Your bank can cut you off and never tell you exactly why.
A letter in the mail succinctly announces that all of your financial accounts will be shuttered. Usually, you have up to three months to make alternate arrangements. The official explanation, if there is one, is as ominous as it is vague: “Our decision is a result of the unacceptable risk that we have identified with regard to the operation of your accounts.”
The consequences can be dire. You may have to rely on high-interest loans while you scramble to transfer your mortgage or lines of credit. If you have a business, you may have to explain to clients and creditors why you no longer have access to your bank account. Worse, once one financial institution has given you the boot, others may follow suit, making it hard to have a bank account at all.
The process is called debanking or derisking. Often, a bank detects and flags unusual transactions that indicate a customer may be linked to money laundering, terrorist financing, fraud or other crimes. In some cases, the institution will call in the client for a conversation and an opportunity to explain the financial activity. Often, though, it will simply shut down the account without saying why. The bank is not required to provide an explanation and, in some cases, it is prohibited from doing so.
While debanking is rare, the number of complaints filed with the Ombudsman for Banking Services and Investments, Canada’s independent banking ombudsman, about financial institutions ejecting clients increased from just 19 in 2019 to 113 in 2023. And the Financial Consumer Agency of Canada, the federal financial services watchdog, received more than 800 grievances about debanking from 2018 to 2023, according to data released under the Access to Information Act.
Account closings are becoming more common as banks are under unprecedented pressure from regulators to clamp down on financial crime.
Toronto-Dominion Bank TD-T will have to pay a historic US$3-billion in fines from the U.S. government for gaps in its U.S. anti-money-laundering measures. And Canada’s own anti-money-laundering watchdog, the Financial Transactions and Reports Analysis Centre of Canada, levied its largest-ever penalties in recent months ahead of an upcoming international review of the country’s anti-money-laundering regime next year.
But as regulators expect the banks to track and flag more and more transactions and accounts, there is a risk of rising collateral damage: clients who did nothing untoward but might become financial outcasts, with access to basic banking services severely restricted.
The Globe and Mail reviewed instances of debanking involving six retail customers and small business owners. It agreed not to identify two of them because of concerns that doing so could cause them to lose more banking relationships. All six said they never engaged in illegal activity and didn’t know what raised red flags at their bank.
Ryan Mueller, CEO of Calgary-based Phantom Compliance, says his account was closed by Scotiabank.Guillaume Nolet/The Globe and Mail
The debanked individuals span industries, countries of origin and financial circumstances. Bitcoin entrepreneur Adam O’Brien told The Globe that being repeatedly debanked caused his family to puzzle over how to pay for routine expenses. A Toronto-based Black entrepreneur from Nigeria said losing access to his bank accounts stunted his business. A retired hospitality industry manager in Halifax said he lives in fear that another financial institution will expel him after his bank of 30 years inexplicably cut him loose two years ago. And Calgary-based consultant Ryan Mueller said he was derisked even though his job includes helping companies fight money laundering.
While the banks are confronting increasingly aggressive demands to detect and crack down on financial crooks, they face little scrutiny when they blacklist customers.
Few rules protect clients who arouse suspicion but who haven’t actually committed a crime. Financial regulators and banking ombuds offices have limited oversight over debanking decisions and even more limited powers to reverse them. Instead, clients are left scrambling to find another bank, where they risk unwittingly repeating the transaction patterns that got them debanked the first time.
Conversely, when an individual’s activities do merit debanking, they’re often able to move to another bank without it knowing of earlier concerns. “Sometimes we’ll demarket a client, only to find themselves at another bank. How does the system allow that to happen?” Royal Bank of Canada RY-T chief executive officer Dave McKay said during a conference held by the lender on January 7.
Despite financial institutions filing ever larger volumes of reports on suspicious activity, Canada doesn’t seem to be catching more financial criminals for it so far. In fact, the number of federally prosecuted charges for money laundering has declined over the years, from a high of 85 in 2012-2013 to just 41 in 2019-2020, according to data from the Public Prosecution Service of Canada.
The end result, critics say, is a system that isn’t working for anyone, one that can trap innocent people with no explanation or recourse while letting perps off the hook far too easily.
The case of the Nigerian entrepreneur shows how debanking can have life-altering consequences.
The man’s first breakup with a major Canadian financial firm occurred more than a decade ago, after the bank called him in for awkward questioning about transactions in his account. At the time, he didn’t think much of it, he said. He’d worked across Canada’s financial sector for years and he found the bank employee’s enquiries obtuse and redundant, so he answered nonchalantly. The man is one of the two retail clients The Globe decided not to identify out of concern that doing so might result in further debanking actions.
When the institution cut ties with him shortly afterward, he chalked it up to the employee taking issue with his attitude. He started using another bank and didn’t worry about the incident, he said.
A second major bank broke up with him five years ago – as soon as he stopped working there. The institution normally converts employee accounts into regular personal accounts, he said. But when he left, it didn’t, which struck him as odd.
Years later, after he’d launched a successful career as an entrepreneur, yet another financial institution, which had courted his business at first, abruptly shut down his personal and business accounts. A separate letter also demanded that he and a close relative, who is a Canadian permanent resident and a financial-sector executive in Nigeria, relinquish signing authority from a Canadian food manufacturing company in which they had both acquired a stake.
The bank, however, was happy to keep doing business with that firm, whose other directors were white, the entrepreneur said.
That’s when the man became convinced that prejudice against him as a Black or Nigerian customer had informed that bank’s decision and perhaps the others’ as well, he said.
A Toronto entrepreneur, originally from Nigeria, has had three major Canadian financial institutions cut ties with him. He is convinced that prejudice against him as a Black or Nigerian customer informed the third bank’s decision to debank him.Adetona Omokanye/The Globe and Mail
He decided to take his case to the Canadian Human Rights Tribunal. But a costly, years-long legal quest to have his third debanking experience examined was dismissed. It also failed to produce any insight into how the bank had reached the conclusion that he was a risky customer. The process cost him around $20,000.
The man’s close financial ties to Nigeria are a potential reason why he raised alarm at several financial institutions. Banks are legally required to flag certain transactions – including suspicious ones and those involving large sums of cash or virtual currency – to Canada’s financial intelligence unit through what’s known as a “suspicious transaction report.” Multiple STRs can result in banks shutting down customers’ accounts, according to experts.
The Nigerian entrepreneur said he’s familiar with STRs and the types of transactions that can trigger them. He is also well aware that his homeland is considered a high-risk jurisdiction for money laundering. But he said the banks knew of his continuing financial links with Nigeria, including, in one case, when a wealth adviser at the third major bank that eventually debanked him urged him to move his business over from a competing firm.
To this day, he has no idea what activity in his account might have raised concerns, he added.
A fourth big bank dropped him two years ago in an abrupt and opaque way.
Still, out of the country’s six biggest banks, two continue to do business with him. One has been his bank since he came to Canada as a university student. That institution has also conducted a thorough review of his transactions. He addressed all the bank’s questions, and it was satisfied, he said.
But the repeated debanking has left him suffering from high blood pressure and convinced him that deep-seated anti-Black racism permeates the Canadian banking system, he said. He had to step away from an executive position at the Canadian food manufacturer despite being primarily responsible for driving up the firm’s sales, he added. His own business suffered because he had to rely on expensive private loans after the banks abruptly cut off credit to the company, something he said also hobbled its growth potential.
At times, he said, he muses about moving his family to the United States, hoping that the trail of suspicion won’t follow him there.
The mounting pressure on banks and other institutions to crack down on financial crime is reflected in statistics from FinTRAC. The number of suspicious transaction reports received by the financial intelligence agency increased by 63.5 per cent over the past five years, from 386,102 in 2019-2020 to 631,137 in 2023-2024, according to the watchdog’s annual reports.
“The stakes are super high from the bank’s perspective,” said Alana Scotchmer, partner and member of the Financial Services Regulation Group at Gowling.
The financial penalties, damage to a bank’s reputation and impact on its stock price for failing to track suspicious transactions or underestimating the risk associated with them can be significant, adds Ms. Scotchmer, who was a regulatory lawyer at RBC before joining Gowling: “People get fired over this kind of stuff regularly.”
TD Bank, for instance, is facing a U.S. asset cap that limits its ability to expand its balance sheet and hampers its growth south of the border. In early October, it became the first lender in U.S. history to plead guilty to conspiracy to commit money laundering after a decade of moving money for drug cartels and criminal organizations. The bank’s CEO announced his retirement amid the money-laundering scandal.
At the same time, “there’s a world in which a person can be completely innocent and still unable to access banking services,” Ms. Scotchmer notes.
With higher volumes of suspicious transaction reports by financial institutions come greater risks of false positives. And the number of prosecutions for money laundering has not been rising in tandem with the increased reporting, notes Matt McGuire, principal and practice leader of The AML Shop, a Toronto consultancy.
“Is the collateral damage worth all of this effort when the outcomes simply don’t exist?” Mr. McGuire asks. “We’re just pushing paper.”
In Edmonton, Mr. O’Brien, the crypto entrepreneur, has been unusually public about his struggles to maintain access to the financial system, posting about his banking woes online. All of Canada’s major banks have cut ties with him, he said.
Mr. O’Brien, who is the founder and CEO of Bitcoin Well Inc., said he understands that some financial institutions might not want to support a firm that deals in digital currencies. But he takes issue with what he describes as banks’ repeated about-face over whether they wanted to have a relationship with his firm.
In a typical scenario, he said bank branch employees would assure him that his Bitcoin company, which is now publicly traded, was welcome to do business there. Then, months later, a familiar letter would arrive from bank headquarters announcing his imminent financial eviction.
In two instances, he said, banks have kicked out his wife as well, something that left the family scrambling to pay household bills. The second such derisking occurred even after Mr. O’Brien said he took extra care to keep his spouse’s banking completely separate from his business.
Canada’s banking regulator has pointed to cryptocurrency and digital innovation as some of the biggest threats facing the stability of the financial system. The Office of the Superintendent of Financial Institutions is developing guidance for banks to limit and disclose their exposure to cryptocurrency, including through client accounts.
While the final guidelines have yet to be released, banks could already be considering OSFI’s warnings about cryptocurrency when assessing the risk of client accounts.
The banks, for their part, say they consider a variety of factors before ending a relationship with a client.
“Canada has one of the most accessible banking systems in the world,” Canadian Bankers Association spokesperson Maggie Cheung said in an e-mail, adding that more than 99 per cent of Canadian adults have an account with a financial institution.
“Any decision to close an account is not taken lightly. Banks make these decisions independently, taking into consideration applicable laws, regulatory requirements and institution-specific factors, and evaluating the risk of their respective clients.”
The Big Six banks declined all requests for comment from The Globe, instead deferring to the CBA.
In general, the law allows banks to end their business relationships with their customers.
Under the Bank Act, lenders are obligated to open a personal deposit account for any customer who provides proper identification, but the rules fall short of guaranteeing access to other products and services. The law also includes exceptions, including those for customers linked to money laundering and terrorist financing.
Financial institutions must also abide by their own terms and conditions. But the fine print in the agreements consumers enter into when they open an account, get a credit card or sign up for other banking products typically stipulate that an institution can end those services at its discretion, including when it detects unusual or suspicious activity.
And each bank has its own risk tolerance. What one lender perceives as a risky client could be deemed manageable to another institution. Each has its own procedures for derisking customers, as well.
Ryan Mueller, CEO of Phantom Compliance, a risk management and compliance consultancy based in Calgary, was debanked last April by Scotiabank without any explanation from the financial institution.Guillaume Nolet/The Globe and Mail
Even one anti-money-laundering expert is left guessing what might have triggered a bank’s decision to push him out.
Mr. Mueller, the risk management and compliance consultant, suspects he was debanked because of his company’s relationship with a cryptocurrency exchange. But he can’t be sure.
The CEO of Calgary-based Phantom Compliance, which advises businesses, including crypto companies, on anti-money-laundering and other regulatory obligations, received no explanation when the Bank of Nova Scotia BNS-T terminated its business relationship with him in April. But he suspects his company’s links to crypto exchange Aquanow triggered the debanking.
Mr. Mueller said that clients frequently pay him in crypto for consulting services, and Aquanow was his primary mode for converting that crypto into fiat currency. Around the time that he had been debanked, the exchange was in the news for having been used by hackers to transfer funds stolen from accounts at Canadian Western Bank.
“I was receiving between $50,000 and $80,000 a week from a company that was named in a pretty public lawsuit with a bank in Canada,” said Mr. Mueller.
But rather than giving his company an opportunity to switch to another exchange, Scotiabank simply cut ties, said Mr. Mueller.
At least 10 other clients, colleagues and personal friends of his lost bank accounts at the same time, he said, at different institutions. “The common factor was interacting with Aquanow,” he said.
In part, the secrecy that surrounds derisking decisions stems from banks trying to avoid tipping off criminals. If bad actors find out they are under surveillance, they could find ways to skirt the system. If they are debanked, revealing the details of how they were caught could help them evade detection at another financial institution.
But for customers unwittingly linked to financial crime, the lack of information-sharing means they do not have the opportunity to fix the issue.
Last June, the federal government passed regulatory changes that will allow banks to share certain information with one another on customers presumed to be involved in financial crime. Authorities are still figuring out how the information will be shared, and what types of details it will include.
RBC CEO Dave McKay says banks, law enforcement and government authorities should boost co-ordination to better root out bad actors.Christopher Katsarov/The Globe and Mail
To more effectively catch financial criminals and avoid persecuting clients incorrectly, banks, law enforcement and government authorities should boost co-ordination, RBC’s Mr. McKay said during the January conference.
“The system can share information better to enhance the effectiveness of the overall effort, and therefore that’s where there’s a lot of focus right now, and that’s where we can be better,” he said.
While the change will help banks and enforcement agencies better root out bad actors, it could also make it harder for erroneously implicated individuals to access financial services.
That prospect is especially concerning for non-bank financial services companies, such as foreign currency exchanges and digital payment platforms.
These businesses rely heavily on access to the financial system to maintain their operations, but debanking is so common in the industry that they’re sometimes advised to maintain accounts at multiple financial institutions.
“When you only have one bank account, it’s very difficult to feel comfortable and sleep at night,” said Joseph Iuso, executive director of the Canadian Money Services Business Association.
“I always encourage them to get more than one bank account, preferably two or three, because you never know which bank is going to change compliance people and decide they’re no longer going to deal with you.”
Mr. Iuso would know: He used to operate a money services business (MSB) that interacted with entities in the online gaming sector. But he wound up selling the business when the Bank of Montreal shuttered the company’s bank account in 2012 after a decade of service.
The issue remains top of mind in his role as the executive director of the Canadian MSB Association. According to the organization’s 2024 member survey, 27 of the 39 respondents indicated that they have been denied a bank account.
“It’s a common thing for MSBs, especially the ones that start up new. It’s very hard for them to get bank accounts unless they have some sort of established business elsewhere,” Mr. Iuso said.
But derisking can also hit everyday bank customers who have nothing more exotic than a chequing account, savings and a mortgage.
In Halifax, a retired hospitality industry manager The Globe agreed not to identify found out two years ago that his bank of more than 30 years was cutting him off. The financial institution – one of Canada’s largest – gave him two months to transfer his bank and retirement accounts, credit card and mortgage elsewhere. And, as is customary, it provided no explanation.
The man suspects his common Scottish name is to blame.
Roughly three decades ago, he had to hire a lawyer to put a stop to a collection agency’s hounding for unpaid bills he knew nothing about. Air Canada also sent him a letter demanding payment for services he never purchased. In the end, the brouhaha turned out to be a case of mistaken identity, he said.
Decades later, he fears his former bank made the same error.
He appealed the decision using the bank’s complaints-handling office, but the only outcome was another terse letter stating that the institution was within its rights to oust him as a customer and didn’t owe him – and might be legally prohibited from sharing – an explanation.
Documents reviewed by The Globe in a variety of debanking cases indicate that banks’ internal ombuds offices don’t have the authority to look into derisking decisions beyond ensuring that the institution respected its own policies and provided reasonable written notice before showing a customer the exit.
Turning to independent complaints bodies may not help, either. The OBSI may investigate whether a bank’s decision to sever ties with a client was biased or unfair. But it does not have the power to require banks to reinstate customer accounts.
“In the cases that we consider, usually if the bank has provided the consumer with the notice required in the account agreement or reasonable notice, we do not recommend compensation,” OBSI spokesperson Mark Wright said in an e-mail.
Consumers can also contact FCAC, the federal financial services watchdog, to file regulatory complaints. But the organization can only review whether a bank complied with existing legislation, codes of conduct and industry commitments. It can’t resolve individual grievances.
Britain's Reform UK party leader Nigel Farage claims his accounts at a bank were closed because of his political views.Hollie Adams/Reuters
Other countries have been reviewing their debanking procedures. In Britain, a financial regulator launched a probe into debanking last year after Brexit advocate Nigel Farage claimed that his accounts at a bank were closed because of his political views.
In July, the British regulator instructed banks to ensure that politically exposed persons – politicians, senior civil servants and relatives who are subject to greater scrutiny under anti-money-laundering rules because they are at a higher risk of corruption – are treated fairly.
In Canada, however, policy makers seem to be paying little attention to the matter.
The Halifax man, meanwhile, was able to transfer all of his banking business to a different institution – another of Canada’s major banks – without issue. He hasn’t had any problems since, he said.
But the utter mystery of what caused his former long-time bank to suddenly expel him continues to haunt him, he said.
To this date, he hasn’t told his family what happened.
