By Rachel Louise

Barclays PLC gave a last-minute reprieve to Dahabshil a firm that sends remittances to Somalia after the bank’s decision to close the firm’s account drew opposition.

The bank said Monday that it will allow Dahabshil, the largest U.K.-to-Somalia money transfer firm, to keep its account with Barclays open through Oct. 16. The account was slated to be closed Monday, but Dahabshil has sought an injunction to keep the account open.

“Barclays has given Dahabshil a short extension during which time we hope it can finalize alternative banking services,” the bank said in a statement.

But Dahabshil said its new banking arrangements are not yet solid. The firm has found “one potential alternative provider, but they cannot process cash remittances, which is the vast bulk of our business,” a spokeswoman said.

A hearing on Dahabshiil’s request for an injunction is scheduled for Oct. 15, a spokeswoman for the money-transfer firm said. “Barclays’ decision has massive consequences both for Dahabshiil’s business and for individuals seeking to transfer money to Somalia and elsewhere,” she said.

“We believe this case is baseless,” Barclays said

The closure is part of a broader strategy to pare back bank accounts held by money services business, or MSBs, in the wake of regulatory concerns. Other banks have made similar decisions in recent years.

Barclays moved earlier this year to close the accounts of about 250 MSBs that didn’t have certain controls in place to spot criminal activity, including accounts belonging to Dahabshil and three other firms that send remittances to Somalia, the bank has said. The bank hasn’t publicly specified exactly what those standards are. Two of these three other firms had their accounts closed Monday, while one account was closed earlier this year, the bank said.

But the move to close the accounts with tied to Somalia was criticized by politicians and others. Somalia’s president said earlier this month that international banks risked destabilizing Somalia’s fragile recovery by closing the accounts of money transfer companies and should stay further plans to do so. A petition on Change.org asking Barclays to reconsider its decision has gained more than 100,000 signatures.

“It is well recognized in the industry as well as by regulators and law enforcement agencies that some money service businesses (including some money remitters) don’t have the necessary checks in place to spot criminal activity with the degree of confidence required by Barclays’ regulatory environment,” Barclays said in a response to the petition.

Write to Rachel Louise Ensign at rachel.ensign@wsj.com

Source:Wall Street Journal