We need to take back control from the banks

After the Nigel Farage ‘debanking’ furore last month, politicians and the media have started to show a long overdue interest in the murky workings of modern financial services. We now know that thousands of customers across the UK have had their bank accounts closed without explanation, in many cases due to their political beliefs. And I fear that we have only seen the tip of the iceberg so far.

Of course, there is nothing new about the financial elites trying to influence politics. Except now, not only are banks trying to preserve their interests and maximise their profits, as they have always done. They are also trying to dictate what opinions we can hold on a range of contentious issues. As Farage discovered, the banks do not take kindly to those who express contrary views on issues ranging from the EU and lockdown to Black Lives Matter and climate change.

So what’s driving this sudden politicisation of banking? Some say it’s that junior employees see enforcing politically correct beliefs as a higher calling than handling loans and deposits. Or perhaps the banks, like other corporations, see promoting woke values as a cheap and effective way to signal their virtue and gain favour with the rest of the establishment. It could also be a cynical ploy for the banks to divert attention from what they are really up to. (For instance, Farage’s bank, Coutts, has previously been accused of having poor money-laundering checks.)

Whatever the reasons, no democratic society can allow its banks to dictate the terms of political discourse, and to excommunicate those who resist. In a modern society, everyone needs a bank account just to function normally – especially now that the financial system seems to be trying to bring an end to the use of cash.

This cannot be allowed to go on. But what can politicians do? The first step is to realise that this situation is to a large extent the fault of politicians. They have, often unknowingly, given the banks the tools or at least the pretexts for debanking us. At the same time, politicians have made it harder for themselves to intervene in defence of the public and of democracy.

In Iceland, where I was prime minister between 2013 and 2016, the financial system and its problems loom large over political life. Over the past 20 years, we had a huge financial bubble followed by a brutal financial crisis that is still having repercussions today. We had to rebuild the financial system almost completely from scratch, and find ways to deal with the fallen banks and creditors. There have been big failures and huge successes along the way. Both should offer valuable lessons.

Unfortunately, we have not learned enough from our experience. Most of the successes we had were when we acted unilaterally as an independent country. We managed to address the problems that were particular to Iceland’s situation, and to take the public’s concerns on board, too. Most of the mistakes, on the other hand, were made when we followed the rest of the world, or when we simply adopted rules that were handed down to us from the EU (Iceland is not a full EU member, but we are bound by the rules of the Single Market). Since the financial crisis, we have implemented endless new rules and regulations, many of which have not been properly scrutinised.

Now Iceland, like every other country in the West, has strict rules around how the banks should deal with ‘politically exposed persons’ or PEPs. Banks are required to carry out extra checks on these ‘political’ clients. They are also able to refuse them services on the grounds they are more susceptible to bribery and corruption than the average person. On the surface, this sounds unobjectionable, but it has had all kinds of adverse consequences.

The problem is that politicians generally do not understand or even bother to read the lengthy and highly complex regulations they are signing off on. In any case, even if they did, most would not dare to oppose them anyway. After the financial crisis, it would take a brave politician to oppose any new regulation on banking. What’s more, such measures are presented as necessary to prevent terrorism and money laundering, which no one wants to be on the side of. As well as all this, politicians are faced with constant reminders that ‘everyone else in the world is doing this so we have to, too’. Countries that don’t fall in line risk being downgraded on international score cards.

Ironically, banks tend to support these kinds of rules. The big banks recognise that taking on new regulations can give them a competitive advantage. Large incumbent firms can hire entire departments to figure out all the red tape, while they make their customers foot the bill. Smaller firms and new entrants to the market are hit hardest.

All too often, the results of these kinds of regulations only become apparent when it’s too late. I can’t tell you the amount of times I’ve heard parliamentarians complaining about how rules they once backed have caused their parents, children, aunts and uncles great difficulty with their banks due to them now being considered to be PEPs. Recently, when a young woman working for my party gave birth, she received a letter from her bank two days later, informing her that her daughter is now a politically exposed person.

Returning to the Nigel Farage scandal, it’s clear Coutts and its owner, NatWest, went out of their way to punish him for wrongthink. But in many cases, banks are simply trying to carry out what they’ve been asked to do by the state. Some banking regulations essentially encourage banks to all but spy on their customers. All of this has gone hand in hand with the rise of ESG (environmental, social and governance) scores, which are used by investors to pick ‘socially responsible’ companies.

When all of these factors come together, it is perhaps no wonder banks start to see their role as political rather than just financial. It’s how we end up with banks closing the account of the small-business owner with slightly conservative views, or the parent who has concerns about the Progress Pride flag at their local bank branch. And once one bank has cancelled someone, others are likely to follow. Why would a bank spend time vetting, say, a small town butcher, when another bank has already done the research and found him to be a wrong’un.

All of this poses a serious danger to democracy. We need our politicians to recognise the threat and to act now. We need to stop the banks from meddling in politics. We could even call it ‘taking back control’.

David Gunnlaugsson is a former prime minister of Iceland.