Anthony Browne is MP for South Cambridgeshire and Chair of the Conservative backbench Treasury Committee.
Nigel Farage is a red herring. But though the closure of his Coutts bank account is not what it seems, it has brought attention to the very real issue of banks closing accounts with little warning and no explanation.
The media storm has highlighted countless examples of people traumatised by having their accounts forcibly closed, apparently for having the wrong opinions. Politicians, furious at their own problems with banks, have joined the clamour.
The Government is already in the process of reforming one aspect of the problem, and has asked the regulator, the Financial Conduct Authority, to do an urgent review into another. The regulations are not blameless in this. But (and I speak as the former chief executive of the British Bankers’ Association) nor are the banks: indeed, they are being stupid.
A bank account is essential to modern life: you can barely survive with cash or credit cards alone. Having your account closed is not just emotionally traumatic, but can be financially catastrophic. But banks are legally free to close accounts and to not explain why.
The media reporting of this has been very confused, conflating two separate issues. The first issue is banks closing accounts because they don’t like their customer’s opinions. The second is the money laundering rules aimed at stopping politicians taking bribes.
I agree with the Government that it is utterly unacceptable in a free society for banks to close someone’s account because of their opinions – and I am sure that the overwhelming majority of the public agree. Banks cannot be arbiters of what their customers say; it would be the ultimate in cancel culture, and cast a real chill on our free society.
Banks are normally very careful not to engage in political controversy, but it seems clear from recent stories that banks are closing accounts because of people’s opinions, at least with regard to trans issues. (I believe Farage is wrong to claim that banks are closing accounts because people support Brexit.)
The main banks are all signed up to Stonewall’s employer programme, which requires them to be proactive at stamping out transphobia. It seems that trans activists within the banks have been agitating, successfully, to close down accounts of people they say are transphobic (such as the priest who objected to his building society’s pride flags, only to have his account closed).
I doubt that senior management are happy with taking sides on the most intensely controversial political issue of the day; after all, if they closed the account of everyone who thought that women don’t have penises, they would not be left with many customers. But I suspect they are probably scared to stand up to their own employees.
Last week I attended the board of UKFinance, which represents the banks, and told the bank CEOs that they should declare publicly that they would never close an account because of someone’s opinions. That would give them a basis to stand up to staff who want to close the accounts.
But banks’ commitment to not close accounts of customers on the basis of their opinions needs to be legally robust. Yorkshire Building Society, in defending its decision to close Reverend Fothergill’s account, said: “we only ever make the difficult decision to close a savings account if a customer is rude, abusive, violent or discriminates in any way”.
That leaves a gaping hole, since one person’s discrimination is another person’s common sense. We already have plenty of hate speech laws; if banks want to close someone’s account because of something a customer has said, they should only do it if the customer has been found guilty by a court of breaking the law.
Banks should not set themselves up in independent judgement of their customer’s views. The Government is reviewing the issue, but if necessary should make this a regulatory requirement.
The second issue is around so-called “politically exposed people”, who are deemed to be such a high risk of corruption that inherited EU money laundering rules require strict scrutiny of their accounts. The origin of this is the legitimate concern of foreign dictators channelling their ill-gotten gains through London, although political corruption is also rife in Italy and parts of Eastern Europe.
The latest EU rules required domestic PEPs (e.g. MPs) to be subject to the same regulations as foreign PEPs: this lead to lots of MPs and their families having problems with their accounts. The Government has legislated to have a different regime for domestic PEPs than foreign ones, and will sort out the new rules in the next year.
That is a good start. But I spent five years negotiating these rules on behalf of banks, and there are lots of problems with them.
First, the definition of who counts as a PEP – someone with political influence – is incredibly vague, and so banks have to guess who they are meant to target, and so target a wide range of people to make sure they don’t miss anyone. Do former ministers who are no longer MPs count, for example?
The Government should make it explicit who they expect banks to monitor. At most it should be sitting MPs and peers, mayors, and local councillors who have control over budgets or policies that can have a commercial impact (such as chairs of planning committees). Ministers should exclude close family members; I am not aware of a single case in the UK where a corrupt politician has channelled money through a relative’s account.
There remains a fundamental problem that banks have a strong incentive to close accounts and little to keep it open. They don’t make much money from current accounts, and monitoring them for money laundering can make them loss-making. They can be fined if they don’t close accounts, but they are not fined for closing them. The banks are being rational in pre-emptively closing accounts: it saves money, and reduces the risk of fines.
But the vagueness of the regulations means banks close the accounts of entirely innocent people. Banks should never close an account – or refuse to open one – just because of someone’s status as a domestic PEP.
Customers are usually furious their accounts are closed at short notice, without explanation or right of appeal. The banks are their own worst enemy here. They should give 90 days’ notice, not the usual 30, and should be required to give an explanation except in the case of an active or impending police investigation, when they are not allowed to tip off a suspect.
At present, the banks abuse that tipping off rule to avoid telling anyone the reason whenever their account is closed. That must stop. It is extraordinary that they think not telling a customer why they are closing their account is acceptable. As the case of Farage shows, it can save them a lot of bother if they are more open.
Customers should be able to an have an automatic, independent appeal by a different team within the bank, as small businesses can do when loan applications are turned down.
The regulator should also impose clear rules about when banks are allowed to close accounts, and customers who believe their bank has breached those rules should be able to take them to the Financial Ombudsman Service to force the bank to keep the account open.
If all these things are done, it will rebalance the rights of customers and banks, and put an end to this sorry saga.