A law firm looks back at last summer's blaze of controversy over the "de-banking" of a prominent UK politician and broadcaster, the state of UK law, and what the future holds.

In the summer of 2023, the UK banking sector was hit by the controversy over the “de-banking” of former UKIP leader, and media personality, Nigel Farage, by Coutts – part of NatWest Group. The affair did not just raise questions about how the bank treated Farage, it also lit up the plight of other political figures and those who, for their political views and positions, had their bank accounts removed. The stories have prompted the current UK government to call for reforms. 

This news service continues to hear how â€œde-banking” extends beyond the business dealings of a few prominent politicians or public figures. So WealthBriefing took the opportunity to talk to Stephen Elam, a partner, and Florence Sandberg, an associate, of law firm Cooke, Young & Keidan LLP.  Elam and Sandberg have written this short commentary on where the UK stands on this issue. We are pleased to share these views; the usual editorial disclaimers apply. We invite responses: email tom.burroughes@wealthbriefing.com.

Public awareness of “de-banking” was heightened following the Nigel Farage/Coutts debacle last year, although de-banking is certainly not new. The All-Party Parliamentary Group (“APPG”) on Fair Business Banking (1) has recently produced a report exploring the scale of the issue and is canvassing how banks can find a way to comply with their AML obligations without causing financial exclusion. Hot on its heels, the government has published draft legislation (2) that will compel banks to give customers three months’ notice – and an explanation – before closing their accounts. 

Legislative reform
The draft law proposes that all payment service providers (including banks) would have to give 90 days’ notice of an account closure (increased from two months), and must provide a “sufficiently detailed and specific explanation” to the customer. Parliament is expected to approve the legislation before the summer. 

On its face, the proposals are positive: additional time to find alternative banking provision is a help, if not a solution to de-banking concerns. And banks are not currently obliged to give customers reasons for closing their accounts. So, while any increased transparency is good, it is unrealistic to expect banks to share detailed explanations that might open the door to customer complaints, or even litigation.  

The government has also made clear that strengthening the termination requirements must be carefully balanced to account for banks’ other legal obligations. Notably, banks closing an account due to AML or terrorist-financing safeguards would not have to give a notice period or an explanation (to avoid ‘tipping off’ offences). 

The APPG Report 
The APPG perspective on this is noteworthy. They flag growing evidence that banks may (wrongly) be using a financial crime “label” to terminate accounts which are commercially unviable. In particular:  
-- The FCA’s figures (3), which show that the volume of customers terminated due to financial crime reasons surged 370 per cent between 2018 and 2022; and 
-- The number of Suspicious Activity Reports (SARS) filed by banks rose just 77 per cent over the same period. 

The viewpoint of the banking industry is that the 370 per cent increase is the result of banks becoming better at identifying a potential crime, due to improved systems, including the introduction of automation and the use of AI. However, the APPG flag that if the increase in de-banking was simply due to improved monitoring and detection of financial crime, the number of SARs filed with the NCA should show a comparable rate of increase. 

The APPG also highlight customers being de-banked due to financial, reputational and regulatory pressures facing banks. Increased regulatory and legal obligations with additional AML checks, ongoing monitoring and due diligence at the point of onboarding, all add cost. Groups with particular common risk characteristics are finding themselves de-banked – the APPG give crypto businesses, jewellers and yacht brokers as examples – where perceived risk profile is higher, with typical issues including regular cash deposits or regular overseas remittance of funds. The additional compliance costs of servicing these groups mean that the commercial ‘solution’ for banks is often to simply offload such customers. 

It is difficult to see that pending new legislation grapples with these issues. 

What about the courts?  
Can the courts assist victims of de-banking? In short, the answer is in most cases, no. The current direction of the courts is to uphold bank decisions to close accounts due to suspicions of fraud or criminal activity. In a recent decision: Uzbekov v Revolut (4), the High Court struck out the claim on the basis that there was no real prospect the court would grant a declaration that the termination of the relevant banking facilities was in breach of the contract with the customer. The court considered that a declaration was not in the public interest and pointed to the Financial Conduct Authority as better placed to consider systematic issues of de-banking. 

Footnotes

1, https://www.appgbanking.org.uk/articles-and-reports/ 
2, https://assets.publishing.service.gov.uk/media/65f187da981227a772f61310/The_Payment_Services__Contract_Terminations_Amendment__Regulations_2024_-_Policy_Note.pdf 
3, https://www.fca.org.uk/news/press-releases/fca-sets-out-initial-findings-bank-account-access-and-closures 
4, [2024] EWHC 98 (KB)