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Can you bank on account?: The implications of the Nigel Farage banking scandal

The decision by Coutts, NatWest Group’s private banking arm, to close Nigel Farage’s accounts sparked a political and media storm this summer.


The controversy first erupted after the broadcaster and former leader of the UK Independence Party disclosed that Coutts had given him notice of its intention to close his accounts, and voiced his suspicion that it was doing so because of his political beliefs.


A subsequent BBC report claimed that the true reason for Coutts’ decision was that Farage no longer met its financial criteria. It later emerged that the decision was based, at least partly, on Coutts’ assessment that Farage posed a reputational risk and that his publicly-stated views did not align with its ‘values’. The resulting scandal led to the termination of the CEOs of Coutts and NatWest Group and to the law firm Travers Smith being commissioned to conduct an independent review into the case.


Whatever the outcome of that review, due to conclude this autumn, the Farage-Coutts dispute has raised important legal and regulatory questions about the boundaries of banker-customer relationships.


Farage had been a longstanding Coutts customer, but, when his mortgage was ending, a ‘reputational risk committee’ of senior Coutts bankers decided that his other accounts should be closed once his mortgage was repaid. He was told that this was for ‘commercial reasons’.


Unhappy, Farage submitted a Data Subject Access Request under the Data Protection Act 2018 and published the personal data that Coutts subsequently disclosed to him. This included a catalogue of adverse press coverage that Coutts had compiled on Farage’s publicly-stated views. Although no financial crime or sanctions concerns were identified, Coutts had concluded that Farage’s views were ‘at odds with our position as an inclusive organisation’ and that he should be de-banked.


Farage’s subsequent campaign to protect other customers from similar de-banking attracted cross-party Parliamentary support and led to the Prime Minister announcing new rules to ‘boost the rights of customers’. These rules, to be implemented under powers granted in the Financial Services and Markets Act 2023, will require banks to (i) provide 90 days notice (rather than the current 30) of proposed account closure and to (ii) give customers clearer explanations of closure reasons. The Government envisages this making it easier for customers to challenge closures, while still protecting banks’ rights to act in their commercial interests.


Separately, the Government is to clarify the law on banks’ treatment of Politically Exposed Persons (‘PEPs’). These individuals are subject to increased scrutiny and precautions due to perceived higher corruption risks; they include MPs, peers, senior civil servants and high-ranking military officers. The Financial Conduct Authority (‘FCA’) is currently investigating whether banks are applying those rules and precautions proportionately.


Farage’s case has also led to wider debates about the importance of access to banking services in today's increasingly cashless world. An FCA study in 2020 found that 1.2 million UK adults have no bank account, leaving them disadvantaged in accessing accommodation, benefits and employment. But where does the balance lie between a bank’s legal right to decide who to do business with and an individual’s legal right to have a bank account?


Since 2016, the nine largest UK banks have been legally required to offer ‘basic bank accounts that charge no fees for standard operations and cannot be overdrawn. Customers with these accounts can access ATMs, pay direct debits and shop online. Applicants will only be refused such an account in very limited circumstances, such as suspected financial crime.


Access to most other types of bank accounts, however, involves meeting more demanding financial criteria, including extensive credit risk and affordability checks for overdrafts and loans.


In practice, therefore, for all bank accounts except basic accounts, banks operate as commercial entities that weigh risk and reward.


Legally, banks can close accounts for customers in many types of situations. Those rights are set out in the account terms and conditions and include, for instance, situations where a customer has not used the account regularly, or has been abusive, or regularly bounces cheques.


Banks can also lawfully close the accounts of customers who may pose a risk to their reputation. In doing so, however, they must comply with equality legislation and the Payment Account Regulations 2015, which state:


‘A credit institution must not discriminate against consumers legally resident in the European Union by reason of their nationality or place of residence or by reason of any other ground referred to in article 21 of the charter of fundamental rights of the European Union when those consumers apply for or access a payment account.’


This still gives banks fairly wide discretion. Previously, some have used reputational risk to justify closing the accounts of businesses involved in gambling, pornography, and CBD supply. Following Farage’s case, the UK Government has promised to legislate to compel banks to respect customers’ ‘freedom of expression’, including their political views.


Importantly, a bank can close an account if it suspects that a customer is involved in financial crime, including money laundering. In practice, this is accompanied by banks’ legal duty to report any such suspicions to the criminal authorities and not to ‘tip off’ the customer about those suspicions. Indeed, if a bank (deliberately or accidentally) alerts such a customer to the bank’s suspicions, the bank itself may commit a criminal offence under the Proceeds of Crime Act 2002.


In order to avoid this risk, banks do not give customers detailed reasons why their accounts are being closed – even where the decisions have nothing to do with financial crime.


The UK Government‘s announced intention to compel banks to tell customers why their accounts are being closed, to improve transparency and rights of appeal, seems to create a tension with banks’ obligations under the Proceeds of Crime Act. If customer A, exited for non-financial-crime reasons, is given a full explanation of the rationale, but B, exited because of financial crime suspicions, is given no reason then the very fact that B receives no explanation might itself – in that scenario – amount to ‘tipping off’.


The many legal and regulatory questions that Farage’s dispute with Coutts has sparked will undoubtedly continue to be debated by lawyers, regulators, the banking industry and the Government for years to come.


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