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UK Banks Warned Against Funding Israeli Settlements

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British banks and financial institutions have been warned by MPs not to invest in a planned Israeli settlement project, even though new UK laws to ban trade with illegal settlements are not expected to take effect for several months.

In a letter sent to banks on Tuesday, the all-party Britain-Palestine group of MPs said the responsibility now lay with institutions to review their obligations to avoid supporting new settlements while the detailed legal framework is still being finalised.

The warnings come after Foreign Secretary Ed Miliband announced two weeks ago plans for a full ban on trade with illegal settlements, along with additional sanctions for those involved in building them. However, the secondary legislation needed to implement the measures is expected to take between six and nine months to pass through parliament.

Bids Sought For E1 Housing Before Elections

The issue has been raised as the Israeli government moves forward with procurement for settlement construction in the West Bank. It is seeking bids for two tenders for housing, with plans for as many as 3,400 homes.

More than 1,300 units are covered by a tender due to close on 25 October, with the deadline falling two days before Israel’s election.

The E1 settlement plan is long-standing and has been delayed repeatedly, partly because of its political impact on prospects for a two-state settlement, which remains the main framework supported by Western governments and Gulf states.

Israel’s finance minister, Bezalel Smotrich, said in 2025 that the E1 project “practically erases the two-state delusion” by splitting territory that would otherwise be available for a future Palestinian state.

Finance Conditions Ahead Of Construction

Before any construction can start, finance arrangements are required, including insurance and guarantees. The timing of the warnings reflects concerns that UK financial support could be used in the period before the UK trade restrictions are fully implemented.

Miliband’s actions earlier this month, before the Israeli election, were described as being aimed not only at highlighting concerns about settler violence in the West Bank, but also at discouraging UK finance from backing the tenders or the work that they could enable.

It has been alleged that Miliband overrode some diplomatic advice in making decisions before the election.

The Britain-Palestine group also said the argument that postcodes determine the locality of a product’s origin meant the approach was not designed to stop trade with Israel more broadly.

MPs Cite Interim Risk And Legal Uncertainty

In their letter, Labour MPs Debbie Abrahams and Andy McDonald said institutions needed to consider what commitments could be made during the interim period, when the rules were still being written, and how those commitments would be handled once restrictions begin.

They said: “Commitments made now may be difficult to unwind when restrictions commence; the allocation of costs will depend on the contracts and applicable law. We ask boards to consider this interim risk before agreeing new or increased commitments.”

The letter asks banks to put potential exposure linked to E1 and other settlement activity on their board agenda and risk register, and to decide whether the sanctions, legal and reputational risks sit within each institution’s stated risk appetite.

Abrahams said the group was not seeking to pre-empt the law. She said the request was for boards to answer a question they should be able to address immediately: what exposure they were prepared to carry while the sanctions regime is written, and based on what evidence.

The MPs said they intended to publish banks’ responses by 10 October.

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23 September 2026


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