updated 11:02 AM CEST, Oct 17, 2021

UK-based wealth platform Nutmeg reported closing doors to American clients, in wake of JP Morgan buyout news

Less than two months after New York-based banking giant JP Morgan Chase announced that it was to buy what claims to be the UK's "first and now largest" digital wealth manager, that wealth manager – Nutmeg Saving & Investment Ltd – is telling its American clients that they must leave, a Mail on Sunday story is reporting.

According to the MoS, Nutmeg "withdrew its services to 'U.S. tax residents' via an email" last month, "warning them it was closing their accounts". 

As the MoS article mentioned but didn't elaborate on was the fact that Nutmeg is in the process of being acquired by JPMorgan Chase, the giant U.S. bank, which is said to regard Nutmeg as its best way of accessing the UK online banking market. 

JP Morgan Chase's ambitious plans for Nutmeg, according to sources familiar with the issues facing non-U.S. banks interested in having American expats as clients, are seen to be the probable reason Nutmeg is seeking to let go of its relatively few American expat clients (the Mail on Sunday article says it only has around 350, out of a total client base of more than 140,000).

This is because, they say, the extra costs of continuing to look after American clients would weigh on and distract from the more important online banking launch plans. 

Nutmeg spokespeople didn't immediately reply to requests for comment on Sunday. 

Nutmeg was founded in around 2011, but didn't start to accept American clients until 2016, when the news was covered by the UK's financial press.

In a June 18 article analyzing the then-just-announced plan by JP Morgan to buy the "so-called robo advice firm" Nutmeg, Sky News's Ian King called it "another big step...[by] Wall Street's banking giants into the UK financial services sector," and noted that the move came "ahead of the expected UK launch of JP Morgan's new digital bank, Chase, later this year."

King then went on to note that JP Morgan’s plans to launch a digital offering in the UK followed by three years “the launch in Britain by Goldman Sachs…of its digital savings bank Marcus.”

Difficulties cited in offering online
banking services to American expats

King's mention of the Marcus service launched by Goldman Sachs in the UK in September, 2018, was significant in the context of American expats and non-U.S. online banking services, because, as reported here in February, Goldman Sachs spokespeople said that the company at that point “still” couldn’t offer its highly-popular Marcus-branded online range to Americans resident outside of the U.S., more than a year after the question was last asked, citing the problems of having to comply with the U.S. tax evasion law known as FATCA.

The situation is understood not to have changed since then. (The UK is the only country outside of the U.S. where the Marcus range is currently available.)

Like JP Morgan, Goldman Sachs is an American company; both are also among the country's largest in the banking and financial services sector.

Nutmeg spokespeople didn't immediately reply to requests for comment on Sunday. 

Issue of costs

According to banking industry experts, the problem for all financial institutions that wish to offer banking services to Americans who live outside of the U.S. is the costs they face in complying with FATCA (Foreign Account Tax Compliance Act), which they don't have to take into account with their non-American clients. 

This is because the U.S. is the only country besides Eritrea that taxes on the basis of citizenship, which, since FATCA was introduced in 2010, has meant that when Americans live abroad and maintain financial accounts outside of the U.S., non-U.S. financial institutions are relied on by the U.S. government to help it to ensure that its overseas citizens aren't using these institutions to hide their taxable wealth and income.

While the FATCA compliance-cost issue affects all banks and financial services companies outside of the U.S. that look after American expats, the problem for online banks in particular is that they typically make a feature of the fact that they are cost-effective for budget-conscious clients.

As reported, this was explained to the American Expat Financial News Journal back in 2019 by a French banking industry source, who requested anonymity, after a protest by the Paris-based Association of Accidental Americans (AAA) was calling attention to the fact that a major French online bank known as Boursorama had chosen an American movie star – Brad Pitt – to advertise it, even though Pitt wouldn't have been able to obtain a Boursorama account in real life, because he was American.

According to the anonymous French banking industry source, because the costs involved in complying with FATCA are so relatively significant for online banks, if they wished to have American or French-American citizens as clients, they would have to raise their prices, and this in turn would mean these individuals' accounts would therefore effectively end up being subsidized by their other customers, and costs to all clients would therefore have to rise.  

(Boursorama, a 24-year-old online-only banking division of Société Générale, a major French financial services group, also happened to have been one of a number of online banks the AAA had also named in a lawsuit earlier that year over claims that French-U.S. dual nationals were being discriminated against because of their American citizenship.)

"Accidental American" is a term given to those individuals who are citizens of a country other than the United States, but whom the U.S. considers to be American citizens as well, typically because they were born there to non-American parents who left soon afterwards, or who may have been born outside of the U.S. but to at least one U.S. citizen parent. 

Asked for a comment on Sunday, AAA founder and president Fabien Lehagre said of the news that Nutmeg is apparently about to join the ranks of other non-U.S. banks and financial institutions that won't accept Americans and/or accidental Americans living in the UK as clients: "Once again, the burden of American nationality catches up with accidental Americans." 

JP Morgan statement

In its statement announcing its acquisition of Nutmeg in June, JP Morgan Chase appeared to say that Nutmeg's existing American clients would continue to be welcome at the newly-combined entity, by failing to leave them out of its assurances that "Nutmeg customers and the products and services that they currently enjoy will be unaffected."

The statement added: "Over time, Nutmeg and JPMorgan Chase will work together to integrate their products and teams, and create an even better customer experience."

As for how the acquisition would "affect Nutmeg's customers and their investments", the statement said: "The products and services Nutmeg’s customers currently enjoy will be unaffected.

"Upon closing, JPMorgan Chase intends to invest in the Nutmeg offering and customer experience that has made it one of the most successful digital challengers in the UK’s wealth management market."

 

Related stories: 

AARO expat survey: '40% say they've had a U.S. bank refuse their business'

Goldman Sachs still unable to accept U.S. expats as Marcus clients in UK, citing FATCA 

German bank to close its doors to 'U.S. persons' from March, citing FATCA reporting burden

French 'accidentals' protest over use of Brad Pitt in ad by bank named in discrim suit