The recent media coverage of the closure of Nigel Farage's bank accounts with Coutts has thrown the spotlight on an issue that has affected others for years.
Since 2014, there has been an alarming rise in cases of individuals and companies having their bank accounts abruptly closed in a practice known as 'debanking'. While banks enjoy broad discretion to end client relationships as they see fit, that discretion is not wholly unfettered. The increase in debanking sets a dangerous precedent for free speech and access to banking services. This is not a simple matter of a financial relationship going sour; it touches upon pivotal matters of discrimination, data protection and defamation law.
What is leading to increased debanking?
More onerous regulation of financial institutions in the years since the financial crisis has led banks to intensify their risk profiling operations, to protect themselves from severe penalties where, for example, they are found to have facilitated money laundering by clients. But this profiling is not an exact science and relies heavily on third-party due diligence databases, which have in certain cases been found to include inaccurate and defamatory information about the banks' clients whose names are run through them. Individuals and organisations that are involved in politically sensitive issues, such as criticism of human rights abuses in certain states, may find that they are debanked as a consequence of their campaigning. The practice has also had a disproportionate impact on marginalised communities, including the Muslim community.
The consequences of debanking
There can be severe consequences when a business or individual is debanked. They may be unable to receive their income, on which they subsist, struggle to process payments, pay employees and bills, or receive money from customers and donors. Debanking cuts off access to essential financial utilities that most law-abiding citizens and companies take for granted. This amounts to a soft suppression of disfavoured political views or industries without due process.
Banks have long been entrusted with safeguarding our most precious financial assets. Now, in the digital age, they hold another treasure trove of value – our data. The information they possess, ranging from transactional data to behavioural insights, paints a comprehensive picture of an individual or business. For individuals and businesses subjected to debanking, the ramifications go beyond just the immediate financial inconvenience. Their data, including the reasons for debanking, could potentially be shared with other financial institutions. This can create a cascading effect, where one's financial ostracisation becomes systemic, affecting their ability to open accounts or secure loans elsewhere. For many people who are debanked, the sharing of their data will lead to debanking from other financial institutions in the future, and they may struggle to open a bank account anywhere.
Should debanking be classed as unlawful discrimination?
From a legal standpoint, debanking occupies a grey area. While banks are private entities with no obligation to serve all customers, service providers in England and Wales are not free to base such decisions on unlawful discrimination against persons with protected characteristics, which include race, religion and most political beliefs among others. That said, it is often challenging for affected persons to prove that such discrimination is at the root of the decision, as banks rarely disclose details of their decision-making process, relying upon exemptions from disclosure obligations in data protection legislation.
However, it is conceivable that the recent media and political attention will lead to increased public scrutiny and regulation. There are still open questions around debanking rights and responsibilities for both banks and their customers. As debanking continues to expand beyond a few fringe cases, we are likely to see an influx of lawsuits and regulatory actions aimed at addressing this uniquely modern form of discrimination.
How can an individual protect themselves from debanking?
For those at risk of debanking, protective steps can be taken. Diversifying accounts and services among multiple banking partners and maintaining positive, longstanding relationships are advised. Incorporating a company to take the individual's place as an account holder, or a parent company to take the place of an existing company, can also help. Using alternative, crypto-based services may provide an alternative, but these likely work best alongside traditional banking services rather than replacing them entirely.
Debanking represents an increasing threat to civil liberties and economic participation. While it reflects banks' increasingly risk-averse nature, the practice poses significant concerns for individual rights, media responsibility, and the safeguarding of personal data. As legal practitioners, it is our duty to understand this evolving landscape and advocate for regulations that ensure fairness, transparency, and accountability. As society continues to grapple with the intertwining of finance and information, our commitment to justice and protection becomes ever more crucial. If you or someone you know is facing such challenges, seeking legal counsel can be a vital step in navigating these murky waters.
Caitlin Moreland, paralegal in our Media and Information team, contributed to this article.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.