What are the rules on bank account closures and what rights do people have?

The UK’s banking rules have come under scrutiny after Nigel Farage accused Coutts of closing his account unfairly.

Nigel Farage has accused Coutts for closing his account unfairly (Alamy/PA)

Government ministers and the UK’s financial watchdog have waded in to the debate surrounding banks’ ability to close people’s accounts because they disagree with their beliefs or political views.

It was sparked by former Ukip leader Nigel Farage who said his account was unfairly shut down by private bank Coutts, owned by NatWest Group.

Here, the PA news agency looks at what rights banks and consumers have, and what is next for the sector.

– Are banks allowed to close your account with no explanation?

Banks have the right to close a customer’s account in the same way that a person can choose to shut their own account.

Banks do not have to explain to a customer why they have closed their account but it can be helpful to give a rationale, according to the Financial Ombudsman Service.

They are also obliged to give 30 days’ notice before doing so, unless there are exceptional circumstances such as if financial crime or fraud is detected.

Financial services firms may decide to cut ties with a customer if they are worried it will harm their reputation, which is reportedly one of the key reasons why Coutts opted to shut Mr Farage’s account.

Gary Greenwood, an analyst for Shore Capital Markets, told PA: “Having any links to anyone that could ultimately be deemed as being linked to terrorist financing or criminal activities is a huge concern.

“Banks also have their reputations to think about and if they are aligned with high-profile customers that have questionable values then that could damage their brand.”

– So what protections are in place for people?

The City regulator, the Financial Conduct Authority (FCA), emphasises that while financial firms have a fundamental right as a business to decide who they do and do not deal with, they still need to follow its rules.

This means that they must treat consumers fairly, deal with them properly, and cannot discriminate against them.

Under the Equality Act 2010, it is against the law for firms to discriminate against someone on the basis of protected characteristics, including race, sexual orientation, gender, religion and beliefs.

Nikhil Rathi, the FCA’s chief executive, stressed during a committee session with MPs on Wednesday that firms cannot discriminate based on a person’s political views either.

Furthermore, under its Consumer Duty coming into force at the end of the month, financial firms will have to meet higher standards of consumer protection and put their customers’ needs first.

– What rights do customers have?

People can complain to the Financial Ombudsman Service if they think their bank account has been closed unfairly, including if they feel they have been discriminated against, or did not receive enough notice.

Furthermore, consumers have certain information rights which means they can access any personal data held.

Mr Farage used a so-called Subject Access Request (SAR) to access Coutts documents detailing the reasoning behind his account closure, which he says showed his views “do not align with our values”.

People in the UK also have the right to open a basic bank account if they do not qualify for a standard current account.

– Could the rules change?

The Government is considering making new laws to stop banks closing customers’ accounts because they disagree with their political views, according to reports.

It could result in fast-tracked changes to the notice time given to customers to close accounts, from one month to three months, The Times said.

Banks could also have to give an explanation of why the accounts are being shut and customers will be able to appeal against the decision.

The FCA is already conducting a review into whether guidance for financial institutions needs to be updated.

Mr Greenwood said banks are having to “tread an increasingly narrow tightrope”, as they navigate reputational risks and consumer care.

“Ultimately, I think it will lead to lenders having to be more explicit about their customer criteria and demonstrating thorough processes when such criteria are not met”, he said.

– Could NatWest lose its banking licence?

Senior Conservative MPs have piled pressure on NatWest – which is still part-owned by the taxpayer – over its closure of Mr Farage’s Coutts account.

Foreign Secretary James Cleverly said the move “completely undermines the trust we have in our banking and financial systems”.

Former Brexit secretary David Davis said the disclosure of the politician’s private information after the situation came to light “ought to jeopardise its banking licence”.

Mr Rathi said the FCA is currently in talks with NatWest over the matter.

But banking experts say it is unlikely that the Government would take such a drastic step as to strip NatWest of its banking licence.

NatWest was approached for comment.