Feb 21 2024
White Collar Crime
Gherson LLP’s financial crime, investigations and regulatory team have previously written a blog titled “Why has my bank account been closed?” discussing why a bank may decide to close an individual’s bank account, and what can be done about it.
In this latest blog, we will explore the reasoning behind a bank’s decision to freeze or close a business account and look into protective and/or pre-emptive measures available to business owners.
Unfortunately, whilst recent cases of ‘de-banking’ have attracted the media and public attention, the experience is not limited to high-profile politicians in the UK.
Specifically, de-banking often affects businesses in certain sectors (e.g. the jewellery sector), which are classified as high risk and therefore considered as posing too many threats to the relevant banks.
Unfortunately, this approach, which is shared by most banks, may result in account closures, even for businesses that have been operating lawfully and in full compliance with all the relevant regulations.
This is obviously incredibly frustrating and may be damaging for the business in question.
The situation has been exacerbated by regulatory agencies, such as the Financial Conduct Authority (“FCA”), taking a firm stance against banks for anti-money laundering compliance failings. A prime example is the FCA’s prosecution in 2021 of National Westminster Bank PLC (“Natwest”), which resulted in a fine against Natwest of over £264 million, following Natwest pleading guilty to three offences of failing to comply with anti-money laundering regulations.
The charges referenced Natwest’s failure to properly monitor the activity of a jewellery business customer during the period when they deposited £265 million in cash with the bank.
We covered this issue extensively at the time
Understandably, banks are now generally taking an extremely risk-adverse approach with regards to offering banking services to businesses, especially if they operate in sectors deemed to be “high risk”.
Banks will often carry out extra security procedures, involving more extensive due diligence checks and automated profiling procedures to learn as much as possible about any potentially high-risk business client. These steps are typically taken both prior to and during the course of the customer-bank relationship.
In an effort to mitigate risk, safeguard their reputation and comply with regulatory frameworks, financial institutions may choose to pre-emptively terminate business-bank relations to ensure their own protection. This can include circumstances where a business is operating entirely lawfully and in compliance with all relevant regulations.
Bank account closures are not limited to political figures in the UK and affect hundreds, if not thousands, of lawful business customers every year. These cases have exposed the difficult terrain many financial institutions and their business customers must navigate to gain and maintain access to basic banking services.
There are some techniques, methods and strategies that can be applied to reduce the risk of businesses being de-banked, including, but not limited to:
In the unfortunate event that the bank closes your business account, there are various steps you can take to try and resolve the situation:
Gherson’s regulatory, white-collar and investigations team are highly experienced in providing support in situations where a bank freezes or closes your account. This includes assisting you with submitting a request under the data protection legislation, otherwise known as a Data Subject Access Request, to ascertain what information banks and other financial institutions may hold on you and what their decision-making process is, and then analysing the response and preparing an appropriate challenge.
If you have any questions arising from this blog, please do not hesitate to contact us for advice; send us an email at enquiries@gherson.co.uk or, alternatively, follow us on X, Facebook, Instagram or LinkedIn to stay up to date with the latest developments.
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
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