As the digital economy continues to boom, banks have been struggling to balance their compliance obligations with their customer care duties.
Several recent highly publicised cases have drawn attention to 'de-banking' and highlighted its expanding upward trajectory.
In the past year, the Financial Ombudsman Service has noted a surge in complaints about account closures, rising from 367 in 2022-23 to 666 in 2023-24, with a significant percentage of those being upheld.
A bank may opt to terminate its association with a customer and close their account for various reasons, primarily revolving around perceived risks to the bank. This can be fraud risk, credit risk, reputational risk, or some other apparent risk, for instance stemming from the bank’s concerns about a particular industry, business, or country.
Given the substantial penalties that banks can face for regulatory failures, it is perhaps unsurprising that institutions are prioritising compliance. The stringent anti-money laundering and other regulatory obligations placed upon banks has caused them to become overly sensitive and risk averse.
This has prompted a tendency towards over-reporting rather than encouraging comprehensive, fact-specific assessments of whether an account should be flagged as suspicious in the relevant circumstances.
Nonetheless, the unexpected closure of a bank account can lead to very serious consequences for small and large businesses. It can disrupt their financial operations, making it difficult or impossible to pay invoices and staff, or access funds needed for day-to-day operations.
It can also negatively affect the business's credit rating, damage the business’s reputation and erode trust among customers and suppliers.
Provided that adequate notice has been given, there is little that customers can do when a bank decides to close their account. The banks’ terms and conditions invariably give them powers to terminate customer relationships at short notice and in a wide array of circumstances. The customer is rarely (if ever) required to have committed any wrongdoing.
Challenging the decision
That said, a bank’s conduct can always be evaluated by reference to its customer care obligations in the Financial Conduct Authority’s banking conduct of businesses sourcebook (often referred to as BCOBS).
Under BCOBS, banks must always pay due regard to their customers’ interests and treat them fairly. The consumer duty is a fairly new addition to BCOBS, which also requires that banks “must act to deliver good outcomes for retail customers”.
Customers who consider a bank to have acted unreasonably can make a complaint to the Fos. If Fos agrees that the bank has been unfair, it can order the bank to pay financial compensation up to £415,000 or make other reparations.
The reality is, however, that Fos complaints can take a year or more to be investigated and resolved, so they offer no immediate assistance for anyone on the brink of having their accounts closed.
In certain rare instances, if the closure of a bank account is anticipated to have severely adverse effects, it might be possible to seek a court injunction to prevent the closure.
