Why is it so hard to open a bank account in the UK?

January 18, 2009 4:08 AM

Why is it so hard to open a bank account in the UK?

I've read and heard many stories about the difficulty new immigrants to the UK have in opening a bank account, with letters from employers, length of residence requirements, and other onerous requirements often imposed.

Why is this? I could understand with credit cards or overdraft the need to establish good credit. But what is the risk to the bank when a customer opens a savings account? Surely they would want as many new deposits as possible?

posted by dave99 to work & money (17 comments total)

Money laundering.
posted by zemblamatic at 4:21 AM on January 18, 2009 [2 favorites]

One area where UK banking actually is tightly regulated is money laundering. Some banks are better controlled than others, however they all must adhere to the regulations set out in both UK law and the EU Money Laundering Directive (more over at the Financial Services Authority website).

For the same reasons, electronic money (eMoney, eCurrency, etc) is heavily controlled - unlike many other countries, buying pre-paid Visas/Mastercards generally requires registration and an identity check once you load a certain amount of money on to it or make a certain number of transactions. Some providers even do checks at application stage. One popular ID check provider is Call Credit ML (Money Laundering). It is similar to credit check services provided by Call Credit, but focussed more heavily on ID verification than credit score.

It's quite an in depth topic but hopefully this reply will give you enough to go on for some Google searching.

Note: While I didn't work in the financial sector, I did manage a retail store providing consumer credit and in order to answer a lot of our customers' questions, I researched into the regulatory side of consumer credit and banking.
posted by dcbarker at 4:42 AM on January 18, 2009

UK saving accounts almost always have an automatic overdraft attached. Hence, giving someone a bank account is like giving them credit and hence banks are reluctant to give accounts to unreliable or unknown people.

(It may also be simple tradition / "that's the way it's always been done". I got my first UK bank account after a several days of unsuccessful tramping around into banks. Offering to open it with a substantial balance was insufficient, as was any proof of money in accounts overseas. Eventually Barclays gave me one after sighting my passport and a letter from my employer. Caveat - this was some years ago, things may have changed.)
posted by outlier at 5:09 AM on January 18, 2009

While it is true that a lot of documentation is required to open accounts, perhaps justifiably, in our experience there is also the following X-factor: service at many UK banks is shockingly bad.

Numbered anecdotes: 1) It took 3 months to get an ATM card for my account. 2) It took another 2 months, five visits to the bank, and about 4 hours of speaking to representatives to add my wife to the account. 3) It took a colleague 3 months to be able to withdraw any money from his new account... because the branch at which he opened his account underwent refurbishing and no other branch, nor the bank headquarters, would help him until his home branch reopened. Oh, sure, they took deposits just fine during this time. 4), 5), 6): similar 1-3 month hassles for friends from Britain, Japan, Germany.

In all cases, the reasons for the above nonsense were not due diligence, or security concerns, but documents being repeatedly "lost" in the mail by the banks, admitted mis-communication between branches and the main offices, powerless low-level customer service agents who are only interested in marketing arbitrarily-named branded banking products at you, mid-level agents with an insufficient command of the language and common sense, and no inherent worry that you might take your business elsewhere because the bank down the street is just as bad.

Names hidden to protect the guilty: HSBC, Barclays, Lloyds, NatWest.

At least they haven't figured out they could totally get away with charging Americans ATM fees.
posted by fatllama at 5:23 AM on January 18, 2009 [1 favorite]

Money laundering.

zemblamatic is correct - that is what they usually tell people - but that's still a terribly unhelpful answer. the UK had just as many problems with drug dealers putting their earnings into accounts opened under false names and wiring them off to other countries as the other european countries had. that's why european banks will report any deposit made north of a certain amount to regulators. the UK has a -for europeans at least- relatively right-wing 'law and order' government situation and they overshot the target IMHO. it's strange that an official government ID or NI card will not establish your identity properly but a letter from a private gas company will.

I actually didn't think it was too difficult compared with dubai, which was a royal pain in the ass. all you need to do is get sky or cable tv or utilities established. then call and pester the company to send you a bill right now (and not just in two or three months). go to a bank like hsbc (I chose them because the account was free) with that, your passport and if you're on a visa that as well. this will take an hour or two but you should be able to open the account. sometimes they ask for an NI number as well, so if you have one already bring it with you, too.
posted by krautland at 5:26 AM on January 18, 2009 [2 favorites]

I actually didn't think it was too difficult compared with dubai

While I could go on for some time on the topic of banking incompetence in Dubai, I found that it was easier to open an account here than it was in England. All I had to provide was proof of visa status (just my passport).
posted by atrazine at 5:38 AM on January 18, 2009

I had no problems opening a bank account in the UK. It was quick and painless and I've had no problems since then either (going on 6 years now). I am, however, a citizen of the European Union which means that any money I do 'skip out' on they can chase me down for with less problems than outside the EU, or at least this is how I've understood it.
posted by slimepuppy at 5:43 AM on January 18, 2009

In 2002, opening bank accounts got a lot harder worldwide thanks to new policies outlined in the USA PATRIOT Act. You might be interested in the Know Your Customer quick reference guide which outlines anti-money laundering compliance standards in 50 countries.
posted by aquafortis at 5:53 AM on January 18, 2009

Banks may accept lesser degrees of checking to open a 'basic bank account', which will have no overdraft or cheque-book facility. Most banks offer these accounts, but they don't tend to advertise them (presumably because they will make very little profit on them). There is a list of which accounts to ask for at the FSA again. Also, Proving Your Identity.
posted by wilko at 7:01 AM on January 18, 2009

This isn't answering your question, but I thought I'd throw it in that while I was living in the UK, we (mostly Canadians and Americans coming to work in London) used to throw "I finally have a bank account" parties. For real. It was the most horrendous process we've ever been through.

Interesting ideas as to why this is above - thanks for those. But the appalling customer service (or really, lack thereof, in the UK) seems to be a big part of this. One good friend of mine who had arrived with a salary of about £150,000, already had secured a year's lease on a flat, had utility bills already paid, letters from employers, letters from his bank in Canada etc. and just wanted to open a savings account at Barclays was told within five minutes: You couldn't possibly have this salary, we don't believe the rest of your details, please leave.

He opened up a savings account with another bank that afternoon. (Though it took a further two months to get a debit card.)
posted by meerkatty at 7:25 AM on January 18, 2009

fatllama, they did charge us fees. The nation kicked up a fuss and stopped using machines where fees were charged. They stopped charging fees (well apart from the rip off Link machines in pubs and cornershops, but that's a whole other issue). That's why so many of holes in the walls proudly proclaim that you won't be charged any fees.
posted by Helga-woo at 8:04 AM on January 18, 2009

I wonder if it has to do with where you're trying to open the account in the first place? Most Americans moving here for work, for example, tend to cluster around places like London. The branches of my bank I've dealt with in London are very security, "forms in triplicate", and ID conscious in a way that branches where I live (north of England) aren't. When I went to open my account, I brought in a copy of my lease, my passport, and a job offer letter with me. That's all it took.

On the other hand, put yourself in the position of the wageslave at the bank's customer service desk. You have someone approach you who says, essentially:

"Hi, I am foreign, here for a while, but not necessarily for the long term. I have no credit in your country, so you have no idea of my spending habits, but I need an account with an overdraft and cash card attached. I keep asking questions about frequent international transfers, and I don't have a national insurance number or any sort of way for you to know that I'm in the system for long enough to make it worth your while to extend this credit and courtesy to me"

Yeah, I'd run a mile, too.
posted by Grrlscout at 8:39 AM on January 18, 2009 [1 favorite]

I think it's an historical thing. I opened a UK bank account in 1985 or so, which I think was before banks had to comply with anti money-laundering legislation. You approached the bank manager as a supplicant with your passport and details, and if you were lucky he would deign to grant you an account. I know a lot of people who didn't use banks at all for normal transactions: the Post Office had a much more convenient setup for small deposits and withdrawals. In fact, if you didn't have a mortgage there was no need to have a bank account at all.
posted by Joe in Australia at 11:20 AM on January 18, 2009

I think it's hard to overstate how primitive and ass-backward the UK banking system is if you come from another first world (or, hell, probably a lot of third world) country.

When my family moved there for a couple of years in the early eighties they were still transferring branches by moving physical ledger books from safe to safe. When I worked there in 2000 I opened an international account from overseas, and then couldn't perform basic account functions until I moved the branch from the centralised international customer centre to the local physical branch - simple stuff like ordering a chequebook and so on all had to be done via 'my' branch - I couldn't just walk into a branch and do stuff. Most vexing, my regular international money transfers could only be accomplished in person, at a branch, with staff who found the whole idea novel, and needed the process explained to them every other time.

There's no EFTPOS network, but that's more common, I guess; the overall feeling I got was that UK banks are about 20 years behind everyone else.
posted by rodgerd at 12:20 PM on January 18, 2009

Well, I for one am very happy with my UK bank account. The staff are generally helpful. The service is excellent and free. I get a pretty good rate of interest, even on my current account. I recently opened a third current account (a dummy to give to PayPal), and the whole process was totally painless.
posted by mr. strange at 3:03 PM on January 18, 2009

Money Laundering is the standard reason given, and there certainly is a regulatory requirement to Know Your Customer (KYC), but the reason the banks make it so difficult is to manage their risk.

An account with no overdraft facility has 3 primary risks to the bank: financial, regulatory and reputational. Financial risk comes from things like depositing a cheque, waiting for it to clear, taking all the cash out and then the cheque is later cancelled by the issuer.

Regulatory and reputational risk comes from assisting people who are later discovered to be dodgy and the bank can be fined or put on the front page of the Daily Mail or Metro.

Of course, some banks are a little smarter and have finally realised that managing risk is (supposed to be) what they do best, and that it's possible to put a mitigation cost to this risk. For example, HSBC offers the Passport account where you pay 6 pounds a month for 12 months in return for a real (e.g. with debit card) bank account .
posted by quiet at 1:59 AM on January 23, 2009

or example, HSBC offers the Passport account where you pay 6 pounds a month for 12 months in return for a real (e.g. with debit card) bank account .

which is a total ripoff nobody needs to fall for. all you need is an NI number and a gas bill and you qualify for a regular account. they just want to take advantage of a foreigners ignorance.

the passport account should never be advertised as a good choice to anyone on mefi.
posted by krautland at 9:46 AM on January 23, 2009