Banks are stuck between a rock and a hard place juggling regulatory compliance and public scrutiny as demonstrated by the current spat between Coutts and Nigel Farage.
Mr Farage’s view is that he is being denied banking services for simply exercising his right to free speech, warning ominously “If I can be cancelled so can you”. The bank’s view is that providing banking services for this individual presents a risk to their reputation.
Reputation is hard won and easily lost, as businesses within and beyond the financial services sector have learnt to their cost. However with regards to reputational risk, the rules around financial inclusion and treating customers fairly should always be at the forefront, so it is risky to close accounts on the basis of political views unless there is a financial crime issue.
It is critical that financial institutions, especially from a compliance perspective, ensure that they don’t provide services to criminals or sanctioned individuals, facilitate money laundering or the financing of terrorism. Having effective frameworks in place in order to spot suspicious activity, identify and monitor PEPs and, where appropriate, review customer relationships are vital. However, is this remit being stretched too far? Is an unintended consequence of increasing compliance causing organisations to be overly hasty in the withdrawal of their services or enabling them to de-bank legitimate customers on account of their views? Ultimately, where does compliance end and censorship begin?
It is a line that must be treaded responsibly, and decisions to exit a customer need to be appropriate, justified and reasonable. There are ways to do this in an AML context and this should be backed up by risk appetite which should be agreed by the business and second lines of defence. The bottom line is: institutions need to have the systems and controls in place to know exactly who their customers are and whether they’re on the right side of the law. They also need to balance this with becoming so risk averse that they lock people out of the banking system with unjust cause and politicised decisions. A robust risk committee with third-party advisors can play a pivotal role in steering organisations to the right conclusion to strike this balance with integrity and confident decisions.
Nigel Farage recently called out Coutts Bank for closing his account on the basis of his political views. Whilst the bank has subsequently apologised, the details that have emerged surrounding their decision to exit him as a customer raise questions around where compliance ends and censorship begins in relation to PEPs.
