FCA has accused banks of “denying certain customers bank accounts on a wholesale basis,” in a report issued today haling their sandbox as a success a year after launch. They say:
“We have witnessed the denial of banking services first-hand across a number of firms in the first two cohorts of the sandbox. Difficulties have been particularly pronounced for firms wishing to leverage [blockchain technology], become payment institutions, or become electronic money institutions.
We are concerned by what appear to be blanket refusals for certain kinds of applicant firms. There are also apparent inconsistencies within individual banks regarding how they apply their assessment criteria in approving access to banking services.”
They do not formally and explicitly state banks are engaging in anti-competitive behavior, but taken as a whole, their statement in effect amounts to it.
They state banks’ decisions to wholesale deny accounts is based on a number of factors, “including strategic business decisions.”
“If certain firms cannot secure bank accounts it is possible that they will be unable to meet our conditions for authorisation and would therefore be unable to enter the market, even to test in the sandbox,” FCA says.
It’s not clear what they are going to do about it, nor whether they will open a formal investigation on anti-competitive practices, but FCA does, as politely as it can, say they are not amused:
“We work to ensure that the UK financial system is a hostile environment for money launderers. However, we are clear that effective money laundering risk management need not result in wholesale de-risking, and are aware of the risks this may pose to innovation and competition and intend to continue our focus on this issue.”
This is the first time complaints of bank account closures belonging to blockchain companies, and sometimes even individuals, is officially recognized by a regulatory agency.
“We are concerned that denying certain customers bank accounts on a wholesale basis causes significant barriers to entry and could lead to poor competition in certain markets,” FCA says.
As a result of bank account closures or denials, the regulator found that “some firms have been unable to conduct their tests as initially planned.”
Something which prevents FCA from meeting their objective of “promoting effective competition in the interests of consumers.”
Anti-competitive behavior is a broad area that includes a number of manifestations. Some of which could apply in this case, such as:
“Where a group of firms (or individuals within such firms) work together to prevent other competitors from entering the market, thus protecting their position in the market.
For example, by imposing criteria… for participating in a market that discriminate against smaller players or new entrants in a way that is not objectively justifiable.”
FCA called the practice a “blanket refusal” and found that banks are “denying certain customers bank accounts on a wholesale basis,” which “seems to affect small businesses more than large ones.”
Another anti-competitive aspect which could apply in this case is “refusing to supply an existing or new client, or refusing to provide access to an essential facility, service or data (or providing such access only on terms which are unreasonable) without an objective justification.”
FCA found that companies which can’t secure a bank account are “unable to enter the market, even to test in the sandbox.” Making it very much an essential service.
The justifications given by banks is money laundering risks, but FCA unequivocally states that’s not an objective justification. They say:
“We are clear that effective money laundering risk management need not result in wholesale de-risking.”
As such, the totality of their statement, with the practice witnessed first hand, seemingly amounts to in effect a finding that banks are engaging in anti-competitive practices, a serious offence.