The fallout over private bank Coutts closing Nigel Farage’s bank account continues – but what does it mean for banks that want to manage reputational risk?
The CEO of Coutts itself has now followed the CEO of parent company NatWest in resigning, and Farage has used his platform to draw attention to other stories of people losing their bank accounts.
The private bank, which is only available to customers who borrow or invest at least £1 million or hold £3 million in savings, closed Farage’s account earlier this year.
Using a subject access request, Farage later obtained internal documents from the bank revealing that while he had long fallen short of Coutts’s commercial requirements, it had ultimately closed his account for reputational reasons due to Farage’s political views.
In the dossier, it was argued that Farage’s values “do not align with the bank’s” and “being associated with [Farage] presents a material and ongoing reputational risk”.
Sharokh Koussari, discrimination partner at Axiom DWFM, says that were Farage to take legal action, his account termination could potentially involve a discrimination claim based on the Equality Act.
“Farage is correct: one of the reasons given for the termination was reputational risk. If it’s purely because they don’t like his views, then his beliefs may have been discriminated against under the Equality Act.”
In such a claim, the burden of proof would be on the bank to demonstrate that they did not act discriminatorily, says Sharokh. If the decision was based on Farage’s beliefs, he would likely win the claim. Private banks, like Coutts, are not exempt from discrimination laws in the UK, although they would have more leeway in the US.
Discrimination claims can be either direct or indirect. In a direct claim, Farage would need to provide examples of others in similar situations who did not face the same consequences. In an indirect claim, he would have to show that the bank’s procedures, criteria, or practices resulted in discriminatory treatment.
An indirect discrimination claim could be justifiable if the bank can objectively prove that excluding certain individuals, like those with extreme political views, is necessary for their brand reputation.
Sharokh explains that there are valid circumstances where a business can lawfully discriminate against a certain group when it is reasonably necessary, such as a cinema not employing people under the age of 18 due to the ratings on certain films.
However, he doesn’t believe that brand protection would fall under this category.
This could pose a notable challenge for banks in an era where social media ensures heavy scrutiny of their activities. It’s easy to imagine a bank being targeted online for an association with a controversial figure – evidently the risk that Coutts was trying to mitigate against in the first place.
De–risking
More broadly, he believes that Farage’s case has brought to light a long-standing issue. Banks have been de-risking over the past decade, meaning closing accounts of clients perceived as high risk for money laundering or terrorist financing abuse, often with little transparency.
This has often affected people who are “a lot less powerful than Farage”, says Sharokh. Other individuals, particularly from certain ethnicities, have seen their accounts frozen without explanation.
Reports, including one commissioned by the FCA in 2016, have highlighted the discriminatory impact of de-risking on certain communities. However, little has been done so far to address the issue, says Sharokh.
The Government has recently made proposals which go some way to tackling these challenges. These would notably include requiring banks to give a reason for terminating an account as well as a longer 90-day notice period.
Sharokh says these proposals are good as far as they go, although he would like to see more clarity in the rules around notifying customers.
Ultimately, he thinks more transparency and dialogue is needed to prevent customers from facing what can be a “desperate situation”.
