Farage and Debanking Update

1 Sept

Written By

A lot of water has passed under the bridge since our previous post on this subject: When Reputational Risk Management Causes Reputational Harm

In this article we will try to unravel the key developments and assess their potential impacts on banks and financial institutions. We believe this is more than a storm in a teacup and firms will need to follow developments closely over the coming months, as well as take a long hard look at their current policies and procedures – and previous debanking decisions. It is important to note that this is not just about account closures: firms need to also take a close look at how on-boarding decisions are made.

The most material developments are considered below.

Accountclosed.org - Farage’s Lobbying Group.

Nigel Farage has launched a lobbying group, accountclosed.org, with the following stated objectives.

“A passionate and dedicated campaign group committed to advocating for the consumer rights of individuals and small medium businesses who have faced unjust treatment from banks and financial services companies, particularly when their accounts have been abruptly closed and essential services withdrawn”.

It does not look like the group will be supporting individual claims against banks at this stage, but this should not be ruled out in future.

There is also the distinct possibility that law firms and even claims management companies might support individual claims for redress for debanking decisions.

UK Government Position.

The government has stepped in rapidly to address fears that banks are terminating accounts because they disagree with someone’s political beliefs. The changes announced by the Treasury on 20th July will be made swiftly under new powers in the Financial Services and Markets Act 2023, which gives Britain control of its financial rulebook following Brexit.

The changes will increase the notice period for account closures to 90 days – giving customers more time to challenge a decision through the Financial Ombudsman Service - or find a replacement bank.

Banks will also be required to spell out the reasons why they are terminating a bank account, boosting transparency for customers and aiding their efforts to overturn decisions.

It should be noted that the government has already been considering these rule changes following an investigation launched in January 2023, after PayPal’s temporary suspension of several accounts last year. The media attention created by Mr. Farage has surely expedited these rule changes. There is an irony that Brexit, which made Mr Farage a household name, has enabled the government to make such a rapid response.

FCA Intervention.

The complaints data collected and published by the FCA (and the Financial Ombudsman) is not sufficiently granular to assess the number of complaints related to account closures and the reasons therefor. The FCA has therefore sent an ‘information request’ to the largest banks and building societies requesting information, by the 25th of August, on:

the number of customers that have been terminated.
the number of customers suspended.
the number of customers denied services.
the reasons for all of the above.
the number of complaints banks have received on this issue.

The FCA will also be expressly asking if accounts (for both personal and business customers) have been closed because of expressions of political or other opinions. The FCA will analyse the results and provide an initial assessment by mid-September.

This exercise will enable the FCA, and firms, to assess the extent of the problem and to plan for any necessary changes.

NatWest’s Independent Inquiry.

NatWest has commissioned an independent inquiry to investigate the Farage case, other account closures and potential breaches of confidentiality.

Farage Case Review.

NatWest has announced an independent external review of the decision to close the accounts of Mr. Farage, which will include reviews of:

a) Coutts’ policies and processes in relation to customer account closures and how these were applied in relation to Mr. Farage.

b) How Mr. Farage’s account was identified for closure and the steps that led to his case being considered by the Wealth Reputational Risk Committee.

c) The decisions made at different stages of the process and the documentation that was produced to support those decisions (including minutes of various meetings).

d) Whether those decisions were taken in accordance with the relevant bank policies and processes.

e) The communication of the decision to Mr. Farage; and

f) The actions and roles of senior executives and the board at each of Coutts and NatWest Group level, including the timing and content of updates they were given.

‍ ‍2. Review of account closures in the last 2 years.

In addition to the specific circumstances in Mr Farage’s case there will be a review of Coutts’ account closures over the last 24 months.

The law firm conducting the review will also assess the relevant standards that have been applied when recommending the closure of customer accounts at Coutts, including regulatory guidance around Political Exposed Persons (“PEP”), equalities legislation and any other relevant legal/regulatory guidance.

This will be achieved through selecting a sample, which will include all PEPs, of Coutts customer account closures over the last 24 months, ensuring an appropriate range of characteristics and reasons underpinning the recommended account closure.

‍ ‍ 3. Confidentiality / GDPR breach review.

This phase of the review will also address the circumstances surrounding the BBC article (which ultimately led to the resignation of Alison Rose) and if any leak of confidential customer information or breach of GDPR occurred.

Perhaps not surprisingly, Mr Farage has accused NatWest of kicking its review into the closure of his bank account ‘into the long grass’.

We expect the FCA to raise the debanking issue in its normal supervisory processes and senior management should be prepared to answer questions on the subject, based on robust evidence.

Politically Exposed Persons (‘PEPs’).

In a related, but separate, intervention, the FCA has just written to MPs, peers, senior civil servants and the senior ranks of the armed forces (and other interested parties) to hear directly from UK PEPs on their experiences as designated PEPs, including any problems they or their family members have encountered. The FCA will review the responses and report back by June 2024. The most likely outcome of this review will be revised guidance (last updated in 2017).

Many PEPs have expressed the view that they, and their families and close associates are being denied banking services as a result of an overly risk-averse interpretation of the PEP rules and guidance. We can expect changes to the FCA PEPs Guidance.

Key Takeaways for Senior Management.

Senior Management should:

Identify the information requested by the FCA (as set out above under FCA intervention above) if not already requested by the FCA. We think this will be particularly important for private banks and asset / wealth managers with potentially high-profile, high net worth clients.
Identify and review any account closures, over a reasonable period, that might come back to haunt them.
Ensure that they have robust procedures, that are followed effectively, to review account closures for reasons of potential reputational damage.
Review on-boarding processes and adverse media guidance to ensure that they do not prevent accounts being opened because of political beliefs.