Starting up! — in the UK banking system

I recently joined a startup and moved from San Francisco to London to start this new life adventure. As you can imagine, a move across continents can be very stressful and involves a lot of logistics. There are many “startups or firsts” I have been through in the last few months. One of them has been to open a bank account in my new home country. This is an account of working through the UK banking system to open an account to keep my hard earned money. An ordeal which took close to 4 months for someone with a job in the UK, a UK work permit and a financial history in the US.

How one opens a bank account in most parts of the world?

  1. Walk into a bank
  2. Ask to open a bank account
  3. Show some form of government ID and your legal status to reside in the country
  4. Deposit funds into account
  5. Walk out of the bank with an account

This is how someone opens an account in the UK.

  1. Walk into a bank
  2. Ask to open a bank account and be asked if you have an appointment
  3. Get an appointment — usually for a few days from the day
  4. Come back for appointment with government ID and your legal status to reside in the UK
  5. Be asked for address proof
  6. Get stuck in the system for a while

Let me elaborate.

Apparently, the UK banking system has a hard requirement to show address proof for opening a bank account. Ok — that’s not too bad. Surely, you should be able to show some temporary accommodation as your current address until you find your new permanent home, right? Um, nope.

What constitutes an address proof?

  1. Utility bill — i.e. water, electricity, land-line (who still uses them?) bill showing your name and address as on your ID
  2. Government letter or tax document issued by say HMRC or your local council showing your name and address as on your ID

What does not constitute an address proof?

  1. Pre paid cell phone bills
  2. Foreign bank account statements with your new UK temporary address
  3. Letters issued by your employer stating you’re a bonafide employee who just moved and resides at a certain address

Ok, so how do you get an address proof?

Since an address proof requires your name and address on the bill or document, you really can’t use your friend’s or your company’s address nor any other temporary accommodation as an address. This means you need to start looking for your own place to rent. If you are able to find a property you like, the next question that comes up is about putting a deposit down and paying your first month’s rent. Guess what the following question is? You guessed it! Can you provide your bank account details?

How did we get here in the first place?

The UK, like many other countries, adopted laws in the late 1990s and early 2000s to combat money laundering. These laws require banks and other financial institutions to “know their customers” — as in have the customers prove they are who they claim to be — usually through a face-to-face meeting and also understand where the money they are bringing into the bank comes from.

But is this really required?

Actually, yes! The UK has become a safe haven for dirty money over the last decade. A recent article in The Guardian covered how the skyrocketing London property market is flush with money from abroad. As the article points out, according to the NCA (National Crime Agency), most of the money being invested in high end properties, which are used to launder money, is from offshore accounts. These accounts have ill gotten funds and are being used by persons trying to hide their wealth from their own countries’ authorities. So it makes sense for the government to try and clamp down on money laundering activities and make sure everyone who operates a bank account in the UK is verified and is holding legitimate funds in these accounts.

Are there any workarounds to the address proof requirement?

Apparently there are a few large banks who provide international relocation services which include opening a bank account without a proof of address, sorta.

If you bank with a global bank like HSBC, you may be able use their international banking team to help you open an account in the UK for a fee (depending on your status with the bank) but the process takes you 4–6 weeks, requires 3 interviews and a face-to-face verification in your home country before you move to the UK and then in the UK. They verify your home country address instead of your UK address.

Barclay’s on the other hand offers you a service to open a bank account without address proof as long as you keep a balance of £100,000. When I called I was told they would open an account for me in the Isle of Man and this account would operate like an other UK account.

This is where I have to ask — who has a higher probability of having £100,000 lying around to open a bank account when they are moving — a professional moving for a new job or a drug lord or a politician trying to hide his ill gotten funds abroad?

Crux of the problem

The main issue here is that while the anti money laundering laws define what is needed from banks to prevent the bad guys from putting their money in UK accounts, the implementations of these laws have definitely not kept pace with changing technology. There are much better ways to know your customer than to require a face-to-face meeting or a physical utility bill in the internet era. My colleague Lukas May recently wrote a great blog post on how the anti money laundering rules are not keeping up with the smartphone era.

What’s even more amazing is when I did find a place to rent, my landlord in London was able to run a full credit and rental history check of my US financial and rental history sitting on his computer after I gave him the permission to do so via this site. All this while my bank continued to claim that they could not verify or use my US financial history and proof of address.

Will this get better anytime soon?

The good news is there are companies which are using technology to overcome the problem. Again it’s the younger start ups who are leading the way here. While the traditional banks continue to insist on stringent, archaic processes for customer verification, we are already seeing fintech companies like Number 26, Monese and Fidor verify their customers with video calls from their smartphone apps, and not requiring the ever-elusive paper utility bills to confirm you are a legitimate resident. These companies are leading the way in frictionless banking and embracing technology to allow you to prove you are who you say you are by using your online presence.