AI and de-banking: could automated compliance systems close your bank account?

Artificial Intelligence is increasingly being used by banks and financial institutions to support fraud detection, anti-money laundering monitoring and customer risk profiling. While these systems are designed to identify suspicious activity, they can also generate false positives, rely on inaccurate data or amplify flawed risk assessments.

In practice, this may contribute to situations where individuals or businesses experience sudden account freezes, banking restrictions or “de-banking” decisions without a clear explanation. In some cases, automated systems may also rely on inaccurate compliance database information, adverse media or online material which has not been properly reviewed by a human decision-maker.

As we continue to advise individuals facing account closures, CIFAS markers and wider financial restrictions, we are increasingly seeing concerns raised about the role automated decision-making and AI systems may be playing in these processes.

In this article, we examine how AI could influence de-banking decisions, the legal and practical issues this raises and what individuals may be able to do to challenge unfair outcomes.

Could AI be involved in de-banking decisions?

In summary, yes, this is a real possibility.

This could be for various reasons, however, because banks use AI to address a number of regulatory, financial and legal risks.

How do banks use AI in compliance and financial crime checks?

Practical applications by banks of Artificial Intelligence include using AI to scan thousands of account transactions for money laundering or fraud, and sometimes these algorithms create false positives (a false alert). This can then play a part in a bank’s decision to de-bank one of their customers.

To make things worse, when AI flags an account, for whatever reason, the actual decision to freeze or even close an account could itself be automated. The lack of human review in this process can lead to perverse decisions that are thereafter difficult to challenge.

Equally impactful are situations where, for the purposes of on-boarding or compliance checks, AI replicates disinformation which could include false or biased media reporting or online material.

Can AI create false positives that lead to account closures?

The answer is yes. The lack of human review can lead to wrongful decisions which can be difficult to reverse. In these situations, false or incorrect information on compliance databases could be feeding into the bank’s decision to close an account.

Below we examine how you can challenge incorrect information held about you on compliance databases.

What can I do if my bank account has been unfairly closed?

We are increasingly being approached by individuals who have been “de-banked” in circumstances where they are adamant that they have always acted in full compliance with the relevant bank account’s Terms and Conditions and all other legal and applicable rules and regulations.

We have previously written about how other issues individuals may face, including account closures, are not limited to political figures in the UK and affect many thousands of lawful individual and business customers every year. These cases have exposed the difficult balance many financial institutions and their individual and business customers must navigate to gain and maintain access to basic banking services.  

What can I do to try and challenge a wrongfully imposed CIFAS marker?

We are also being increasingly approached by individuals who feel that a financial institution has wrongly imposed a CIFAS marker in their name.

If you have always acted in full compliance with the relevant bank account’s Terms and Conditions and all other applicable legal rules and regulations, then you should have a good basis to challenge the bank’s decision to implement any CIFAS markers.

Our experts have previously explored what a CIFAS marker is and how to try and get it removed, as well as what you can do if a CIFAS marker has been wrongly imposed in further detail in other articles.

A strong challenge will often involve demonstrating through evidence that you have not breached the bank’s Terms and Conditions or any rules and regulations, and that all transactions were carried out at all times in full compliance will all applicable laws and regulations.

Our perspective: AI risks are increasingly colliding with financial compliance obligations.

Banks are under increasing regulatory pressure to identify fraud, money laundering, sanctions exposure and wider financial crime risks quickly and at scale. Unsurprisingly, many institutions are turning to AI-driven monitoring systems and automated compliance tools to assist with this process.

However, the increasing reliance on automated systems also creates significant risks where decisions are based on incomplete information, flawed datasets or adverse media which has not been properly verified. In practice, we are increasingly seeing situations where individuals feel unable to properly understand or challenge decisions affecting their access to banking facilities.

This can become particularly serious where de-banking decisions are linked to wider compliance concerns, adverse database entries, cryptoasset activity, cross-border transactions or alleged reputational risk. In some cases, individuals may only become aware of underlying allegations or inaccurate information after making a Data Subject Access Request or obtaining specialist legal advice.

We are increasingly approached by individuals who feel that incorrect and/or inaccurate data about them stored in compliance databases is having an adverse effect on their relationship with financial institutions and are facing subsequent issues, such as bank account closures and difficulties in opening a bank account.

As financial institutions continue integrating AI into compliance and onboarding processes, the tension between fraud prevention, regulatory obligations and procedural fairness is likely to become increasingly important.

Frequently Asked Questions about AI and de-banking

Can AI close a bank account automatically?

In some circumstances, automated systems may contribute to decisions involving account restrictions, enhanced due diligence reviews, account freezes or account closures. However, financial institutions are still expected to comply with applicable legal and regulatory obligations when making such decisions.

Why would AI flag a bank account?

AI systems used by banks may flag accounts based on transaction monitoring, fraud detection alerts, sanctions screening, adverse media results, unusual payment activity or perceived financial crime risks. In some cases, false positives may occur.

Can incorrect information lead to de-banking?

Yes. Incorrect adverse media, compliance database entries or inaccurate financial crime alerts may affect how financial institutions assess risk and could contribute to account restrictions or closures.

Can I challenge an AI-driven de-banking decision?

Depending on the circumstances, individuals may be able to challenge account closures, CIFAS markers or inaccurate compliance information through complaints, DSAR requests or legal representations.

What is a Data Subject Access Request (DSAR)?

A DSAR is a request made under data protection legislation which may allow individuals to obtain information held about them by organisations, including certain personal data relevant to account closure or compliance decisions.

HOW GHERSON CAN ASSIST

Gherson’s Regulatory, White-collar and Investigations team are highly experienced in providing assistance on what you can do if your bank freezes or closes your account. This includes assisting you in submitting a request under data protection legislation, otherwise known as a Data Subject Access Request, to ascertain what information banks and other financial institutions may be holding on you and their decision making, and then analysing the response and assisting with any appropriate challenge.

If you would like to speak to us in respect of any of the issues raised in this blog or about your specific circumstances, do not hesitate to contact us for advice, send us an e-mail, or alternatively, follow us on X, Facebook, or LinkedIn to stay-up-to-date.

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog.  For formal advice on the current law please do not hesitate to contact Gherson.  Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

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