Fraud fears spark ban on business accounts

Britain’s biggest banks have stopped opening new current accounts for small businesses after finding as many as half the applications may be fraudulent. 

HSBC, NatWest and Lloyds Banking Group confirmed they no longer accept applications from new business customers. 

Barclays is offering newcomers appointments to open accounts – but not until February due to high demand. Smaller banks including Virgin Money and Metro Bank have also pulled down the shutters. 

Only NatWest – 62 per cent owned by the Government – is set to reopen to applications from new start-ups and entrepreneurs before Christmas. None of the other banks could say when they would reopen to new business customers. 

A banking insider told The Mail on Sunday that lenders had placed a block on new small business accounts after industry data showed up to 55 per cent of applications were potentially fraudulent. Just 15 per cent of those applying ended up opening a current account after identity and fraud checks, meaning vast resources were being wasted. 

But the block on new business accounts threatens to damage any economic recovery by making it impossible for start-ups to get off the ground. Most firms need a bank account to borrow, raise funds and trade. 

The blow to small companies also comes as the Bank of England is poised to rule this week or next on whether banks can restart paying dividends to shareholders after payouts were banned in March due to Covid. 

Kevin Hollinrake, Tory MP and chairman of the All Party Parliamentary Group on Fair Business Banking, said: ‘You have people made redundant who want to open businesses, yet we’re closing the door to them. The banks doing this are excluding our most important sector that drives economic activity.’ 

Banks have come under intense pressure from a huge rush of business bank account applications and are now working through hefty backlogs without enough staff to cope. 

Tens of thousands of small firms have been applying for current accounts this year in order to obtain the Government’s emergency bounce back loans – a crucial lifeline during the pandemic. Firms can apply for up to £50,000 until January 31. Nearly 1.4million loans totalling more than £42billion have been dished out so far. 

NatWest has converted about 60,000 personal accounts into business accounts so small firms could get a bounce back loan. 

But concern is mounting that criminals have created a timebomb that could leave banks and the taxpayer – underwriter of the loans – facing huge losses. 

An estimated 27,000 suspicious loan requests, with a total value of more than £1.1billion, had been blocked by lenders by November, the Public Accounts Committee watchdog was told last month. Another watchdog, the National Audit Office, warned that up to £26billion of the bounce back loans that were issued may end up being written off because of fraud and defaults. One entrepreneur told The Mail on Sunday that he had been refused a new current account by two major banks last week. 

Both times he was told accounts were no longer being opened due to high levels of fraud. 

‘Small businesses are the backbone of the economy and you need more of them at the moment than ever,’ he said. ‘But if we can’t start up new businesses – and we need a bank account to do that – then you are stifling economic growth.’ 

Emma Sinclair, an entrepreneur who at the age of 29 in 2005 became the youngest person to float a company on the UK stock market, said: ‘At a time when many businesses are struggling, it’s confusing that banks are closing their doors to those wanting to open an account. Bank services are a basic and vital requirement for businesses to trade. A simple current account offers no lending, so presents little risk and indeed these customers generate vital revenue for banks.’ She said small businesses created £2.3trillion for the economy last year. 

Hollinrake added: ‘Banks have got to fulfil their social obligations because the economic activity generated by small business is hugely important.’ 

Gary Greenwood, an analyst at Shore Capital, predicted that the the Bank of England would give the green light to banks to restart paying dividends, but ‘with a caveat’. He said it would not be ‘a carte blanche for banks to do what they like’. 

Greenwood added: ‘Banks must maintain strong capital reserves and will be expected to keep on lending.’