Lloyds has frozen the accounts of about 8,000 offshore banking customers based in Jersey as part of a crackdown on money laundering, after asking them for three years to prove their identity, the FT reports.
The bank was forced to take action at the end of last year to meet rules on money laundering in Jersey, where its international business is based.
The UK lender took the decision after clients failed to prove their identity three years after they were requested to do so.
Unfortunately, where a customer has not provided us with this necessary information we have had to freeze their account until we get the information"
In a statement to the FT, a spokesperson for Lloyds said: "Over the last three years we have made multiple attempts to contact these customers, asking that they provide us with the necessary information.
"Unfortunately, where a customer has not provided us with this necessary information we have had to freeze their account until we get the information."
HSBC, Royal Bank of Scotland and Barclays are also said to have toughened controls in Jersey. The lenders sent similar letters to check the identities of customers but only closed a small percentage of accounts.
Last week Deutsche Bank warned 1,000 corporate clients that they might have banking links axed, again due to money-laundering regulations.
The news comes amid increasing pressure on global banks to meet tighter rules on financial crime. The Channel Islands have come under pressure from MPs to be more transparent to keep out dirty money. Earlier this month Jersey regulators proposed a number of measures to strengthen its anti-money laundering requirements.
Jersey Finance has said that money laundering had nothing to do with Lloyds actions, stating that the lender was just adhering to Jersey's rules.
"All banks in Jersey are required as part of the jurisdiction's anti-money laundering rules to ensure they hold up to date information about their customers. If customers do not provide the information required or if accounts are considered to be dormant, as can be the case with expat accounts, then banks are within their rights to freeze accounts, to protect themselves and their customers.
"To be clear, this is not part of a crackdown on money laundering, but rather ongoing compliance with Jersey's high standards of anti-money laundering, due diligence and ‘know your customer' rules," Joe Moynihan, CEO at Jersey Finance said.