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UK BANKING ISSUE FOR EU BUSINESSES / CITIZENS

Report prepared by Marek Niedzwiedz
South Yorkshire Committee Member at Federation of Small Businesses
Email: info@marekniedzwiedz.com

Date: 10.1.2015

The Source: ‘The Treaty on European Union’ (originally signed in Maastricht in 1992) and ‘The Treaty on the Functioning of the European Union’ (originally signed in Rome in 1958 as the Treaty establishing the European Economic Community).
The Treaty on European Union lay out how the EU operates.

Free movement of capital rule
Free movement of capital is at the heart of the Single Market and is one of its ‘four freedoms’. It enables integrated, open, competitive and efficient European financial markets and services – which bring many advantages to us all.
For citizens it means the ability to do many operations abroad, such as opening bank accounts, buying shares in non-domestic companies, investing where the best return is, and purchasing real estate. For companies it principally means being able to invest in and own other European companies and take an active part in their management.

When were capital movements liberalised?
The Treaty of Rome provided for the free movement of capital, but the abolition of capital restrictions between Member States was to be “to the extent necessary to ensure the proper functioning of the common market”.
Despite initial progress in the 1960’s, there was a lot of later backtracking as many Member States introduced safeguard measures. Many financial operations with other Member States were subject to prior authorisation requirements known as ‘exchange controls’. This situation persisted until the early 1990s.
Recognising the damage that this was doing to the delivery of a Single Market, the Council adopted a capital liberalisation directive, in 1988, providing for the removal of all remaining exchange controls by mid-1990 for most of those countries maintaining this mechanism. (There were though transition periods provided for Spain, Ireland, Portugal and Greece.)
As part of the drive towards Economic and Monetary Union, the freedom of capital movements gained the same status as the other Internal Market freedoms with the entry into force of the Maastricht Treaty. From 1 January 1994 not only were all restrictions on capital movements and payments between EU Member States prohibited, but so were restrictions between EU Member States and third countries.
In subsequent EU accession rounds, exchange controls have been progressively eliminated in the period before EU membership. In general all capital movements have now been fully liberalised across the EU.

Why were capital movements liberalised?
This liberalisation process has taken place for a very simple reason: it is in the direct interest of the EU’s citizens, companies and governments.
Economic theory suggests that the free movement of capital will lead to an optimal allocation of resources and the integration of open, competitive and efficient European financial markets and services. It will also help maintain “responsible” macro-economic policy and can foster growth through finance and knowledge transfers (direct investment).
For Europe’s citizens, the freedom means the ability to conduct many operations abroad, from opening bank accounts to buying shares in non-domestic companies, investing where the best return is, and buying real estate;
For Europe’s big, small and medium-sized companies, it means being able to invest in, and own, other European companies and take an active part in their management as well as raising money where it is cheapest, and, with it, to create jobs that in turn benefit Europe’s citizens.
And for Europe’s governments, it means lower borrowing rates than previously, making it easier to finance spending on schools, hospitals and other forms of public spending.


Unfortunately, since 2014, the UK banks have been over-sensitive towards their responsibility to protect against money-laundering and refuse any business account applications from East European entrepreneurs who want to invest in the UK or grow their businesses in the UK market.
The example 1:
Polish entrepreneur wants to expand his IT business (apps programming) into the UK market. He comes to UK, incorporates a limited company with UK’s accountant and tries to open a business bank account. This is absolutely essential to have such bank account – in terms of British clients but also if the business wants to set PayPal account. But all of the banks refuse the application as the director and shareholder is a non-UK resident, even though, the limited company has the UK registered address and will pay its taxes in the UK.

The example 2:
British resident – an owner of the property business in Bradford, has a friend in Poland who wants to invest in that business, overtake 49% of the company shares and receive a 10% ROI every year. The business is to buy more properties ‘buy to let’ in Leeds and Bradford. They go and inform the bank about these changes but the bank suspends their business account as the new shareholder is a non-UK resident. They try to open a bank account with other banks but finally, all the banks refuse the application.

The example 3:
A company that employs 500 people in Northern Poland, manufacturing windows and doors, having the clients in the UK, wants to open a bank account in England. This is to make the payments from their UK clients more accessible. Polish director comes to the UK, goes to several banks, and finally gets response – REFUSED.

These are the real examples I have had over the last time and, there are thousands like these. I reckon, the UK economy may lose millions of pounds of taxes because of that barriers.
In ‘An Internationally Competitive Tax Offer’ announced by the UK’s government, we can find: ‘The Government’s goal is to make the UK the best place in the world to locate an international business’. And really this the truth, but I am afraid that the banks and FCA just break it.

This is why I try to discuss and lobby this matter with UK’s authorities. If you can help me with that, please contact on: info@marekniedzwiedz.com

Marek Niedzwiedz