What is “debanking” and how could you be affected?

Nigel Farage made headlines recently after a public dispute with high net worth banking and investment establishment, Coutts, when they closed his account.

Their official reason was that he had fallen below the £1 million minimum investment and borrowing threshold after paying off a mortgage. Farage, on the other hand, claimed it was for political reasons.

While Coutts initially denied this, the former UKIP leader released a document containing evidence that they had discussed the “reputational concern” that he posed because of his political views when deciding to close his account.

The revelation led to a crisis for NatWest, the owner of Coutts. The bank’s chief executive eventually resigned, and Farage received an official apology from both the bank and the BBC for their initial reports about the account closure.

However, the matter is far from settled as Farage is now seeking compensation from Coutts, even though they offered to reinstate his account.

The incident also had wider implications as it brought the issue of “debanking” to the attention of the public and the government.

The Financial Conduct Authority (FCA) have been asked to investigate “debanking”

Since the dispute between Nigel Farage and Coutts Bank came to light, chancellor Jeremy Hunt has ordered an investigation into “debanking” – the closure of a bank account because of a perceived financial, legal, regulatory or reputational risk.

The chancellor tasked the Financial Conduct Authority (FCA) with investigating how widespread debanking is, and the specific reasons banks give for closing accounts.

The FCA must also provide information about the action they have taken to protect consumers against debanking.

The chancellor took a clear stance against the practice, reiterating that the FCA has the power to fine banks if they are found to be acting unjustly.

The government has also discussed putting new laws in place to reduce the power that banks have to close accounts.

That said, it may take some time before they implement any changes, and the current laws surrounding bank account closures are not especially robust.

As such, debanking may be more likely to affect you than you think.

UK banks are closing more than 1,000 accounts every day

The issue of debanking is currently in the news because of cases involving high-profile political figures. Consequently, you may not think it is likely to affect you but that is not necessarily true.

There are many reasons why a bank could close your account, regardless of whether you are a public figure or not. These include:

• Not using the account very often
• Suspicious activity on the account
• Sending large sums of money overseas
• Providing incorrect information when opening an account.

As such, anybody may be at risk of having their bank account closed and it is more common than people realise.

Indeed, as reported by the Guardian, UK banks are closing more than 1,000 accounts every day. The data also shows that the practice is becoming more common.

In 2016/2017, for example, banks closed around 45,000 accounts. This figure rose to more than 343,000 in 2021/2022, so debanking is a growing concern.

While some of those affected are “politically exposed persons”, many people who are not in the public eye have also had their accounts closed. In some cases, the banks provided little to no explanation to consumers about why.

As such, it is important to understand what your rights are if your bank unexpectedly closes your account.

What does the law say about debanking?

The laws about debanking are not especially clear and, while there are some protections in place, the bank may still reserve the right to close your account.

Under the Basic Bank Account agreement put in place in 2016, the nine largest high street banks agreed to provide a free basic bank account to anybody who does not already have one with another institution.

However, this only applies to a simple current account and the agreement is designed to ensure that everybody has access to basic banking services. Consequently, it does not apply to other types of bank account and will likely not protect you against debanking.

In fact, there are no specific laws in place to stop banks from closing your account if they want to.

Technically, they can close your account for whatever reason they decide. However, they must adhere to the same guidelines that other businesses do about “treating customers fairly”. This means they should not:

• Discriminate based on race, gender or sexual orientation
• Break their own guidelines and procedures
• Close an account without giving adequate notice – Banks should provide two months’ notice in normal circumstances, but they are not legally obliged to
• Give conflicting information to customers.

Unfortunately, the situation is not always clear, and it may not be immediately obvious if the bank is breaking these guidelines.

Additionally, you may need to prove that the bank has treated you unfairly and this can be a challenge, especially where issues like discrimination are concerned.

Ultimately, this could mean that you have no legal protection against debanking. That said, there are certain steps you may want to follow if your account is closed.

What happens if you are debanked?

If your bank closes your account, your first concern will likely be what happens to any remaining funds. Fortunately, the law states they must return any money to you, unless you have committed a crime.

The bank usually pays the funds to you in the form of a cheque, minus any outstanding fees or payments. However, you may be unhappy with this outcome if you feel you have been treated unfairly and still want to use the account.

If you want to contest the decision for any reason, contact the bank directly and discuss it with them first as they may be able to resolve the issue. If they are closing an inactive account, for example, they may agree to open it again if you use it more often.

Otherwise, you can file an official complaint with them and request that they take action to reinstate the account. The Financial Ombudsman Service may be able to help if the bank does not resolve the issue at this stage.

To escalate it further, you will need a final response letter from the bank, and you must make a complaint to the ombudsman within six months of the account closure.

At this stage, you may need to provide evidence that you were treated unfairly, and the ombudsman will approach the bank for an explanation about the closure.

They will then make a judgment and order the bank to act. This could be in the form of compensation or, if they deem it necessary, they have the power to make the bank reopen your account.

Get in touch

If you have funds in a high street account and you’re seeking a way of improving the potential for growth, get in touch to discuss how we can help you to protect your wealth.

Email enquiries@blackswanfp.co.uk or contact your adviser on 020 3828 8100.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.