UK government to introduce new rules to restrict ‘de-banking’

Speaking at the Conservative Party conference in Manchester, Jeremy Hunt revealed plans to introduce revised ‘threshold conditions’ for banks, aiming to ensure that they uphold their responsibilities in safeguarding freedom of speech. He said the changes to the rules, which determine a bank’s eligibility to operate, will set clear guidelines for banks to meet their existing legal obligations regarding freedom of speech.

The announcement follows the publication of an in-depth initial investigation into the issue (85-page / 1.77MB PDF) conducted by the Financial Conduct Authority (FCA). The regulator collected data from 34 firms for its report, which highlighted four potential cases of political de-banking. But further analysis indicated that these closures were primarily due to customer behaviour, such as racist language directed at staff, rather than the legitimate expression of political beliefs.

According to the FCA report, the most common reasons for personal account closure were inactive or dormant accounts, financial crime, and customer failure to produce identification. For business account closures, the primary reason was the commercial cost of complying with anti-financial crime requirements, which particularly affected cash-intensive, adult entertainment, pawnbroking, and crypto businesses.

Mike Hawthorne, banking and financial services disputes expert at Pinsent Masons, said: “The quality of the data collected by the FCA varied greatly, so it is difficult to come to concrete conclusions about how widespread de-banking really is. For example, further analysis of account closures for ‘reputational reasons’ or ‘other’ could uncover connections to customers' political views. Withdrawing banking services on grounds of political beliefs is already illegal so you would not expect banks to have been collecting data on the frequency of this happening.”

“The weakness in the self-reported data will be addressed by the regulator conducting a separate exercise to gather feedback from so-called ‘politically exposed persons’, which may provide different insights. Ultimately, the report underscores the need for more research into the impact of so-called ‘de-risking’, whereby financial firms exclude certain customer categories due to concerns about financial crime or ethical considerations,” Hawthorne said.

He added: “While the societal consequences of de-risking fall outside the FCA's jurisdiction, the regulator suggested that the government should consider addressing this issue at a policy level, which is what is happening now.”

In his speech at the Conservative Party conference, the chancellor confirmed that the government would introduce new rules that will require banks to provide explanations and delays in the event of account closures. The notice period for terminating payment service framework contracts will be extended from two months to 90 days, and banks will be obligated to provide customers with clear and tailored justifications for closing their accounts, except in limited cases where such disclosure would be unlawful.

The FCA’s report also examined the reasons why 2.1% of the UK’s adult population do not have bank accounts. Hawthorne said: “While no clear trend emerges, factors including deprivation, unemployment and long-term sickness appear to contribute. There is a discrepancy between racial groups too, with a lower incidence of unbanked individuals among Black and Black British at 0.9% and a higher incidence among Asian and Asian British at 5.9%. Other reported groups include white at 1.7%, mixed/multiple ethnic groups at 3.1%, and ‘other’ at 3.8%.”

The FCA said it could not currently explain these disparities and plans to commission further research on the issue. Although the incidence of unbanked individuals is higher than expected, the report notes that 53% of affected individuals surveyed expressed no interest in having a bank account.