In the last few weeks there have been a series of allegations that many banks are going rogue and cancelling their customer’s accounts for various spurious reasons.
Some politicians have expressed outrage that they are on ‘high risk’ lists due to their jobs or views, while others have argued that they are being persecuted for not being ‘woke’ or having right wing views.
As with most things, there’s some element of truth in some of these allegations, though certainly not all of them. I’ll tackle all of this later in this article.
One thing is categorically true though. Banks are commercial entities – and that means they don’t have to take on your business or keep you as a customer if they don’t want to. Nor can they be compelled to do so (currently).
There is a much more important concern here though. Because banks are currently under no obligation to tell you why they don’t want your business. Which is deeply unfair… in fact I’d say it’s Orwellian.
I’ve spoken to hundreds of ordinary people over the years who are unhappy that their accounts are being closed for no reason. So here’s my guide to how account closures work, why they happen and what you can do about it.
Why are banks allowed to close my account?
There’s no one rule, regulation or piece of legislation that sets the rules around account closures definitively. The authorisation to do so comes from a mix of different rules and regulations. Ultimately these rules allow your bank to terminate your relationship without having to give a reason. It’s a bit like being dumped by a terrible partner, then ghosted.
You must be given a notice period, generally around 30 days, so you can make alternative arrangements You may be given longer for business accounts. However this timescale can also be less where certain situations have arisen leading to the closure (threats made to members staff, for example).
Because banks aren’t obliged to give you an explanation for shutting the account, most complaints either focused on whether they’ve made a mistake or if the bank’s actions have resulted in a direct financial loss. There’s a bit of info from the Financial Ombudsman here that covers the kind of complaints it can look at.
But for most people, the main issue is: ‘Why have you shut my account?’
The trouble with money laundering
Part of the problem with account closures and, well, giving people closure, is widespread industry misunderstandings over the rules set out in the Money Laundering Regulations.
In short, if someone is suspected of money laundering (or other financial crimes) staff are legally prevented from discussing the matter with the customer. In fact, to do so is a crime and is subject to prosecution. [If you dare, check out the rules here! https://www.fca.org.uk/firms/financial-crime/money-laundering-regulations]
In fact, money laundering investigations are really rather rare and most bank staff will never come across one in their careers. But so dire are the warnings that banks give to their employees that a state of hyper-caution exists. I believe that this is where the refusal to discuss all account closures has come from – an overly nervous banking system and an unwillingness to say to people that some transactions look suspicious even if there’s no money laundering investigation.
This matters because over the pandemic I spoke to loads of people who told me that their current or business accounts had been closed for no reason. On investigation it would seem that some atypical transactions had led to accounts being frozen. But rather than clarify what they were with their customers, the banks had opted to just shut the accounts without explanation. This is clearly unfair and something that should be complained about to the Ombudsman. But proving the precise reason for the account closure is difficult.
What this means for you if your account is closed
Trying to find out why your account has been closed is almost impossible with some banks. But usually the reasons are:
- Suspicious transactions outside of the normal range in the account.
- Lack of use.
- Suspected fraud.
- Personality clashes (you’ve been rude to staff repeatedly).
- Support for unlawful activities, like terrorism, for example.
- Reputational risk to the bank (as above).
- You’re not making them any money.
- Automated systems making mistakes.
- People making mistakes.
What can you do?
While the bank can’t be forced to tell you why it’s closed your account, you can complain about it if you think it’s made a mistake.
This is worth considering because in the process of making the complaint or going to the Financial Ombudsman, you might get the answer you need.
Your bank won’t generally say to you that it thinks you’re up to something dodgy. However, if you think some payments on your account have caused the problem, then ask them: ‘Has my account been closed because of these transactions, because I can explain them’.
You can also ask to speak to the bank’s actual fraud investigation team, who are more likely to take a realistic approach to things on the system that have triggered your account being frozen or closed.
Mistakes do happen and sometimes you might be confused with someone with a similar name or account number who is on a list of convicted fraudsters somewhere. Or someone might have just typed in the wrong thing into the computer. Again, when taking your complaint further, explain that you’re concerned about incorrect information that may be on file that has the potential to affect your credit or reputation – and ask for it to be corrected.
Always take the complaint to the final stage of the bank’s complaints process and get a written response. The higher up you go, the more likely someone will take a pragmatic look at the situation.
The Ombudsman can’t reveal to you what it’s been told by the bank confidentially, but it can check that information to see if it seems fair or accurate.
What about ‘Politically Exposed People?’
Various politicians have come forward in the last week to allege that they have been denied accounts due to banks classifying them as ‘politically exposed people’ (PEPs) and therefore represent too great a risk.. While PEPs are ‘a thing’ this isn’t quite what it seems.
The Money Laundering Regulations list PEPs as posing a significantly higher risk of money laundering, because of their position and security clearances, NOT because of their views. In short, some politicians may be more ‘vulnerable to corruption’ because of their job. This doesn’t mean our UK politicians – the rule covers politicians worldwide. It also doesn’t mean accounts will be closed or turned down. It just means that they may face further scrutiny. Find out more here.
Of greater concern – and the subject that’s dominated the headlines – is ‘reputational risk’. In other words, are the views or actions of an individual or business sufficient to damage the reputation of the business. That’s why Nigel Farage’s leaked dossier – which does seem to suggest that this played a part in the decision to close his Coutts account’.
Can banks do this? Well yes. But we almost never find out about it because… they don’t have to tell us why they shut accounts. It’s almost unheard of for documents like this to be released in my experience.
This puts businesses in a difficult position. People should be able to express views that others disagree with without fear of being stripped of vital banking services. But by the same token, a business can also decide if they don’t want to be associated with an individual or business who could cost them money by association. For example, many campaigners are targeting banks that offer accounts to big oil companies.
So what’s the answer for normal people?
For the last 20 years I’ve spoken to people who are deeply, deeply distressed as a result of an account closure. That paranoia of never knowing if there is a ‘black mark’ against your name can have a lasting impact on you and your relationship with all other financial services.
Yet in the vast majority of cases, the reason for the closure was a mistake or something really minor. And there is absolutely no reason why people can’t be told this. Even if the answer is just ‘we don’t want you anymore because you don’t make us any money’.
The Government are reportedly considering protecting free speech as a condition of banks keeping their licences. I’m not sure how they are going to police this – and it would take ages to implement anyway.
However, I think we need to go much further. It’s high time the veil of secrecy around account closures was swept away once and for all. So make it a requirement for all banks to give a reason why they have chosen to shut your account.
Featured in Mirror – Martyn James