From Compliance to Controversy: The Global Rise of Debanking

 

In recent years, financial institutions have been making increasingly bold decisions about who they are willing to bank. The practice of debanking (closing or denying accounts based on perceived risk or unprofitability) has shifted from back-office policy rooms to the center of public, political, and legal debate. For example, the Nigel Farage–Coutts Bank scandal, involving a (potentially politically-biased) debanking decision, ultimately led to the resignation of the NatWest CEO.

What started as a niche compliance measure has become a global phenomenon with far-reaching consequences. More and more individuals and businesses are finding themselves without access to essential financial services, due to the practice of debanking.

So why is this happening? And what does it mean for financial institutions and their customers?

While banks have always had discretion in choosing their clients, the criteria for rejection are rapidly expanding. Those affected now include:

• Customers no longer fitting the bank’s target segment (e.g. retail clients dropped in favor of high-net-worth individuals)

• Politically Exposed Persons (PEPs), who require enhanced due diligence and pose higher compliance burdens.

• Foreign nationals, especially U.S. citizens abroad, due to FATCA (Foreign Account Tax Compliance Act) obligations (e.g. extra documents to gather at onboarding, extra reporting efforts…​)

• Businesses in high-risk industries, such as gambling, firearms, adult entertainment, cryptocurrencies, gift cards, payday lending…​

• Cash-Heavy Businesses, like restaurants, retail stores, and convenience shops.

• Small Business, which may lack credit history or have irregular cash flows.

• Companies operating in or trading with high-risk jurisdictions.

• Immigrants, due to challenges in verifying (identity) documents or sources of funds.

• Ex-convicts

• Controversial or politically sensitive organizations.

• Individuals with names similar to sanctioned persons or names sounding to come from certain countries (e.g. "Bin Laden," "Hussein," or even Russian names).

• …​

These individuals and businesses are not necessarily engaged in illegal activities, but their profiles often result in higher operational costs and higher compliance risks for banks:

• Higher Operational Costs: Serving high-risk customers often requires manual checks, additional documentation, and specialized transaction monitoring, especially in line with AML (Anti-Money Laundering) and KYC (Know Your Customer) requirements. If these processes cannot be automated or scaled, servicing such clients becomes economically unsustainable.

• Higher Compliance Risks: These profiles also raise reputational and regulatory risks. Serving them could invite scrutiny from regulators (and potentially result in enormous regulatory fines) or damage the institution’s brand. Banks must factor in the potential for fraud, defaults, or regulatory penalties, even if no violations have occurred. Additionally, a bank known for servicing high-risk clients may itself be flagged as risky by other institutions, resulting in slower transaction processing for all its customers.

The scale of debanking is however alarmingly increasing. The UK’s Financial Conduct Authority reported over 343,000 account closures in 2022 (nearly 1,000 per day). By 2024, that number rose to an estimated 408,000 closures.

This growing trend of debanking gained momentum after the 2008 financial crisis, as regulators tightened enforcement around anti-money laundering, terrorist financing, and tax evasion. Banks, facing potential multi-million-dollar fines, became more risk-averse, especially toward risky clients.

While risk management is essential, there is growing concern about overreach. Excessive or ideologically-driven debanking raises serious questions:

• Lack of transparency: Many closures happen suddenly (no warning) and without clear explanation. Banks often cite regulatory constraints, leaving customers guessing.

• No time to react: Accounts are sometimes shut down overnight, disrupting businesses and individuals who rely on them for daily operations.

The consequences can be severe:

• Operational disruption: Blocked payments, delayed payroll, missed investments, and increased costs.

• Reputational damage: Debanking can wrongly imply that a business is suspicious or non-compliant.

As a result, governments are beginning to intervene. In August 2025, President Trump issued an executive order prohibiting banks from denying services based on political or ideological grounds. The order also directed regulators to eliminate "reputational risk" as a standalone justification for account closures.

In the UK, new rules take effect in April 2026, requiring banks to provide at least 90 days' notice and a clear written explanation before terminating a client relationship.

Aside from regulatory and political pressure, banks should also consider the unintended consequences of debanking:

• Lost relationships: Dropping a lower-asset family member could alienate a high-net-worth client.

• Missed future value: Today’s PEP, immigrant, or low-income customer may evolve into more desirable profiles over time (e.g. a politician switching job or someone obtaining the domestic nationality). Rejecting them early may cost the bank future business.

• Public backlash: Unexplained account closures fuel narratives of ideological bias, damaging trust in the institution.

Clearly debanking is here to stay, but the way it’s handled must change. Financial institutions are under intense pressure to comply with regulation, manage costs, and protect reputations. At the same time, they are increasingly expected to serve all lawful clients, regardless of perceived risk.

The financial sector must find ways to balance these conflicting demands, through clearer policies, smarter automation, and better customer communication, without compromising safety, profitability, or fairness.

Because ultimately, access to banking is not just a service, it is a gateway to participation in society. And when discussing financial inclusion (cfr. my blog "Financial inclusion - A word with many meanings" - https://bankloch.blogspot.com/2020/02/financial-inclusion-word-with-many.html), the growing trend of debanking cannot be ignored.