UK Defence Startups Are Being Denied Banking Services Under ESG Rules

Successive UK governments have made the case for more and better defence spending, encouraging British start-ups to invest in this fast-growing and rapidly changing sector.

Against this background, founders would be forgiven for expecting a permissive regulatory environment, but regulation lags politics, and many companies have run into compliance issues dating back to when defence spending was naïvely thought to be immoral.

Contrary to Expectations

Will Morris is the co-founder of Eyebrook Technologies, a British start-up focused on surveillance and counter-drone systems. Having already secured financing of £700,000 and the support of the government, the former British Army officer was confident of being able to open a bank account for his fledgling business.

“I did a load of research on bank accounts and there are certain banks who won’t touch defence companies for various reasons,” Morris said. “All the research I did said ‘go to Barclays’, so I applied.”

Barclays has a reputation in the defence sector for being supportive, Morris said, and last month released a report calling for “action to help the UK turn defence innovation into scalable growth.”

But six weeks after applying, following several email exchanges with the bank, Morris was denied a bank account “due to the nature of your business”. Barclays said it was “reviewing and restructuring our approach to business operating within the defence sector.”

Morris tried approaching several other established UK banks as well as app-based digital banks. All refused to provide Eyebrook with an account, despite the primarily defensive nature of the systems it is developing.

“I was absolutely panicking,” said Morris. Having secured a six-figure sum in seed funding, “to then miss out on it because we didn’t have a bank account would be horrendous.”

Excessive Caution

Eyebrook is far from the only defence company to be debanked in Europe’s financial services capital. Financial analysts have said that a combination of anti-money laundering (AML) safeguards and overzealous Environmental Social and Governance (ESG) screening had left many promising and ethical start-ups unable to access banking services.

The issue has been raised repeatedly in the House of Lords, Parliament’s upper chamber, by Andrew Sharpe, the Conservative shadow minister for business and trade.

“We know there is still a problem,” Sharpe said. “We don’t know how big it is, but SMEs are particularly affected and I think we can assume based on abundant anecdotal evidence that the default option I the banking and financial sector is still one of suspicion and excessive caution about defence.”

The government should be more proactive in supporting defence start-ups and the advisory firms that support them, he added. Alongside practical steps to reduce investment risks, “government can also exert moral pressure and maintain regular dialogue with the leading institutions.”

James Clark, founder of Maverick and Goose, a new marketing consultancy specialising in the defence and dual-use sectors, said financial and other service firms can be overly cautious about working with defence-linked companies.

“Part of the reason I set up my business is there are lots of marketing companies and advertising agencies that won’t work for defence companies,” said Clark.

“I think it’s important these defence companies have the best services that re available whether it’s in banking or marketing and it’s incredibly misguided for banks to see that as a reputational risk,” he added. “It couldn’t be any clearer the role that a functional defence industry plays in Europe in 2026 and I am proud to do my bit where I can.”

Computer Says No, CEO Says Yes.

Morris was eventually able to secure an account with a leading high-street bank, but only after reaching out to the bank’s UK CEO directly to facilitate approval. That points to a potential discrepancy between what banks’ senior leaders want to do, and the ESG frameworks their compliance departments are still implementing.

A Barclays spokesperson said the bank is “proud to work with the businesses and organisations that contribute to the UK’s defence capability” and that it “support[s] defence SMEs through dedicated regional coverage, with colleagues embedded across the UK who understand local supply chains, defence clusters and procurement pathways.”

The spokesperson added that the bank would connect with Morris and look into specific reasons behind the refusal to provide Eyebrook with banking services, in order to improve future processes.

For Now

Morris remains optimistic about the future of his company and the broader defence investment landscape in the UK, but worries that regulatory issues may prove a barrier to new entrants to the sector or might induce companies to move overseas.

“There’s lots of funding that’s available for start-ups, which is great, but the UK is not a very good place to scale and grow because it lacks the venture capital to support growth,” he said. “I know a couple of companies that have started in the UK and then got cash offers to move to the U.S. where the regulatory and funding environment is much better.

“We will stick with the UK for now, but if we’re still facing issues with the regulatory environment, then we’ll definitely look overseas.”

Jonathan Singh is a journalist covering global affairs stories. He is a former international development professional and has worked in conflict and crisis affected regions across Africa, Asia, and Latin America. He served from 2002 to 2012 as a Royal Air Force officer and helicopter pilot, including four combat deployments to Afghanistan flying the Ch-47 Chinook.

Originally published in The Sentinel. Reproduced with permission.

Thank you for reading. We always welcome fresh perspectives and new contributions. If you are interested in writing for Fox and Lion or have a piece that you would like to publish with us, please feel free submit a pitch via the Submissions Portal. We warmly welcome active and former servicemembers, and members of the defence tech community. Additionally, if you are hiring, contact us to get your open role featured on our Defence Tech Careers jobs board.