The Immigration Act 2016: Bank accounts

These provisions introduce additional checks which must be undertaken in relation to individuals who hold specified accounts with certain financial institutions in the UK, and extend the checks which must be undertaken for new accounts in order to comply with the requirements of the Immigration Act 2014 (the 2014 Act).

The new provisions directly affect a number of financial institutions, including banks, building societies and, potentially, mortgage providers. Furthermore, the 2016 Act brings in a broader definition of “account”, for the purposes of both the 2014 Act and the 2016 Act, which will now likely cover joint accounts, credit card accounts, savings accounts, loans and mortgages.

We set out below details of these new provisions and how they will affect financial institutions.

Background

The provisions of the 2014 Act, which deal with bank accounts, came into force on 14 July 2014 and prohibit banks and building societies from opening current accounts for people who are in the UK and do not have UK immigration permission, referred to as “disqualified persons”.  Banks and building societies must conduct an immigration check on any individual who is applying to open an account in their own name, be added to an account, or become a beneficiary or signatory to an account using the Credit Industry Fraud Avoidance System (CIFAS), a data-matching authority website. If this check identifies that the individual may be a disqualified person, the bank / building society must notify the Home Office. If the Home Office confirms that the person is a disqualified person, the bank / building society cannot open the account and it must inform the individual of this, unless it is unlawful to do so if, for example, informing the person would amount to an offence under section 333A of the Proceeds of Crime Act 2002 (tipping off). If the check is not performed, the account is opened and it transpires that the individual is a disqualified person, the bank / building society will have breached the provisions and will be liable to certain penalties. 

New provisions

Extension to the 2014 Act provisions relating to bank accounts

The new provisions are contained in Schedule 7 of the 2016 Act, which effectively extend the immigration checks introduced by the 2014 Act.

An “account” for the purposes of both the 2016 Act and 2014 Act is now defined as “all financial products by means of which a payment is made”. Unfortunately, the Home Office has not issued any guidance on its interpretation of this, though it is likely to include “accounts” (as defined in the 2014 Act), savings accounts, joint accounts, credit card accounts, loans and mortgages. It is important to note that current accounts operated or held by or for an individual who is acting (with respect to that account) for the purposes of trade, business or profession are expressly excluded from the definition.

The new immigration checks must be implemented by all FCA-authorised deposit-takers that have their head offices or branches in the UK. Due to the likelihood that mortgages are deemed to be included within the new definition of “account”, the institutions affected will include banks, building societies and mortgage providers. Wealth managers must be aware that their custodian deposit-holders will also need to undertake these checks.

In relation to applications to open accounts, the recently published Home Office guidance states that if the organisation making the immigration check holds documentary evidence that contradicts Cifas, it may contact the Home Office to confirm this data. However, this course of action should only be taken in exceptional circumstances, and the default position should remain that the application should be rejected.

Effect of Schedule 7 of the 2016 Act

Financial institutions that are affected by these provisions will be required to undertake a quarterly immigration check on their account holders via CIFAS, in the same way they are currently required to do under the 2014 Act for account openings. The first quarterly immigration check must be carried out in the quarter beginning 1 January 2018.

Financial institutions will not be required to contact the account holder as part of the check, nor gather any additional documentary evidence of the person’s status beyond the checks that they already conduct during the normal course of business.

If a financial institution identifies that an account holder, signatory or beneficiary of an existing account may be a disqualified person, the financial institution must notify the Home Office and await further instructions from the Home Office in relation to the next steps. In the meantime, the financial institution may continue to operate the account and provide other services, as normal.

Implementation

The financial institutions to whom the provisions of the 2016 Act apply must comply with the steps set out below.

Quarterly immigration checks

The name, address and date of birth of all the individuals who hold relevant accounts at the financial institution must be checked against the Home Office’s database of disqualified persons on CIFAS. It is important to note that the Home Office may, in the future, require additional or different checks to be run against alternative databases.

An individual is considered to have been identified as a disqualified person if their name, address and date of birth match the Home Office immigration record on CIFAS. When it is concerning an application for a new current account, if only some of these details match, the financial institution is not obliged to refuse the application; instead it may wish to make further enquiries to ascertain whether the individual is a disqualified person and may still refuse the to open the account based on their commercial risk tolerance and internal policies. Currently there is no guidance clarifying whether this policy extends to checks on existing account holders.

Initial notification to the Home Office

When the financial institution has identified that an individual is potentially a disqualified person, it must notify the Home Office that that it holds an account that is being operated by or for a person who it believes to be a disqualified person. Each financial institution must have nominated employees within the institution who are responsible for this. The Home Office will then conduct a secondary immigration check to confirm the match. There is no requirement for the financial institution to notify the customer that the immigration check is at this stage.

Powers of the Home Office

Once the Home Office has confirmed that the identified individual is indeed a disqualified person, the Home Office may either apply to a court to freeze the individual’s account(s) or to notify the financial institution that it is under a duty to close the account(s). This must be done as soon as reasonably practicable, taking into consideration the terms and conditions of the account.

If the Home Office does not wish to apply for a freezing order, the application for such an order is unsuccessful, or the order is made but subsequently discharged, it must notify the financial institution of this.

The financial institution may delay closing the account for a reasonable period, either to seek repayment of an overdraft or to mitigate the effect of the closure on third parties. All services provided by the financial institution to the disqualified person must cease upon closing the account.

If a disqualified person can be removed from a joint account without closing the account and the financial institution can prevent the disqualified person from continuing as a holder, beneficiary or signatory to the account, this will satisfy its duty. The financial institution must, however, provide the Home Office with evidence of the steps it has taken to comply with this.

The Home Office will also provide instructions on how the financial institution should handle the funds in the affected account(s) which will depend on the precise circumstances of the case.

Further duty to notify the Home Office

After freezing, closing or removing the disqualified person from the account, the financial institution must notify the Home Office of the action it has taken to comply with the Home Office’s instructions. This notification must be given in the prescribed manner. Certain questions must be answered regarding the immigration check and the financial history of the disqualified person. The Home Office may request additional documentation or information regarding the individual to assist with its investigation.

Customer relations

Mirroring the 2014 Act provision, once the Home Office has decided on the course of action that the financial institution must take, (either closing or restricting the customer’s account, or rejecting their application), there is an obligation under the 2014 Act to explain to the customer why this course of action has been taken, provided that it is lawful to do so. If this obligation conflicts with any other legal duties of the financial institution, the financial institution must not inform the individual of the reasoning. A decision on whether informing the customer of this will conflict with other obligations must be taken on a case-by-case basis. The Home Office has prepared leaflets for each of these eventualities for the institutions to give to the customers whose applications have been refused or whose accounts have been closed or restricted.

If an individual is of the view that they have been wrongly identified as a disqualified person, they should contact the Home Office to query the matching.

When closing or freezing accounts, financial institutions must continue to comply with the “Treating Customers Fairly” obligations under the FCA and the Financial Services and Markets Act 2000. Account closures may lead to customer complaints, regulatory breaches or civil proceedings if not handled correctly. Sending explanatory letters to the affected customers will help ensure compliance with the FCA obligations.

Penalties

Failure to comply with these provisions may lead to the FCA issuing financial penalties, imposing restrictions on deposit-taking permissions, or even pursuing criminal sanctions. It is important to note that the FCA must issue a warning notice to the financial institution concerned before taking any of these actions.

If the financial institution takes all reasonable steps to undertake the immigration check for existing customers but fails to identify them as disqualified persons, there will be no repercussions.

Next Steps

If they have not already done so, financial institutions must notify their customers that they will be using their personal information to undertake checks through CIFAS.

The Home Office is expecting to identify 6,000 disqualified persons in the first year of implementation and financial institutions must therefore have robust processes in place to comply with these requirements.

It is important that all financial institutions affected by these provisions ensure that they can prepare the required list of all of the affected account holders in advance of commencing the first quarterly check, which must be undertaken by 31 March 2018.

They should also implement a record-keeping procedure which details how the financial institution has sought to comply with both the 2014 Act and the 2016 Act in order to meet FCA requirements. These records should be kept for a minimum of five years.

They will also need to make an annual compliance declaration to the FCA in relation to the provisions of both the 2014 Act and 2016 Act.