Select Committee on Treasury Thirteenth Report

4  Opening basic bank accounts

Marking progress towards the "shared goal"

21. Progress towards more broad-based access to basic bank accounts and the measurement of such progress have been given added impetus by the establishment of the goal shared by the Government and banking industry to which we have already referred, namely to work towards halving the number of adults in households with no account of any kind and to have made significant progress in that direction within two years. The benchmarks for the "shared goal" were based on the Family Resources Survey for 2002-03. The Family Resources Survey for 2004-05 was not designed so as to allow direct comparisons to be drawn, because responses from holders of Post Office Card Accounts have been aggregated with those from basic bank account holders.[34] This omission was rectified in the comparable Survey for 2005-06, but the results of that Survey will not be available until the first quarter of 2007.[35]

22. We received information on a number of other surveys that might give a broad indication of the direction of progress. Since April 2003, the banks have opened a total of 1.97 million basic bank accounts.[36] Research for the British Bankers' Association (BBA) published earlier this year indicated that around 50 per cent of the total number of people opening basic bank accounts had previously been unbanked.[37] A recent survey conducted by the ONS also showed that the number of adults in benefit units[38] without access to bank accounts had been falling during 2005, although the apparent trend cannot yet be viewed as statistically significant.[39] Mr Andrew Baker, the Chief Executive of Derbyloans, a CDFI that provides affordable credit to the financially excluded, provided anecdotal evidence supporting these surveys. He told us that "the biggest single change since Derbyloans started trading is that back in 2003 about 25% of customers did not have a bank account". In contrast, in 2005, customers without a bank account were extremely rare.[40]

23. The banking industry is collectively accountable for progress towards the target, and Nationwide told us that it was concerned to ensure that all banks contributed their fair share towards the target.[41] Performance by the industry in relation to basic bank accounts has varied. The BCSB, the body that sets and enforces the voluntary system of regulation in the banking sector, found "significant divergence between providers on the number of [basic bank accounts] they are currently opening as a proportion of ordinary current accounts, with figures ranging from 2% [for one bank] to 54% for [another]".[42] The BBA currently aggregates the figures for basic bank accounts before publishing them. It is therefore difficult to assess the contribution made by each individual bank towards opening basic bank accounts for the financially excluded. In order to assess the contribution of each bank towards meeting the shared goal, we asked the five major banks to provide figures for the number of basic bank accounts they had opened since April 2003. These are shown in Tables 1 and 2.

Table 1: Number of basic bank accounts opened by five largest banks
Lloyds TSB
Total (All-Banks)
2003 (Q2 -Q4)55,000 35,00084,000 271,00010,000 152,000416,418
2004115,000 52,000120,000 306,00055,000 196,000675,677
2005144,000 70,00093,000 042,000 134,000615,970
2006 H143,000 38,00033,000 028,000 51,000257,946
Net new openings357,000 195,000330,000 578,000135,000 533,0001,966,011
Total stock of accounts 318,000417,000 294,000

Source: Individual Banks

Table 2: Share of basic bank account openings by the five largest banks
Share of BBA openings
Lloyds TSB
Total BBA
200523.4% 11.4%15.1% 6.8%21.8% 615,970
2006 H116.7% 14.7%12.8% 10.9%19.8% 257,946

Source: Individual Banks

Note: Numbers will not add up to total and percentages will not add up to 100% due to the numbers of accounts opened by smaller banks and Building Societies

24. We also asked the banks whether they had any specific targets for opening basic bank accounts. HBOS told us that, following changes to their product range, their basic bank account sales had fallen during the second half of 2005, but that they were "not happy about this and took steps to increase our sales. We increased our sales in the first quarter and achieved an estimated market share of 11%, in line with [the HBOS] share of the current account market. We aim to maintain this share through 2006."[43] Mr John noted that HSBC said not have a specific target, but assured us that he would not like to see their share of basic bank accounts drop from its current level.[44]

25. The Financial Inclusion Taskforce has been given the responsibility to report to HM Treasury and the banking industry on the progress being made towards the shared goal. Mr Brian Pomeroy, Chairman of the Financial Inclusion Taskforce, told us that "steady progress" was being made, although he thought that it would not be possible to give a definitive assessment of progress towards the target until early 2007.[45] The New Economics Foundation noted that the growth in the number of accounts had slowed.[46] HSBC believed that the banking industry was "on track" to meet the shared goal, but considered that it was necessary "to be mindful that, as the number of people without a bank account is reduced, the task of reaching the remainder becomes more challenging".[47] The Economic Secretary to the Treasury told us that a variety of data sources indicated that there had been a significant fall in the number of unbanked, and that gave him some confidence that significant progress was being made.[48]

26. There is evidence to indicate that steady progress has been made so far towards target of halving the number of people without access to a bank account. Banks are collectively accountable for progress so far and in the future. However, it is also vital that each bank can be held to account individually for its contribution to meeting this target. This is not possible at the moment. Individual banks need to accept this responsibility, and accordingly we recommend that the Government, the Financial Inclusion Taskforce and the banks reach agreement enabling each individual bank regularly to publish figures for the numbers of basic bank accounts it has opened in each year. We would expect each bank to develop strategies for ensuring that it makes a proportional and appropriate contribution towards meeting the target, and we would also expect such strategies to take due account of the analysis which follows on the issues surrounding the opening of basic bank accounts.

The business case

27. In assessing the overall approach of the banks towards basic bank accounts, it is important to bear in mind that the banks are businesses accountable to their shareholders. We received evidence that the provision of basic bank accounts is not immediately profitable for the banks and that, in part, their offering is based on a recognition of a responsibility to promote financial inclusion or to look to longer term profitability. Lloyds TSB told us that

there is a cost to the Bank in opening and running basic bank accounts. With an average balance of £371, these accounts generate little income from interest, and as Cruickshank noted, during a period of higher interest rates it took an average current account balance of £1,175 to generate income for suppliers. However, we operate these accounts in recognition that we have a role to play in supporting greater financial inclusion and creating greater access to mainstream financial services.[49]

28. Of course, there is no need for basic bank accounts to be immediately profitable in order for banks to be interested in providing them. Mr James Crosby, Chief Executive of HBOS, told us that

in all my years in the job no single shareholder has ever challenged me on [HBOS's] commitment to social banking. We have been in the market for 20 years and we have roughly 50% of the market, and they understand that to the extent that it adds value directly through the P&L line it is over time.[50]

Banks provide free banking to groups such as students as a loss leader, relying on the ability to cross-sell other products, such as personal loans, mortgages and credit cards. Sir Fred Goodwin told us that

in common with a number of our products [the basic bank account] is not immediately profitable, but there is a basic principle at stake in this, which is about inclusiveness … No-one, in our view, benefits from there being financial exclusion; if we can bring more people into the system then there will, we believe, be more business in due course. No-one benefits from people being outside the system, and so in common with many of our products—for instance student accounts are not profitable—we do it in the belief that they will become profitable customers later on.[51]

29. We received some evidence on the potential for cross-selling other products to basic bank account holders. For example, Mr Hoffman told us that 30% of Barclays' basic bank accounts now had some sort of savings element attached.[52] On opening a basic bank account, users may become more engaged with the financial services sector and want to upgrade their account to a full service current account. Mr Crosby accepted that

banks occupy a privileged position within society … and have certain responsibilities … Having said that, it is also true [that] when you have had those accounts on the books for decent periods, years not months, you learn how to help those customers on to the next rung. It is a starting point. Of itself the basic bank account is not going to do the trick; it is going to reduce the number of unbanked but it is not going to bring people fully into financial services. The next stage is very important as well, and that of course is ultimately more profitable for [the banks].[53]

30. The BBA indicated that a total of 126,000 basic bank accounts have been upgraded to full service current accounts between the second quarter of 2003 and the end of 2005. However, there is a wide disparity in the numbers upgraded by different banks: HSBC has upgraded almost 70,000 accounts, whereas some other banks have upgraded fewer than 1,000 of their accounts.[54] While the provision of basic bank accounts will not be immediately profitable, we welcome recognition by the banks that they have a responsibility to provide such a service and that, in the longer term, bringing more people into the financial services sector will be profitable for the banks. We also welcome the fact that banks are upgrading consumers to full service accounts where this is appropriate for the individual. It is important that the Financial Inclusion Taskforce, in cooperation with the BBA and individual banks, assesses evidence concerning the business case for banks to provide basic bank accounts.

Translating the corporate commitment

31. In evidence, banks stressed their corporate commitment to opening basic bank accounts, but this was not always reflected in witnesses' experience on the frontline. Mr Mike Barry, of Blackpool Citizens Advice Bureau, told us that,

at ground level, despite the corporate commitment, the individual banks are in some cases actively discouraging the opening of basic bank accounts. One customer of ours went to a local high street branch to speak to the customer services manager, who told him 'Those accounts are only opened by the lowest of the low' and was actively discouraging him from opening an account. We find that is a widespread issue amongst our clients.[55]

Mr Pomeroy agreed with this perception and diagnosed it as "the frontline not yet being fully trained and consistently trained … in order to implement the corporate policies".[56] Despite the undoubted corporate commitment of the banks to offering basic bank accounts, there is some evidence to suggest that many people are still encountering problems opening basic bank accounts reflecting branch decisions and attitudes rather than the policies adumbrated in head offices. Banks need to redouble their efforts to tackle such problems and ensure that all sections of their organisation are supporting the corporate commitment to provide basic bank accounts.

The role of the Banking Code and the BCSB


32. The Banking Code is a voluntary code followed by banks in their dealings with personal customers in the United Kingdom. It sets standards of good banking practice and aims to allow competition and market forces to operate, encouraging higher standards of banking practice for the benefit of customers. The Code is reviewed at regular intervals by an independent reviewer who makes recommendations for improvement. The BCSB is responsible for monitoring and enforcing compliance with the Banking Code. The provisions of the Code relating to basic bank accounts are set out below:

3. Helping you to choose products and services which meet your needs. Before you become a customer, we will:

[This provision] requires subscribers who offer a basic bank account to inform certain customers about the account and how to open one. These are customers for whom the basic bank account would appear to be appropriate. Such customers may include those:

  who express an interest in opening a money transmission (current) account which does not allow them to go overdrawn;

  whose main source of income appears to be state benefit;

  who are content to accept the limited money transmission functionality of a basic account (e.g. no cheque book).

  • give you information on a single product or service, if you have already made up your mind; and
  • tell you what information we need from you to prove your identity (by law, we have to check your identity).

3.2 We will tell you if we offer products and services in more than one way (for example, on the internet, over the phone, in branches and so on) and tell you how to find out more about them. Where we offer basic bank accounts, we will tell you if they can be used at post offices.


33. The BCSB monitors compliance with the Banking Code through annual statements of compliance from the banks, monitoring visits and an annual mystery shopping exercise into the ease with which information can be obtained about basic bank accounts and how easily they can be opened. In 2005, the BCSB reported a generally improved picture compared with previous years in that 67% of people would be prepared to recommend the bank they opened an account with (up from 41% in 2003 and 57% in 2004). However, the BCSB told us that "our report also makes it clear that there is not an even picture across the industry":

34. Many witnesses noted that, because the results of the mystery shopping survey were anonymous, it was not possible to identify which banks had performed well and where further improvement was needed.[58] The BCSB told us that they had

rules for compliance and disciplinary matters which are human rights compliant. If we were to publish the data from the mystery shopping that would, in effect, be to name and shame the poor performers which might be beneficial from your perspective, but the problem for us would be that it would be a breach of our rules.[59]

Mr Gerard Lemos, Chairman of the BCSB, expanded on this point in a subsequent letter, stating that

the contract between the BCSB and each subscriber does not permit the BCSB to publish details of alleged breaches of the Code committed by that subscriber unless the subscriber has had the opportunity to answer those allegations. [The BCSB] believe that the [publication of the] results of the survey which have led to a 'red' or 'amber' grading in one of our reviews is tantamount to a disclosure of a breach of the Code and would certainly be regarded as such by the public and the authorities.[60]

However, he confirmed in that letter that, "if an individual subscriber gives the BCSB consent to disclose specific information held by the BCSB about that subscriber to the Treasury Committee, we would be able to release such information". [61]

35. We therefore wrote to the Chief Executives of all participating banks requesting the disclosure of this information. They each responded with a limited disclosure of the performance of their individual banks, their overall rating and the action they were taking to tackle the problems identified by the BCSB.[62] We questioned the representatives of the five major banks about disclosure. Mr Crosby of HBOS could not see a specific reason for not disclosing the results of the survey.[63] Sir Fred Goodwin of RBS indicated that he was quite happy for RBS to publish that information. Mr Fairey of Lloyds TSB told us that he would probably be happy disclosing the information if his bank was given the opportunity to provide additional information to place the results of the survey in context.[64] Mr John of HSBC also indicated that he would be happy for the results of the survey to be made public.[65] Mr Hoffman of Barclays provided a detailed letter, outlining the action that had been taken by Barclays to deal with the issues identified in the BCSB survey.[66]

36. The Banking Code Standards Board mystery shopping survey has been useful in identifying improvements that need to be made to the process of opening a basic bank accounts. However, improvement has not been universal, and there remain several banks that are not meeting their responsibilities. We note the action taken by the banks to improve matters, but we consider it essential that the full results of the next mystery shopping survey are published so that there is full transparency about which banks are meeting their commitments under the Banking Code and which are not. This will sharpen the incentives for the worst to improve and enable the best performers to receive recognition. The Chief Executives of the five major banks or their representatives who gave evidence to this Committee have accepted the principle of transparency and we expect them to lead the way by publishing the full results for their banks and pressing for full publication in relation to all banks.


37. Changes to the terms of the Banking Code can also be used as a mechanism for improving the provision of banking services for the financially excluded. The BCSB has made four suggestions for improvements to the Banking Code to help improve access to basic bank accounts, which Mr Fortescue summarised:

Firstly, mandatory display of literature about basic bank accounts in all branches; secondly, there should be no credit search with credit reference agencies; it is not necessary for opening an account; it is possible to do an identification search rather than a credit search; thirdly, we were concerned that it was taking too long for people to open accounts, so we think the Code should incorporate a standard time to open basic bank accounts … We think it should be possible to have a limitation on the number of days it takes to open a basic bank account; and fourthly, the question of identification, which has been quite a problems … We think verification of ID documents should take place in the branch rather than having [the original documents] sent to some central point.[67]

38. These proposed changes reflect some of the current problems relating to the opening of basic bank accounts which we examine in this chapter and about which we make recommendations. We are here concerned with the timing of any changes that are agreed to. The BCSB initially indicated in oral evidence that these requirements could be incorporated during the next Code review at the start of 2007 and thus come into force at the beginning of 2008.[68] We put it to the BCSB that customers should not have to wait until 2008 for these changes. Mr Lemos pledged to examine this issue and later wrote to us indicating that the independent directors of the BCSB recognised that the changes should be expedited and that it would not be acceptable to wait until 2008.[69] We recommend that the Banking Code Standards Board ensure that any changes to the Banking Code relating to basic bank accounts that they have made or that arise from this Report are implemented no later than the end of March 2007.

Identification and address verification requirements

39. Problems encountered by applicants for basic bank accounts in proving their identity and address were cited by witnesses as the most significant barrier preventing people from opening such accounts.[70] Financial institutions have been subject to requirements to have anti-money laundering procedures in place since 1994, with the most recent requirements set out in the Money Laundering Regulations 2003. The FSA also requires firms to have systems and controls in place to guard against money-laundering.[71] Detailed guidance for firms to follow is set out for the financial services industry by the Joint Money Laundering Steering Group (JMLSG).

40. Problems with applicants proving their identity have been a major issue for some time. In September 2004, Mr John Tiner, Chief Executive of the FSA, speaking from personal experience, described the identity verification procedures being applied then as "just ridiculous" and "having quite a big effect on people who do not have bank accounts at all".[72] In its Report into Restoring Confidence in Long-term Savings, in the last Parliament, the then Treasury Committee noted that there was broad agreement that the money laundering regulations required simplification.[73] For basic bank accounts, all three mystery shopping exercises conducted by the Banking Code Standards Board and reported so far—in 2003, 2004 and 2005—have highlighted continuing problems. The BCSB told us:

Anti-Money Laundering checks still create difficulties. Many benefit recipients do not have documents such as driving licences or passports. Some bank staff need to be more aware of alternative forms of identification: greater flexibility is needed at branch level.[74]

41. When asked to list the barriers that had prevented them from previously opening an account, 56% of clients assisted by SAFE mentioned the provision of identification and address verification documents to satisfy the anti money-laundering requirements as a factor. SAFE noted that, despite the help they had given to applicants in preparing their identification in advance of visiting a bank, 60% of applicants were not able to open an account on their first visit, with over one quarter being refused outright.[75] The BBA accepted that, "for the great majority of retail customers, account opening with the standard identification evidence … is quick and hassle free, but this is often not the case with those special interest groups that may not possess the standard documentation".[76]

42. The FSA and the banks undertook a multi-agency initiative to deliver a more proportionate customer identification regime which commands industry and consumer support and meets law enforcement needs. The new guidelines were released by the JMLSG on 3 March 2006. The BBA told us that the new guidance contained three significant changes compared with previous guidance:

  • A distinction is now made between information that a firm should collect about a customer's identity, and evidence that the firm must verify;
  • For the great majority of customers, for anti-money laundering purposes, a firm in a face-to-face situation will be able to verify, from documents that give a high level of confidence in an individual's identity, the customer's full name and photograph and either their residential address or their date of birth; the effect of this will be to enable identification from a single document where the individual possesses either a passport or a photo-card driving licence;
  • There is now expanded guidance on documentation that may be accepted, on a proportionate and risk-based approach, for those customers who cannot reasonably be expected to possess standard documentation.[77]

43. Mr Tiner told us that the new guidance

basically says that the banks should have a predisposition to help [financially excluded] people open their account, even if they cannot prove where they live—and that is no longer a requirement, which is a very big change from the old system. They do not have to prove their address any more. So the days of utility bills and things like that for these people are gone. All they have to do is take a letter from someone that suggests that they are a bona fide person.[78]

Mr Clive Briault, Managing Director of Retail Markets at the FSA, added that there was now specific guidance covering groups that had previously experienced difficulty, such as newly-arrived immigrants or people just leaving prison.[79] He also made it clear that "there is now a revised set of requirements which should make it much easier for people to open bank accounts … and we would hope that banks would change the way in which they operate to reflect those new, more permissive guidelines".[80] Mr Tiner summed up by stating that that there "is a sea change that is needed in the banks … to help their customers".[81] The FSA rules require "appropriate measures to ensure that procedures for identification of new customers do not unreasonably deny access to its services to potential customers who cannot reasonably be expected to produce detailed evidence of identity".[82] Ms Teresa Perchard of Citizens Advice noted that the new guidelines would allow the acceptance of a benefit entitlement letter, or a letter from a responsible person, and stressed that the issue was now "getting the practice right on the frontline".[83]

44. A number of witnesses expressed concern that the provisions of the Proceeds of Crime Act 2002 that made bank staff individually responsible for their decisions could encourage a risk-averse attitude amongst bank staff to opening basic bank accounts. Mr Seymour Fortescue, Chief Executive of the BCSB, believed that the issue of identity verification needed to be seen

in the context of it being a criminal offence to open a bank account for somebody without adequate ID and the very substantial fines which the FSA has made on certain institutions which have not got it right. There is a risk-averse culture in most banks.[84]

The FSA has taken the step of writing to the banks to tackle this 'fear factor' by indicating that it will take a risk-based approach to enforcing the new requirements. Mr John thought that the problems arising from the risk-averse approach taken by individual members of staff could be tackled through "reinforcement and confidence and training so that members of staff are confident that if it is an item on a list that we provide to all branches then they know that they are okay. It is training; you have to reinforce it."[85]

45. Many banks have both a shortlist of accepted identification, for the most trusted forms of identification, such as a passport, and an extended list that includes less traditional forms of identification.[86] There have been calls for all banks to make both these lists available in branches and to inform applicants of the different options that were available to help them prove their identity.[87] Banks will also need to amend their literature to ensure that there is reference to the fact that a full passport is not always required.

46. Mr Crosby told us that he thought that

the challenge is particularly great for basic bank account applications because a good deal more flexibility was required at the front end because a lot of such customers maybe do not have passports and utility bills and things. So in our organisation, because we process these applications centrally, we have been able to change the money guidance rules for basic bank accounts very quickly—we have not been able to do it for other accounts—and we can see that it is a lot easier; we can have somebody who has the experience to accept a photocopy of a letter from a doctor, for example, as valid evidence. I think that is a sign that it will get better, but there is obviously more to do in terms of the reception that you are hearing that customers are getting.[88]

Sir Fred Goodwin suggested the possibility of a "de minimis" level for money laundering requirements, in other words that there could be some specific level of transactions below which a lower standard of proof could be required, combined with closer monitoring of account transactions.[89] RBS told us that they had "established relationships with intermediaries like Working Links, JobCentre Plus and Reed in Partnership, whose long-standing links to [financially excluded] individuals can help overcome the problem of confirming identity".[90]

47. A number of witnesses noted that the reforms would not provide a complete solution. SAFE considered that recent JMLSG guideline reforms were unlikely to have a huge impact on the ability of the financially excluded to open bank accounts because "the use of one form of identity relies upon the use of a primary form of identification (e.g passport) which people experiencing financial exclusion are usually unable to provide in any case".[91] SAFE also noted that, while applicants may be able to use their original DWP proof of benefit entitlement award letter, "the address may be old and therefore contradict what the client is stating as their new address" and "the original letter cannot be reissued".[92] We also note that, under the standard procedure for confirming identity, where an applicant can only produce a Government document without a photograph, such as a benefit entitlement letter, this will need to be supported by a second document, such as a utility or council tax bill. Mr Pomeroy cautioned that, while the rules were a great improvement, he did not think "they necessarily solve the problem for everybody".[93] He believed that the key point was that "it is one thing to have the rules; it is another thing to have bank frontline staff trained in them and implementing them". He urged "the banks to make sure their frontline staff are fully trained, so that they do accept the alternative documentation and do not turn people away because they are not au fait with the latest rules".[94]

48. Problems with satisfying the identification requirements of the anti-money laundering regulations are the single most significant barrier preventing access to basic bank accounts. There is a need for a proportionate regulatory regime that strikes an appropriate balance between promoting financial inclusion and the need to combat money laundering. We welcome the recent revision of the money laundering guidance that seeks to accomplish these aims. The banks now need to ensure that this flexible approach is reflected in their own internal guidance and also that a flexible approach is taken at branch level. In order to comply with the requirement of the Banking Code to "tell customers what information they need to provide to prove their identity", we recommend that all banks provide extended lists to applicants and ensure that staff are advised to work with applicants to inform them of all possible options for proving their identity.

49. It is important that the FSA continues its actions to remove the risk-averse culture at bank level and take a risk-based approach to enforcement. It is also important that individual banks remove the barrier of risk-averse individual employees through clear training on what forms of identity are acceptable and the importance of promoting financial inclusion. We recommend that the FSA monitor the implementation of the revised JMLSG guidance closely and produce a report in the first half of 2007 on the variety of approaches taken by the banks, including an assessment of whether these have led to improvement. We further recommend that the FSA take action under its rules if it is found that the procedures or practices of individual banks at branch level unreasonably deny access to basic bank accounts to those who cannot reasonably be expected to produce particular documentation as evidence of identity.

50. Many financially excluded individuals will be in contact with public sector agencies and we note the partnerships that banks have developed with organisations such as Job-Centre Plus. We recommend that the Government review the extent to which existing relationships with public sector organisations can be used to help the financially excluded prove their identity. We also expect the Government to encourage banks to develop links with public sector organisations and other third sector groups such as housing associations and to work proactively with organisations such as SAFE to develop solutions to help financially excluded people prove their identity.

51. Membership of the Joint Money Laundering Steering Group consists of 16 trade associations in the financial services industry. The Group's aim is to promote good practice in countering money laundering and to give practical assistance in interpreting the Money Laundering Regulations. To ensure that the implementation of money laundering regulations and associated industry guidance adequately consider the needs of financially-excluded consumers, we recommend that membership of the Joint Money Laundering Steering Group be expanded to include a representative of consumer groups.

Unsuccessful applications

52. We received evidence to suggest that some individuals who were unsuccessful in applying to open a basic bank account did not understand why. This could lead them to make a further application without remedying the problem that gave rise to the lack of success of the previous application.[95] We recommend that the Guidance accompanying the Banking Code be amended to ensure that, where applications for basic bank accounts are turned down, banks should explain to applicants why their application has been turned down and what steps might need to be undertaken to allow their application to be accepted.

Delays in opening basic bank accounts

53. Citizens Advice reported to us that some of their clients were experiencing long delays when attempting to open basic bank accounts with some banks. When a benefit claimant is required to open an account before they can receive their benefit, such delays can cause significant inconvenience and potentially hardship.[96] The BCSB agreed that "speed of being able to open an account is crucial where the payment of benefits is concerned". Their mystery shopping found evidence of "unnecessary delays (in one case of up to seven weeks)", which were described as "unacceptable".[97] Mr Fortescue told us that the cause of these delays was

usually to do with identification problems, particularly if the documents have to be sent to a central point; they then get sent back with a letter which somebody, whose first language may not be English, may have difficulty in understanding … You can imagine the sort of delays which result.[98]

54. SAFE referred to the issues of cost and security as well as delay in cases where applicants were required to send away original copies of identity documents for verification, noting that "for some [applicants] the only valid form of identity they may have is a giro cheque. They would simply not be able to send this off in the post and wait for it to be returned an unlimited number of days later."[99] Some banks have begun to make changes to tackle these problems. Barclays told us that they had altered their processes so that applicants no longer had to send original identity documents to their central processing unit and could now have them verified in the bank branch.[100]

55. Ms Whyley of the NCC believed that, "because the basic bank account is often used for benefit payment, knowing when your account will be open is critical to having that system working reliably". She felt that there should be a time limit specified for the basic bank account opening process.[101] Mr Fairey of Lloyds TSB accepted the principle that, once a bank had satisfied its obligation under the money laundering regulations, it should take no longer than ten days to provide a fully operational basic bank account.[102] Long delays in opening basic bank accounts are unacceptable. These delays are associated with the central processing of applications, as opposed to banks allowing processing to be undertaken at branch level. We recommend that the Banking Code be amended to require verification of identity documents to take place at branch level rather than applicants being required to send documents away to a central point. We would expect that all banks would wish to ensure that they have procedures in place for verification at branch level even before such a change to the Code comes into effect. We further recommend that the Banking Code be amended to establish a maximum time limit of ten days for providing a fully functional basic bank account where the customer has provided appropriate identification. We would expect individual banks to ensure that their own standards meet or improve upon that limit before such a change to the Code comes into effect.

Access for people in debt or undischarged bankrupts

56. Early in 2005 our predecessors noted that basic bank accounts were a useful tool for people with bad debts to manage their repayments, without the risk that paying money into an overdrawn account would be significantly reduced by charges.[103] Because basic bank accounts have no overdraft facility, access to a basic bank account can also prevent the accumulation of further debt. The Government agreed with the then Committee that "Basic bank accounts can be a useful way for people in debt to manage their commitments and attempt to resolve their problems".[104] However, as can be seen from Table 3, a number of banks currently do not allow people with bad debts to open basic bank accounts:

Table 3: Reasons for refusing access to basic bank accounts
Bank Reasons for refusal
Abbey: Basic Account Undischarged bankrupt, record of fraud
Alliance & Leicester: Basic Cash Account Undischarged bankrupt, some bad debts, depending on individual circumstances
Bank of Ireland: Basic Cash Account Undischarged bankrupt, record of fraud, record of bad debts
Bank of Scotland: Easycash Undischarged bankrupt, record of fraud
Barclays: Cash Card Account Record of fraud
Clydesdale: Cashmaster Undischarged bankrupt, record of fraud, some bad debts
Co-operative Bank: Cashminder Record of fraud
First Trust Bank: Basic Bank Account Undischarged bankrupt, record of fraud, record of bad debts
Halifax: Easycash Undischarged bankrupt, record of fraud
HSBC: Basic Bank Account Undischarged bankrupt, record of fraud
Lloyds TSB: Basic Bank Account Undischarged bankrupt, record of fraud
Nationwide Building Society: Flex Cash Card History of fraud
NatWest: Step Account Undischarged bankrupt, record of fraud
Northern Bank: Cashmaster - Basic Undischarged bankrupt, record of fraud, record of bad debts
The Royal Bank of Scotland: Key Account Undischarged bankrupt, record of fraud
Ulster Bank: Basic Bank Account Undischarged bankrupt, record of fraud
Yorkshire Bank: Readycash Undischarged bankrupt, record of fraud, record of bad debts

Source: FSA, Basic Bank Accounts - Your questions answered, page 7

57. The vast majority of banks restrict the ability of people who are undischarged bankrupts from opening bank accounts. The Enterprise Act 2002 made changes to the insolvency regime to make it more supportive of enterprise. The maximum duration of bankruptcy was reduced to one year to "allow a fresh start for those who have failed through no fault of their own".[105] The number of people opting for bankruptcy has risen strongly in recent years, with personal insolvencies reaching 47,291 in 2005, an increase of 31% on the previous year.[106] Citizens Advice argued that "the limited choice of bank accounts for undischarged bankrupts arguably contradicts the Government's policy intention that bankruptcy should allow people in unmanageable debt to make a fresh start".[107]

58. Some of the problems faced by applicants may be related to the decision of banks to undertake credit searches for basic bank account applicants. To help confirm an applicants address, banks may undertake electronic identity checks to determine whether a person was on the electoral register, but it is not necessary to undertake credit checks for an account that does not provide credit.[108] Nevertheless, the BCSB found in its 2005 survey that, "in 38% of cases, our assessors were advised that they would be credit checked".[109]

59. There are some examples of good practice amongst the banks. Barclays, the Nationwide Building Society, and the Co-operative bank will offer basic bank accounts to all applicants unless they have a record of fraudulent activity. We welcome the policy of Barclays, Nationwide and the Cooperative bank in providing access to basic bank accounts to all except those with a record of fraudulent activity. Basic bank accounts are a useful way for those in debt to manage their commitments and attempt to resolve their problems. Because basic bank accounts do not offer any credit, banks should not need to conduct credit reference checks—as opposed to electronic identity checks—on applicants, and we recommend that the Banking Code be amended to prohibit such credit reference checks. Denying basic bank accounts to undischarged bankrupts seems to run contrary to the spirit of the policy of the Government to encourage enterprise by introducing a bankruptcy procedure intended to provide a fresh start for those who fail through no fault of their own. We recommend that the Banking Code be amended to ensure that basic bank accounts are not unreasonably denied to those with debt problems and we further recommend that all banks review their policies on access to basic bank accounts for those in debt and undischarged bankrupts.

Promotion and marketing

60. The availability of clear and informative literature about basic bank accounts can be an important method of encouraging the financially excluded to apply for bank accounts. Similarly, a lack of literature can mean that applicants find it difficult to apply for an account or are simply not aware of its existence. The BCSB told us that

Whilst it is not a Code requirement to do so, in every survey that we have undertaken to date we have recommended that banks and building societies make sure that their Basic Bank Account literature is readily available in branches. There has been some improvement, but we found that about 30% of our assessors had difficulty in getting literature and in some cases it was not available at all.[110]

In many cases, the literature was not available in the banking hall and was only available behind the counter.[111] SAFE believed that the banks needed to make greater effort to ensure that their literature clear and appropriate for the financially excluded.[112] We recommend that the Banking Code be amended to require all banks to display their basic bank account literature in branches. Marketing material should be developed with the needs of the financially excluded in mind and we encourage banks to work with community groups and others to ensure basic bank account literature is appropriate and accessible.


61. We received evidence that banks were attempting actively to dissuade individuals from opening basic bank accounts. The BCSB's mystery shopping indicated that in 20% of cases applicants were actively dissuaded from opening basic bank accounts. Again, results varied between banks, with one actively dissuading 40% of applicants, while another did not actively dissuade a single person from opening an account.[113] We expect the Banking Code Standards Board to investigate the extent and form of dissuasion of financially excluded people from opening basic bank accounts and to take action against any banks found to be actively dissuading such people from opening basic bank accounts.

34   Ev 303 Back

35   Financial Inclusion Taskforce, Report on progress towards the shared goal, March 2006 para 9 Back

36   Figure up to the end of the second quarter 2006, British Bankers Association, press release, 5 October 2006 Back

37   Millward-Brown, Understanding consumer experience when opening and using basic bank accounts, March 2006 Back

38   A benefit unit is defined as an adult and their partner, if they have one, and any dependent children. A household is defined as a single person or group of people living at the same address who either share one meal a day or share the living accommodation, i.e. a living room. Back

39   Financial Inclusion Taskforce, Report on progress towards the shared goal, March 2006 paras 10-11 Back

40   Ev 279 Back

41   Ev 393 Back

42   Banking Code Standards Board, Survey of Subscribers providing Basic Bank Accounts, November 2005, p 5 Back

43   Ev 327 Back

44   Q 782 Back

45   Qq 481-482 Back

46   The New Economics Foundation, Basic bank accounts: the case for a universal service obligation, 2005 Back

47   Ev 352 Back

48   Q 977 Back

49   Ev 369  Back

50   Q 778 Back

51   Q 775 Back

52   Q 780 Back

53   Q 778 Back

54   Based on figures provided by the British Bankers Association. Back

55   Q 6 Back

56   Q 483 Back

57   Ev 203 Back

58   Ev 405; Qq 8-10; Citizens Advice, Banking Benefits, January 2006, p 39 Back

59   Q 334 Back

60   Ev 204 Back

61   Ibid Back

62   Ev 211-212, 326-328, 376-377, 455 Back

63   Q 772 Back

64   Qq 770-771 Back

65   Qq 774 Back

66   Ev 211-212  Back

67   Q 347 Back

68   Q 348 Back

69   Ev 205 Back

70   Ev 353, 215, 202 Back

71   These are currently set out in the FSA's Money-Laundering Sourcebook. The FSA has recently announced its intention to replace the Money Laundering Sourcebook with a limited number of provisions focusing on senior management responsibility, risk management and systems and controls. See FSA PS06/01: Reviewing our Money Laundering regime, 27 January 2006. Back

72   Treasury Committee, Oral and written evidence on the Single Market in Financial Services, 16 September 2004, HC (2003-04) 1068-I, Qq 43-44 Back

73   Treasury Committee, Eighth Report of Session 2003-04, Restoring confidence in long-term savings, HC 71-I, para 81 Back

74   Ev 202 Back

75   SAFE, Banking the Unbanked-a snapshot, pp 44-46 Back

76   Ev 215 Back

77   Ibid Back

78   Q 685 Back

79   Q 687 Back

80   Q 688 Back

81   Ibid Back

82   FSA Handbook, Senior Management Arrangements, Systems and Controls, SYSC 3.2.6 G(5) Back

83   Q 16 Back

84   Q 353 Back

85   Q 802 Back

86   Ev 206 Back

87   SAFE, Banking the Unbanked-a snapshot, p 46 Back

88   Q 799 Back

89   Ibid Back

90   Ev 452  Back

91   Ev 466  Back

92   Memorandum from SAFE: unprinted. Back

93   Q 486 Back

94   Ibid Back

95   Citizens Advice, Banking Benefits, January 2006, p 38 Back

96   Ev 241 Back

97   Ev 202 Back

98   Q 360 Back

99   SAFE, Banking the Unbanked - a snapshot, p 51 Back

100   Ev 212 Back

101   Q 12 Back

102   Q 805 Back

103   Treasury Committee, Second Report of Session 2004-05, Credit card charges and marketing, HC 274, para 75 Back

104   Treasury Committee, Second Special Report of Session 2004-05, Responses to the Committee's Second Report of Session 2004-05: Credit card charges and marketing, HC 508, p 10 Back

105   Speech by Melanie Johnson MP, Insolvency Lawyers Association, 13 November 2002 Back

106   The Insolvency Service, press release, 5 May 2006 Back

107   Citizens Advice, Banking Benefits, January 2006, p 18 Back

108   Banking Code Standards Board, Survey of Subscribers providing Basic Bank Accounts, November 2005, p 7 Back

109   Ibid Back

110   Ev 202  Back

111   Banking Code Standards Board, Survey of Subscribers providing Basic Bank Accounts, November 2005, p 6 Back

112   SAFE, Banking the Unbanked, pp 30-32 Back

113   Banking Code Standards Board, Survey of Subscribers providing Basic Bank Accounts, November 2005, p 10 Back

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