New government rules meant to boost the transparency of bank account closures after Nigel Farage’s campaign against private lender Coutts, could have damaging consequences for fighting financial crime, industry and law enforcement sources have warned.
Planned changes by the Treasury will force banks to spell out why they are shutting an account and give three months’ notice before ending their relationship with a customer. City minister Andrew Griffith said it would create “a much fairer playing field” by giving consumers more time to appeal against their lenders’ decisions.
It follows the recent furore over Coutts’s rationale for closing Farage’s accounts, the details of which emerged after he obtained and released internal documents last week. Those documents showed Farage had been “below commercial criteria for some time”, since customers are required to hold £3m in savings or borrow or invest £1m, and that the bank believed his alleged “xenophobic, chauvinistic and racist views” did not align with its values.
Coutts’s parent company NatWest has since apologised to Farage for comments included in the report, while the government put forward new rules meant to protect free speech and increase the transparency of bank account closures.
However, there is some disquiet among financial crime investigation operatives at the National Crime Agency (NCA) and other government departments over the proposed changes, which would give customers more detailed reasons for any account closures or denial of services.
Banks are free to deny additional services to customers for a number of reasons, from threats of violence towards bank staff to suspicions of financial crime, but usually avoid explaining their decisions in any substance or detail. Saying as little as necessary can be a helpful way to avoid signalling to customers that they are under investigation by the NCA or are of interest to any other government departments. While this can be frustrating for customers, banks are more concerned with following laws laid out in the Proceeds of Crime Act 2002, which make it an offence to disclose information regarding a potential investigation “in the course of a business in the regulated sector”.
The government could still block lenders from informing customers they have flagged to authorities or are suspected of taking part in financial crimes.
However, there is a risk that if all other customers receive explanations, the mere omission of detailed information could inadvertently alert potential criminals that their funds and transactions are being investigated or are of interest to government departments. This had been a problem in some rare instances in investigations already, sources said.
“Banks will need to carefully consider how to meet these requirements in order to avoid cutting across their anti-money laundering obligations and undermining the effectiveness of those measures,” said David Lewis, a senior fellow at defence and security thinktank RUSI and an anti-money laundering expert who worked at the NCA’s predecessor the Serious Organised Crime Agency.
Griffith is planning to hold a meeting next week with banking industry and law enforcement bosses to discuss the details of the reforms. Banks are likely to seek clear guidance on how to apply the rules, which will be applied through secondary legislation and will require parliamentary approval. That is unlikely to be achieved until politicians return from summer recess in September.
The Treasury said: “Lawful freedom of speech is a fundamental right that should be respected by banks. There’s no trade-off between that and also catching and locking up those engaged in financial crime. We are working closely with industry and law enforcement to ensure that our reforms work well with existing financial crime obligations.”
Bank lobby group UK Finance said last week: “Customers should receive good communication about their accounts and a notice period should be served before an account is closed. However, there may be exceptions to this if, for example, money-laundering is suspected. We look forward to reviewing the full HM Treasury response to consultation when it is published.”
The NCA declined to comment and directed comment requests to the Treasury.