Fighting financial crime post Brexit: what next?
From 1 January 2018, banks and building societies will be required to carry out a further 70 million immigration status checks every quarter.
The Immigration Act 2014 requires banks and building societies, including banks that are UK branches of EEA banks and non-EEA banks, to carry out checks when opening current accounts for the purposes of identifying ‘disqualified persons’. The Act defines a disqualified person as being any person in the United Kingdom who requires, but does not have, leave to enter or remain, and for whom the Secretary of State considers a current account should not be opened. The opening of an account also refers to joint accounts, accounts where the disqualified person is a signatory or beneficiary, or adding the person to an existing account as the same.
As part of the Government’s plan to create a “hostile environment” for illegal immigrants in the UK, as of 30 October 2017, the Government will implement Schedule 7 of the Immigration Act 2016. The introduction of this provision will place additional obligations on banks in respect of checking persons who open or hold accounts. The amended legislation also encompasses further types of account that will now be relevant to the checks. Whereas the previous requirement was in respect of current accounts, the new provision requires checks to be carried out on any financial product by means of which a payment may be made.
From 1 January 2018, in addition to the checks carried out at the time of account opening, banks and building societies will be required to carry out periodic quarterly immigration checks on existing accounts. These checks will be performed by way of a search of the Credit Industry Fraud Avoidance System (CIFAS) database using the individual’s name, date of birth, and address. Banks will not be required to obtain further documentary evidence of the individual’s immigration status. The database is supplied by the Home Office and contains details of persons who are believed to be in the UK illegally, for example failed asylum seekers or over-stayers. If the bank or building society identifies someone who they suspect to be a disqualified person, they must notify the Home Office who will confirm whether the individual is a disqualified person. While awaiting confirmation, the bank or building society will operate the account as normal and should avoid informing the individual that they have been flagged. If the Home Office recognises the account holder as a disqualified person, the Home Office can apply to freeze or close the account. The Home Office will allow the individual to have access to funds to cover living costs and legal expenses at an amount deemed reasonable by the Court. The Home Office estimates that the new scheme will identify an additional 6,000 individuals in the first year who do not hold legal immigration status (and 900 per year thereafter), and claim that this measure will be used in routine cases to disrupt the ability of illegal migrants to remain in the UK and therefore it acts to encourage them to leave voluntarily.
Banks and building societies will need to ensure they have suitable systems in place in order for them to carry out the checks and to comply with the reporting and sanctioning obligations pursuant to Sections 40, 40A, 40B, and 40G of the Immigration Act 2016. This is in addition to the requirement to retain records for a period of at least five years to demonstrate their compliance with the Act.
The FCA will monitor and enforce compliance and if the applicable financial institutions do not comply with the new regulations there will likely be sanctions imposed.
Commentators have expressed concerns over the reliability of the new system and the manner in which mistakes can be resolved. For example, the data provided by the Home Office regarding an individual’s immigration status may be inaccurate or there may be cases of mistaken identity where multiple persons have the same name. It is not yet clear whether banks will have to notify the Home Office in cases where only two of the three database criteria are met, e.g. a person’s name and address but not date of birth. This may lead to legal migrants having their accounts frozen in error. A report compiled by the Chief Inspector of Borders and Immigration in 2016, identified that, under the existing rules, banks had made an error in 10% of cases when refusing account opening requests, i.e. individuals who should not have been on the disqualified persons database as they have a legal right to reside in the UK. This rate of error is unlikely to reduce under the new scheme when the amount of checks required multiplies significantly. The potential consequences for legal migrants who have their accounts frozen by mistake are very serious.
Resolving such issues may also be a slow and complex process, with individuals having to raise matters with the Home Office rather than their bank or building society.
Besides making applications to freeze and/or close accounts, it is unclear at this stage how else the Home Office will act upon the notification. Whilst the information referred to by the financial institutions is effectively provided by the Home Office through the CIFAS database, the scheme is designed to alert the Home Office to illegal migrants who else may otherwise have fallen through the cracks. We may see the Home Office using the information brought to their attention to pursue direct enforcement measures against the persons they suspect to be in the UK illegally.
In the Immigration Bill Bank Accounts Impact Assessment drafted in August 2015, the Government recognises that the new regulations may impact legal migrants to the extent that financial institutions will be more risk adverse and will not want to offer certain banking services. However, the Government does not believe the impact on legal migrants will be material and believes that legal migrants will be protected by the Payment Accounts Regulations 2015, which prohibits a credit institution from discriminating against consumers who are legally resident in the EU by reason of their nationality or place of residence.
The Home Office and Treasury, with input from the FCA, will conduct an informal review of the new regulations in or around October 2018. A further review will be published within three years.
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