By Huw Jones and Sinead Cruise
LONDON (Reuters) -Britain's top banks shut almost 142,000 accounts held by small businesses in the last year because they feared a visit from regulators checking on compliance, financial services minister Bim Afolami said on Wednesday.
Figures supplied by Barclays (LON:BARC), HSBC (LON:HSBA), TSB, Lloyds (LON:LLOY), Santander (BME:SAN), NatWest (LON:NWG), Metro and Handelsbanken showed 2.7% of the 5.3 million business accounts held by small companies were closed for reasons including risk appetite and financial crime concerns, parliament's Treasury Select Committee said.
Afolami told the committee on Wednesday that the best way to make sure people are banked is to have proportionate application of simpler and easier rules.
Afolami said that most accounts were probably shut due to customers not providing sufficient information when requested, but it was important that risk-averse lenders don't inadvertently or deliberately close accounts unnecessarily.
"What is mostly happening is a fear of a knock on the door from the regulator," Afolami said.
The Treasury will consult soon on simplifying rules for banks to make anti-money laundering checks on prospective customers, he said.
"It's really important that banks are straight with people about what's going on," Afolami said.
Banks have been fined millions of pounds for poor anti-money laundering controls.
The committee said only three of the banks listed "risk appetite" as a reason for closing accounts, with 4,214 cases listed, raising questions over whether discussions on 'de-banking', the industry term used to describe a customer having an account closed or refused, may be happening "informally" and not "systematically recorded".
The Federation of Small Businesses has warned that lending could be cut by 44 billion pounds if the Bank of England removes capital relief on lending to small businesses, known as the "SME support factor".
The Bank of England has yet to publish final rules, and Afolami said he has had a "huge amount of discussion" with the regulator.
It was key to ensure that the provision of finance to small businesses overall is maintained, which does not necessarily mean restoring the factor if there is an issue, Afolami said.