News

For more than a decade, remitters, Islamic charities and certain other purportedly high-risk parties in Britain have often faced exclusion from banking services, reportedly because of an industry-wide, disproportionate observance of rules aimed at tackling terrorist financing.

The U.K. government’s position on the banking industry’s apparently broad aversion to certain types of financial crime-related risk has been consistent, if not outright passive, with HM Treasury repeatedly emphasizing that decisions by banks to reject or sever ties with clients must be made on an individual, rather than wholesale, basis, but made by banks alone.

That policy’s days appear numbered after news emerged that Coutts Bank, a private lender headquartered in London and owned by the NatWest Group, took steps to sever ties with a long-term client whom the institution classified as a politically exposed person: Nigel Farage, a former EU lawmaker and Brexit campaigner who has long courted controversy.

News that Coutts sought to close Farage’s accounts not only for commercial reasons as previously reported, but also out of reputational concerns, has prompted the resignation of two high-ranking bank executives, and left the government scrambling to crack down on “unfair bank account closures” and safeguard “freedom of expression.”

How those new expectations will jibe with current requirements that banks build compliance programs and use their own cognizance to guard themselves against money launderers, terrorist financiers, fraudsters and sanctions evaders is unclear, said Tom Keatinge, a director at the Royal United Services Institute, or RUSI, in London.

“This same concern has been raised by charities and MSBs [money services businesses] for over a decade and the government has done nothing material about it,” said Keatinge. “Now it’s going to intervene in the decision-making of banks.”

The new requirements, which the government unveiled July 20, will triple the notice period banks must give when closing accounts from 30 days to 90 days to give clients time to challenge those decisions or open accounts at other lenders.

Banks will also have to inform customers of their reasons for closing accounts so as to provide “real transparency” and create a “much fairer playing field,” Andrew Griffith, economic secretary at HM Treasury, said when announcing the regulations.

Griffith and other officials did not spell out how the measures will interact with the “tipping off” provisions of the 2002 Proceeds of Crime Act, which bars banks and other companies regulated for anti-money laundering purposes from informing clients when they have filed a suspicious activity report on them, or telling them that they are under criminal investigation.

The rules still require parliamentary approval, which will push their enactment back to September at the earliest.

Bad reputation

Alison Rose, chief executive of the NatWest Group, which owns Coutts, resigned Wednesday after admitting she told BBC News that the private lender closed Farage’s business account because he had fallen below the bank’s minimum wealth threshold, with critics claiming her disclosure violated the politician’s right to confidentiality.

Coutts Bank’s chief executive Peter Flavel stepped down Thursday, claiming he bore “ultimate” responsibility for the lender’s treatment of Farage.

Internal records Farage obtained from Coutts and released to the public cast doubt on Rose’s claim that closing his accounts was purely a business decision, and instead revealed the view among staff that serving “NF” stood at odds with “our position as an inclusive organization.”

Coutts classified Farage as a “lower risk” politically exposed person, a status that required the bank to subject his accounts to enhanced monitoring, but planned “to declassify him as a PEP on the new review” after he stepped down as head of the Brexit Party in 2021.

“At best he is seen as xenophobic and pandering to racists, and at worst, he is seen as xenophobic and racist,” the records read. “He is considered by many to be a disingenuous grifter and is regularly (almost constantly) the subject of adverse media.”

Watch the headlines?

U.K. financial institutions have long used negative news and other forms of adverse media as a factor in their risk-based decisions, such as determining whether to subject a client to enhanced due diligence and transaction monitoring.

Guidance promulgated by the Financial Conduct Authority, or FCA, directs financial institutions to alert senior managers of any adverse public information pertaining to prospective PEP clients when onboarding them, and to take that knowledge into consideration when reviewing their relationships with current customers.

Samantha Sheen, former director of anti-money laundering at ACAMS, said that the new rules, political pressure and any regulatory scrutiny that may follow will force banks to clearly separate genuine concerns of illicit finance from reputational issues that arise from adverse news reports involving PEPs and other high-profile, high-risk clients.

“A lot of MLROs [money laundering reporting officers] are going to be very nervous if they’re also expected to give opinions outside of the realm of financial crime,” Sheen, now an AML consultant in London, told moneylaundering.com. “You can no longer close an account over ‘regulatory and compliance concerns’ and just blame everything on AML.”

The new regulations may also force financial institutions to revise their procedures for reassessing their relationships with certain customers in cases where they do not have a grounded suspicion of illicit finance.

“When it’s not AML-related, [banks] are often not very good at putting a story together about what their risk appetite is,” Sheen said. “When you’re challenged by a client [over an account closure], you’ve got to make sure you’ve got all your ducks in a row.”

Rose resigned hours before HM Treasury summoned the chief executives of 19 banks and other financial institutions to a meeting to seek assurances that their companies would not close accounts in response to lawful expression of political views, or shun politically connected clients absent a suspicion of money laundering or corruption.

Banks may look at the new rules and statements by ministers as a “material change in their operational environment,” said Keatinge, the director at RUSI.

“I think it’ll inevitably lead to decisions that banks, in hindsight, probably wish they hadn’t made—for example not closing an account for AML reasons because the risk of tipping off [the account holder], fear of being dragged into the courts or facing criticism in the press,” Keatinge said.

No exit

In January, the U.K. government asked financial institutions for their views on account closures after PayPal stopped handling transactions for a political organization and related website run by Toby Young, a right-wing commentator who has frequently courted controversy, and closed Young’s personal account.

The payment services provider later reopened the accounts.

Account closures have also raised heads in the Netherlands, where several financial institutions drew criticism after refusing to serve parties who spread anti-vaccine propaganda and COVID-19 conspiracy theories during the global pandemic.

In June, U.K. officials ordered the FCA to review guidance issued six years ago on managing the risk of illicit finance presented by politically connected clients.

Guy Wilkes, a former enforcement attorney at the FCA, said that financial institutions will also seek formal advice from the regulator on how they should go about terminating relationships with PEPs and other high-risk clients, particularly in cases where they do not have a clear suspicion of financial crime.

“Exiting customers will become more difficult for banks,” Wilkes said. “All eyes will be on the FCA to see what it does and what guidance it produces, because up until now it has seemed entirely relaxed about bank account closures and de-risking generally.”

Contact Koos Couvée at kcouvee@acams.org