Bank account closures are making headlines again, thanks to the high-profile case involving former UK Independence Party leader Nigel Farage and the private bank Coutts.
But for UK discrimination lawyer Sharokh Koussari, the case, which ultimately cost NatWest CEO Alison Rose her job, is symptomatic of a much bigger problem for customers less high profile than Mr Farage who have had their bank accounts closed for no obvious or apparent reason.
“There are many voiceless people who don’t have the same reach as Nigel Farage,” says Mr Koussari. “The fact that a banking CEO has resigned simply highlights the depth of the problem.”
Talking about cases he has represented, Mr Koussari said elderly people have had their accounts closed and could not pay their bills. “Closing of accounts is a knee-jerk reaction and is extremely stressful for the individuals concerned,” he says. “It can also affect their credit score.”
Mr Koussari says he has represented a lot of people of Iranian heritage who live and work in the UK, and pay taxes here, and whose accounts have been closed for no reason. He says banks rarely give a reason for closing an account, or, if they do, it is very opaque. “Usually it takes litigation or the threat of litigation for them to give a reason.”
In the case of Mr Farage, the initial reason given for the closure of his account at Coutts, was “commercial”. But a 40-page document Mr Farage later obtained detailed evidence from Coutts’s Wealth Reputational Risk Committee that the bank thought there were “significant reputational risks of being associated with him”.
One financial industry source who did not wish to be named says clearly something went horribly wrong with the Farage case. “A risk committee information package would not normally be the sort of thing that would be shared externally and the precedent that has been created is not a good one in terms of how these documents get drafted in future,” says the source.
The issue of “tipping off” needs to be resolved
Following PayPal’s temporary suspension of several payment accounts last year, including those of the Free Speech Union, HM Treasury launched a review into the rules governing payment account contract termination and freedom of expression.
In a policy statement issued in July, it stated: “… banks and other payment service providers – which occupy a privileged place in society – should not be terminating contracts of payment account facilities on grounds relating to users’ exercising of their right to lawful freedom of expression. The government strongly supports this fundamental right afforded to all people in British society and will take the action necessary to protect it.”
As part of its review, the government proposed that a 90-day notice period (the current notice period is one month) be given when payment account providers (banks, building societies, e-money institutions, payment service providers) decide to terminate a contract, and that users should clearly understand why their payment account contract has been terminated.
“This is very welcome,” says Mr Koussari. “But in many cases I have dealt with they will not benefit from this unless the issue of money laundering and tipping off is resolved. Improving transparency is good, but why would a bank give a reason for closing an account if the reason given could be used against them?”
Why would a bank give a reason for closing an account if it could be used against them?
A bank can close an account for a variety of reasons, says an industry source, including insufficient profitability, non-provision by the customer of required information, reputational risk, and financial crime-related reasons. “If the latter is the reason, then there will have been a Suspicious Activity Report (SAR), but the bank is not permitted to reveal this as it is considered tipping off.”
Banks usually don’t give reasons for account closure, the source says, partly because of the “tipping-off” concern, or because they may not wish to spend the time explaining. “If there was a SAR they’d not want to be drawn into any discussion that touches that possibility (including ruling out any other reason, which could lead the customer to infer there had been a SAR).”
Typically, the higher the customer profile, the higher within the organisation that the decision to exit or not has to be taken, says the source. ”Such decisions would be taken after a review of a package of information presenting as wide a view of the customer (risks and mitigating circumstances) as possible.”
Account closures linked to AML de-risking
In 2016, due to concerns that “banks [were] withdrawing or failing to offer banking facilities to customers in greater volumes than before”, the UK’s Financial Conduct Authority asked consultants John Howell & Co to research the nature and scale of de-risking in the UK. At the time, there was a perception that “de-risking” by banks was driven by concerns regarding money laundering and terrorist financing risks.
The consultants’ report found that banks were sensitive to the higher costs of compliance, including regulatory settlements for potential anti-money laundering (AML) failings, and that they were “trying to do what [was] expected of them under the risk-based approach to AML and countering terrorist financing”.
Higher compliance costs, perceived pressure from correspondent banks and regulatory actions had created a “perfect storm”, the report concluded, which led banks to strategically review their business. That sometimes meant slimming down business or exiting relationships that were considered “non-core”.
Mr Koussari says that, anecdotally, he has heard that some banks may be impacted by “extraterritorial sanctions”. For example, while the UK has a sanctions regime separate from that of countries like the US, banks may still try to implement or reflect sanctions imposed by that regime in their internal policies. This is symptomatic, he says, of a culture of “over-compliance” within banks.
He says individuals such as Mr Farage who feel the closure of their bank account had something to do with their political beliefs could consider bringing proceedings based on “philosophical belief discrimination”, which is protected under the 2010 Equality Act. While this particular type of discrimination has not previously resulted in a great deal of litigation, Mr Koussari says more cases have been brought in the last two to three years.
“Banks can close bank accounts for any reason,” he says. “But everything is subject to general law and they cannot use their T&Cs in a manner that is discriminatory.”
