening an account, while holding an account or seeking lending etc.
The first point to make is that it is not all the banks’ fault as they must comply with strict regulations, including anti-money laundering (AML) and know-your-customer (KYC) requirements (similar to Harbour Key), to ensure that they are not inadvertently facilitating illegal activities such as money laundering or terrorism financing. As a result, the banks are requiring significant documentation and background checks before opening an account for a new customer. Many traditional banks are still working with legacy technology and processes, which means the process can take much longer, than the newer internet only based banks. Initially, we had been referring clients to the internet only banks, however we are now finding that because of being inundated with applications, and some have been picked up for not having sufficiently robust processes, it has resulted in these banks not being as quick as they used to be. It also results in Harbour Key having to become involved in the process providing a letter setting out and confirming various facts.
Startups and smaller companies usually don’t have a long track record of financial activity, which can make it more difficult to satisfy banks’ KYC requirements. As a result, they can often have their account application ‘in review’ for several months, awaiting a final approval or declined. Also, it’s common for banks to ‘veto’ some industries or types of business altogether because they are deemed to sit outside their risk appetite. Startup tech companies, crypto exchanges and gaming companies are among those who can really struggle to open a current account with traditional banks, together with those businesses which have some level of non-UK ownership. Even when those businesses are regulated entities, they are often considered high-risk, or too much of an ‘unknown quantity’ for mainstream providers.
For those who do manage to open an account, it can still be a lengthy process and result in an account setup and fee structure that is not ideal for the business. For instance, standard charges for BACS and CHAPS transfers and especially for those international payments made via SWIFT are too costly for many startups and SMEs. In addition, some banks don’t automatically support outgoing international payments, despite a growing demand for cross-border services.
Alternatively, we have had clients who have been contacted by their bank advising they need to move their account, otherwise it will be closed. Or worse, apparently the client has been contacted by the bank saying the client has not replied to correspondence (many customers saying not seen/received any correspondence) and so the account is automatically closed. It is very common at the moment for the banks to review their current client due diligence, especially if the person is a long-standing client and the information the bank holds is not sufficient, requesting additional information which sometimes can only be dealt with by using online platforms that clients may not have access to. Failure to deal with these additional information requests results in accounts being suspended or, as above, closed.
It is clear that with the additional regulatory requirements, banks are becoming more risk averse, as well as stepping up the due diligence checks and processes, but many are still using legacy historic systems, or implementing new online systems the customer is either not aware of or set up to use. The costs to banks if they get it wrong are significant and this is not just from the UK authorities, an overseas banking authority could take legal action for failures.
When opening a bank account, we recommend the following to save time and increase the chances of opening an account:
- Research what business bank accounts are available, making sure you are eligible for your chosen business account, i.e. will the bank consider your type of business, and are they taking on new business.
- On selecting a few banks get your application and documents in order. Most applications will require the following:
- Verification documents for identity and address for any individual who will have access to the account, and anyone who owns a significant part of the business (normally at least 25%). For identity, normally a passport or driving licence is required, so if these have expired, or if you don’t have a passport or driving licence, apply for the passport. (If you have a paper only driving licence apply for a photo driving licence).
- Companies House registration number or certificate of incorporation if you run a limited company.
- You may also be asked to provide proof that your business is up and running. For example, evidence that your business has a website or social media presence or that you are registered with an official industry body. The bank you choose will be able to give more details about what it can accept as proof.
- A business plan.
By getting your documents in order, you have a better chance of success in the battle to open a bank account.
Banking is becoming a difficult and time-consuming area, and customers need to understand that going into a branch (if can find one!) or making a call will not resolve/clear an issue.