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
