The Government must listen to SMEs which are struggling with overly strict anti-money laundering regulations designed for big business, by Kelly Tolhurst MP

I have put forward this Westminster Hall Debate about banking businesses and undesignated clients accounts as it is an extremely important issue that could have a significant impact for many businesses and customers in the future as well as the UK financial markets.

I have a background in marine businesses, and when the Association of Brokers and Yacht Agents (ABYA) reached out to me to highlight their concerns, it was my priority to work with them, as well as His Majesty’s Treasury, and other relevant parties such as UK Finance and the FCA.

I initially raised this on behalf of the yacht broking industry, but have since learnt that this is an issue that affects a number of other industries including Estate Agents, Letting Agents, Jewellers, Care Homes and Solicitors. So many of these small businesses deal with large quantities of client’s money using pooled client accounts (also called undesignated client accounts).

Over the past couple of years, I have heard horror stories from a number of reputable and long-established companies who have been driven to the brink of closure as a result of how the anti-money laundering regulations, in particular the Joint Money Laundering Steering Group (JMLSG) Guidelines, are being understood and implemented by UK banks.

In 2020, significant changes occurred to Anti-Money Laundering regulations and this is when I first heard of the struggles that the industry came up against. The Anti-Money Laundering Act of 2017 and updated JMLSG guidelines were introduced, but notably, they did not mention yacht brokers being excluded from FCA registration or that their pooled client account (PCA’s) could be asset using a simplified due diligence approach. This led to confusion and concerns within the industry.

As a result, major banks such as Lloyds, HSBC, Barclays, and NatWest started to refuse to open PCAs for yacht brokers and threatened a number of businesses with the closure of their accounts. Over the following months I heard numerous stories from businesses in the industry, fearful that should they have their accounts closed, they would be unable to trade.

Businesses that had been trading for decades were suddenly faced with this terrifying prospect. Many of these yacht brokers are small independent family run businesses. Contrary to what often comes to mind when yachts are mentioned, these aren’t large businesses that trade superyachts or who have thousands in capital behind them. They tend to be long established, reputable, small businesses selling smaller boats. Some of these family run businesses, registered UK companies, operate across border supporting UK clients buy and sell or hire their boats. Many of their clients are repeat customers because of the great experience they encountered and the reassurance and confidence that they have that their funds are safe.

In January 2022, ABYA and I held a crucial meeting with Economic Secretary to the Treasury at the time, John Glenn along with UK Finance. Following this the Minister agreed to issue guidance allowing banks to use simplified due diligence for opening and maintaining PCAs. This decision was made to try and temporarily ease the conflict between banks and account holder and encourage banks to keep accounts open while a comprehensive review of anti-money laundering regulations was underway. This review was expected to be completed by December 2022, however, to both mine and the industry’s disappointment, this was pushed back a year until December 2023.

The consequences of these developments extend beyond the yacht broking industry. They set a concerning precedent, indicating that funds held in PCAs for clients may not be as secure as previously believed. This situation has implications not only for the yachting industry but also for lawyers, estate agents, care homes, and many other sectors.

It has been a particularly tiring and frustrating few years for the industry and there is only so much that ABYA and other industry representatives can do to show their willingness to help find solutions. However, what we really need is the same willingness and drive from other parties.

As mentioned – these businesses are often small businesses or sole traders that have been long established. Like any business, these companies are the lifelines to their owners and employees and rarely have significant capital reserves to keep them afloat while a resolution is sought.

It is heart-breaking to hear the panic and distress that owners of these businesses have been put through, with some business owners driven to the point of illness or wanting to take their own lives due to the stress of potentially losing their business.

That is why I want to see the Government engaging with the banking sector to represent the views of these small businesses who are struggling to survive as a result of these overly strict anti-money laundering regulations and how these regulations are being applied to these types of businesses.

Kelly Tolhurst MP

The Rt Hon Kelly Tolhurst is the Conservative MP for Rochester and Strood, and has been an MP 2015