Is this the end of de-banking? Probably not.

01 May 2024, 07 mins ago

In the wake of Nigel Farage’s operatic banking drama involving NatWest, Coutts and even commentary from the Prime Minister and the Leader of the Opposition, millions of people have raised questions about de-banking.

These questions often concern how to ensure access to banking facilities in the right circumstances, and how to challenge the seemingly unaccountable discretion and opaque processes that banks wield in ways that can disrupt the provision of vital services to customers at the drop of a hat.

We note that it is not just celebrities and/or politicians who are affected by de-banking, but also many regular customers who often report receiving short notice periods accompanied by unclear, unhelpful and vague ‘explanations’ from banks after deciding to terminate their relationship with customers. This has included reports that various groups, including unemployed individuals, Muslims and those experiencing long-term sickness and/or disabilities, are disproportionately lacking or losing access to basic banking services.

The right of access to a bank account is something many people can take for granted; that is, until an unforeseen account closure turns their world upside down. Ultimately, ease of access to banking services and stable provision of these services are cornerstones of the modern economy.

Potential reform of the current law in England and Wales

Following a Parliamentary inquiry into small and midsize enterprises’ (SMEs) access to financing, newly collected data indicates that more than 140,000 business accounts have been closed by major banks. The reasons cited include risk appetite, financial crime concerns and lack of (sufficient) information.

This month, HM Treasury has published a policy note in addition to a draft statutory instrument (secondary legislation) that directly addresses some of the issues people encounter when their banks terminate banking relationships with customers.

The main elements of reform are specific to the Payment Services Regulations (PSRs) 2017, as outlined by HM Treasury. These proposed reforms include:

  • An increased notice period regarding termination of banking services, from 2 months to 90 days;
  • Requiring service providers to provide customers with a more detailed response for why contracts have been terminated;
  • Preventing service providers from using bespoke contracts to opt out of new termination requirements; and
  • A proposed broad application to payment service providers and not just banks.

To many consumers, changes in transparency levels and an increase in the notice period will be a welcome improvement, pressuring banks and other financial service providers to be more accountable and thereby hopefully reducing the imbalance between service providers and consumers as it applies to termination of contracts.

Gherson comment on proposed reforms

We have identified some potential drawbacks in the proposed reforms, starting with what HM Treasury defines in the policy note as the trigger for reform. The proposed changes are stated as being driven by “several high-profile instances of alleged ‘de-banking’”. This narrow raison d’être is reflected in the limited context for which these changes are intended to apply, namely, the termination of a “bank account or payment service motivated by a customer’s personal or political beliefs”.

Unfortunately, the proposals from HM Treasury might not go far enough for some consumers, as consumers can be de-banked for a variety of reasons not captured in the reasoning behind the proposals, such as the various groups of customers we listed at the beginning of this article.

However, these proposals do present a gateway towards further reforms and improvements of the legislative framework, in addition to bringing increased awareness to the de-banking phenomenon, which could in turn lead to proactive reviews of existing regulatory structures within the financial services industry.

How Gherson can assist

Gherson’s White Collar Team are highly experienced in advising on UK banking, data protection and financial (non-investment) matters. If you have any questions arising from this blog, please do not hesitate to contact us for advice, send us an e-mail or, alternatively, follow us on XFacebookInstagram, 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.

©Gherson 2024