This blog discussed a draft law that the UK Government is proposing that will force banks to take several steps to hopefully redress the balance back into the customer’s favour.
Following several high-profile “de-banking” cases, we recently published a blog titled “What are the proposed new laws aimed at preventing de-banking?”.
In this latest blog we explain why we feel that these intended changes to the laws do not go far enough.
Who can be ‘de-banked’?
Unfortunately, whilst recent cases of ‘de-banking’ have attracted headlines and attention, the experience is not limited to high-profile politicians in the UK.
Specifically, de-banking often affects both individuals and businesses who are (sometimes wrongly) classified as high risk and are therefore deemed to pose too much of a risk to the relevant banks.
Unfortunately, such is the approach adopted by most banks that even individuals and businesses operating lawfully and in full compliance with all relevant regulations can find their accounts closed.
This is obviously an incredibly frustrating and damaging event, which can have a profoundly damaging effect on both personal and businesses circumstances.
What are the proposals?
As is currently the case, there will always be situations (e.g. where there are anti-money laundering or terrorism financing safeguards) where banks are legitimately able to close accounts and also withhold the reasons for an account closure.
However, in our recent blog, we explained how the proposals aimed to address two issues with the current system, specifically the short timeframes given to customers whose accounts are to be closed and situations where no explanations to customers are given.
As such, the proposals intend to extend the time frame for customers to challenge the decision from two months to three months and will require banks to provide a “sufficient detailed and specific explanation” to the customer in relation to the reason for the account closure.
Why we feel that the proposals are not sufficient
It is, of course, obviously in the public interest and beyond sensible argument that banks should be able to close a customer’s account if the bank has financial crime concerns.
However, so long as banks remain able to close a customer’s account for vague reasons, such as reputational, and even in some circumstances – costs, there will always be situations which are unjust for the customer.
As such, the proposals to lengthen the timeframe which customers have to complain and/or forcing the banks to provide reasons for their decisions will simply not resolve this issue.
What is the way forward?
Indeed, this was recognised in a recent February 2024 report by the All Party Parliamentary Group on Fair Business Banking titled “De-Banking Report”.
This report analyses the potential reasons for de-banking under the headings of costs, reputational and financial crime.
Under costs, the report notes the high compliance costs to banks and observes that offering business accounts to some businesses might just not make financial sense. The report focuses on businesses operating in the crypto sector and how they have faced specific issues. The report suggests introducing a “Basic Bank Account” for small businesses and that banks need to be transparent about their actions.
As regards reputation, the report is critical of reputational reasons, noting that reputation has taken a position of outside importance, both for the banks and for the regulator. The report recommends that the regulator reserve its position on reputation and issues guidance to disregard this as a consideration in all cases except those involving unlawful conduct. This is clearly sensible.
The foreword to the report neatly summarises the issues, noting that “To properly address this problem will require a radical reassessment of what it means to be frozen out of the financial system and whether we need to start considering access to banking facilities to be a fundamental right, akin to a utility, rather than a discretionary services provision”.
In summary, the whole approach to providing access to an adequate bank account and banking facilities needs to be radically reconsidered, such that it is akin to a fundamental right, rather than something that can be offered (and taken away!) at the whim of the banks.
NAVIGATING BANKING CHALLENGES
Bank 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.
To assist those whose accounts have been closed, Gherson’s financial crime, investigations and regulatory team have previously written blogs titled “Why has my bank account been closed”, “Why has my business bank account been closed?” and “140,000 SMEs “de-banked” last year – why could I have been de-banked?”
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 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 X, Facebook, Instagram, 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