UK Proposes Reforms to Prevent Unfair Bank Closures for PEPs

The recent clash between NatWest and former customer Nigel Farage has raised concerns about how global banks handle politically exposed persons (PEPs) as clients.

While banks are obligated to deny services to individuals under international sanctions or suspected of money-laundering or financing terrorism, they must also apply extra scrutiny to PEPs. However, they are prohibited from severing ties with customers solely based on political grounds.

UK regulators and government ministers have voiced their support for freedom of expression, asserting that banks should not discriminate against non-sanctioned customers due to their political views. Nevertheless, expressing views on race that could incite racial hatred might serve as justification for account termination, as it is considered an offense under UK law.

To protect consumers vulnerable to account closures on political grounds, Financial Services Minister Andrew Griffith has proposed new UK rules. Under these rules, banks will be required to provide clear explanations for closures, and customers will have 90 days to challenge the decision through the Financial Ombudsman Service or find an alternative bank. However, failure to keep up with payments may still be grounds for swifter account closure.

Moreover, the UK is considering a lighter-touch screening of domestic PEPs compared to non-UK customers with the same status. Policymakers have expressed concern that some banks have been overly strict in interpreting PEP rules, leading to the rejection of accounts held by lawmakers.

For individuals who suspect unfair treatment due to their political beliefs, a Subject Access Request (SAR) can be submitted under the UK General Data Protection Regulation (GDPR). Banks are legally obliged to handle these requests correctly or risk facing repercussions from the Information Commissioner's Office.

To address the issue of banks denying or freezing accounts, the All-Party Parliamentary Group on Fair Business Banking has initiated an investigation, encouraging affected parties to share case studies about denied banking facilities and their impact on businesses and the economy.

However, the reforms have raised questions about their potential impact on banks' efforts to combat financial crime. Banks are legally required to ensure that the money they safeguard is legally earned and not used for criminal activities. Some worry that innocent individuals may inadvertently get caught up in the banks' well-meaning efforts to eliminate criminality.

Financial crime experts and lawyers have expressed concerns that the reforms might prevent banks from "tipping off" potential suspects to enforcement authorities. However, Financial Services Minister Andrew Griffith assured that the new rules would have "limited exceptions" to avoid interference with criminal investigations and to ensure continued compliance with financial crime regulations.

While access to the banking system is deemed essential for democracy, finding the right balance between freedom of expression and preventing financial crime remains a challenge. The proposed reforms aim to strike a fair balance that protects customers from unfair account closures based on their political beliefs while upholding the fight against financial crime.

By fLEXI tEAM