Arbitrary bank account closures: Nigel Farage is the tip of a much more complex iceberg
The AWO team has many years of experience working on the human rights impacts of financial sector rules on money laundering, terrorist financing and due diligence. It has taken the travails of Nigel Farage and his treatment at the hands of private bank Coutts to shine a welcome spotlight on long-standing practices and problems in the sector. AWO has been at the forefront of successfully challenging such decisions for many years, acting for individuals and organisations impacted to gain knowledge and challenge such decisions.
Why banks are “de-risking” their customer base
Farage’s treatment should be situated in a broader trend within which banks have long been “de-risking” their exposure to various categories of account holder. For more than a decade in fact, many banks have steadily been cutting ties with these ostensibly “higher risk” clients for a wide range of reasons.
Primarily, they have much reduced risk appetite due to increasingly onerous regulations designed to hold financial institutions responsible for preventing the illegal activities of their customers. A system designed to ensure banks take all reasonable steps to prevent money laundering and the financing of terrorism, and comply with international sanctions regimes, has had an increasingly chilling impact as regulators have (rightly) handed out fines totalling hundreds of billions for due diligence and compliance failures.
This has in turn had the unintended consequence of persuading many banks that it is simply more prudent to withdraw financial services from those individuals who might pose a compliance or reputational risk, than to live with any risk of enforcement or adverse publicity.
The primary impacts of this particular “cancel culture” were felt not by fringe political figures and GB News personalities, but minority communities long stigmatised by association with terrorism and designated “high risk” countries. Businesses and non-profits working in and around these jurisdictions have also found it much harder to retain or obtain financial services. Companies and individuals perceived as associated with sanctioned countries and entities have also been ‘de-risked’ – i.e. excluded from financial services – at scale, regardless of how inaccurate or tenuous the purported links might be.
Much of this has been driven by an increasingly zealous financial risk management industry, to whom financial due diligence and the identification of risk among account holders has effectively been outsourced. Because the potential cost of compliance failure is so high, banks have little incentive to be look beyond the various “risk” labels that the compliance industry ascribes. Conversely, customers affected by over-cautious practices have few means of redress, heavily tipping the balance in favour of denying services on the flimsiest of pretexts.
One particular company has identified more than 3 million people as posing some kind of risk to the financial sector – almost all of this based on “open source intelligence”. If you end up in one of these databases, there is every chance you will have problems opening a bank account or sending money abroad. Yet an affected individual will often have no idea why this has happened or the source of the decision.
In the absence of clear guidance, more and more people have also been labelled PEPs (“Politically Exposed Persons”). Devised to mitigate corruption risks by identifying high-ranking government officials and public servants who should be subject to enhanced due diligence, the PEP category has steadily expanded in practice to encompass middle-ranking civil servants, political figures and even activists. Not only have PEPs been subject to de-risking, but their family members also face increasing difficulty in accessing or maintaining financial services.
Finally, political campaigns to “de-platform” controversial figures and political activists have had a growing impact as well. This began with government pressure on the financial sector to deny financial services to groups like Wikileaks, then gained momentum as campaigners on both sides of the political spectrum came to view financial de-platforming as an expedient means of inflicting damage on their political adversaries. It is in this climate that banks are now apparently taking an expansive view on where the adverse publicity risks to their operations might lie.
Using data rights
Data rights should be at the heart of this debate. While calls to give longer notice and provide reasons to those subject to account closures are welcome, they barely scratch the surface of a problem that has been sustained by a failure to properly apply and enforce data protection rules across the financial due diligence and compliance sector. Ultimately, this issue is less about free speech than fairness, necessity, proportionality and accountability. The layering of machine learning and AI onto existing risk management practices threatens to further entrench these problems.
AWO has helped many individuals enforce their data rights and gain redress from arbitrary and unjustified decision-making in the financial services sector. We have also advised numerous governmental, non-governmental and private clients about the structural challenges and factors underlying the “de-risking” trend. AWO has long been recognised as a leading firm in this area, brining successful challenges for individuals, organisations and companies. We continue to put data rights at the heart of what we do, leading to unique challenges that deliver outcomes for our clients.
If you would like to learn more about our work in this space, please get in touch with firstname.lastname@example.org