Banks and building societies have started to carry out checks on the immigration status of all personal current account holders.
The government measures aim to encourage those in the UK illegally to leave.
The checks will be performed against the details of known illegal migrants, which the Home Office will be sharing with Cifas, an anti-fraud organisation.
If a current account is discovered to be operated by an illegal migrant, the Home Office will double check the information and may instruct the bank or building society on what action to take, which may include the closure of the account.
If criminal activity is suspected, the Home Office has the option to apply to the courts for an order instructing the bank or building society to freeze the suspected individual's accounts.
“These new measures are part of our commitment to make it more difficult for people with no right to live or work in the UK to remain here,” said Caroline Nokes, minister for immigration.
“This will not affect those who are in the UK legally, but we must be firm with those who break the rules as illegal immigration impacts the whole of society.
“Those living and working in the UK illegally can drive down the wages of lawful workers, allow rogue employers to undercut legitimate businesses and put pressure on taxpayer-funded public services.
“By tackling abuse in this way, we can build an immigration system which works in the best interests of the country and prevents vulnerable people from finding themselves at risk of exploitation.”
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