De-banking – an international survey

Banks in the UK are reportedly closing over 1000 accounts each business day – prompting the UK Financial Conduct Authority (FCA)² to conduct a review, the initial findings of which were released on 19 September 2023. Among these were that the banks report that lead causes behind the account closures were concerns about financial crimes, or the account being dormant.³

Other findings, published by the FCA in a research note on de-risking internationally, were that:⁴

• Common triggers for de-banking were: the perception that certain sectors or groups present a higher individual risk; profitability concerns, particularly for money service businesses/remittance providers; increased compliance costs for AML/CFT regulation; increased fines and corporate accountability for AML/CFT regulatory breaches; and reputational risk from enforcement action.
• Many jurisdictions are attempting to implement measures that will encourage banks to undertake an assessment of risk on a case-by-case basis, without undermining the effectiveness of AML/CFT regulations. The FCA noted, “there is no silver bullet which will effectively solve the challenges faced by those being de-risked”.

As part of their initial conclusions, the FCA found that there may be a need for “greater strategic and cross-system response to addressing de-risking in the UK led by the Government”.⁵ Although there is a limited right for individuals to a basic bank account, the Chief Executive commented:⁶

“the time is also right for a debate on how we balance access to bank accounts with the threat of financial crime, as well as firms’ reasonable risk and commercial appetites. An important question for policy makers is whether all individuals, businesses and organisations should have the right to an account, as is the case in some other countries.”

The US Department of the Treasury’s recent inaugural “De-risking Strategy”⁷ observes that de-risking is not consistent with the individual risk-based approach that underpins its AML/CFT regulations. However, the US Government had limited authority to effectively address the drivers behind this de-risking, particularly to the extent business decisions drove behaviours. Accordingly, the Treasury recommended a raft of measures designed to produce a cumulative positive impact, such as clarifying and updating AML/CFT regulations and guidance for money service businesses.

Following a review by the Council of Financial Regulators, Australia is also implementing a number of policy responses to de-banking in relation to financial technology firms, digital currency exchanges, and remittance providers.⁸ These include collecting data on de-risking; implementing transparency and fairness measures that banks will be required to undertake when de-banking (such as documenting reasons, and giving customers certain information); and providing specific guidance and support to sectors most affected

AML/CFT concerns have also led to de-banking in the digital currency and money remittance sectors in New Zealand. The difficulty of cryptocurrency firms obtaining banking services due to AML/CFT risks was recently discussed by the Finance and Expenditure Select Committee.⁹ The Select Committee recommended that the Reserve Bank develop a scheme to address due diligence requirements and that the Government ensure that organisations improperly de-banked can access banking services, either through a government entity, or through their previous bank.

Money remittance businesses have also claimed to have been improperly de-risked as an industry, although without success to date:

• In E-Trans International Finance Ltd v Kiwibank Ltd,¹⁰ E-Trans unsuccessfully claimed that Kiwibank’s decision to revise its policy towards money remitters, and de-bank those customers that did not meet its new risk appetite, was both a breach of contract and anti-competitive conduct under the Commerce Act 1986.
• More recently, in Ink Patch Money Transfer Ltd v Reserve Bank of New Zealand,¹¹ several money remittance businesses unsuccessfully brought a judicial review against the Reserve Bank, seeking declarations that it direct trading banks to provide them with accounts, and challenging its guidance to banks on their money-laundering obligations in respect of money remitters. The Court of Appeal heard their appeal on 13 September 2023.

New Zealand courts also have been grappling more broadly with the question of when a bank can de-bank a customer. The classic common law position is that, unless there is a contractual or statutory restriction, “a contract by a bank to provide banking services to a customer is terminable by the bank upon reasonable notice”.¹² 

However, in The Christian Church Community Trust v Bank of New Zealand (Gloriavale)¹³ the High Court recently challenged that position, upholding Gloriavale’s application for an interim injunction:

• Following an Employment Court decision that held that children as young as six were employees, BNZ had formed the view that providing services to Gloriavale was inconsistent with the National Australia Bank’s Group Human Rights Policy and sought to de-bank Gloriavale. BNZ’s standard terms and conditions provided that BNZ could close the customer’s account “for any reason” and gave a non-exhaustive list of examples.
• The Court found that it was reasonably arguable both that (1) there was either an implied term on BNZ to act reasonably, or that its discretion to terminate was restricted,¹⁴ and (2) that BNZ did not act reasonably. In forming this view, the Court considered the fact that Gloriavale would otherwise be left without banking services (as no other bank was willing to provide services to them) and raised the issue of whether banking was an essential service with public interest obligations. The Court observed:

“These submissions raise the question as to whether there should be protections for consumers of banking services by way of an analogous form of the doctrine [of prime necessities¹⁵] or a requirement on the banks to provide transactional services as a minimum.”