A View from the Exchange: De-banking through the lens of the Consumer Duty 

The FCA recently published a follow-up to its report of September 2023, on 'UK Payment Accounts: Access and Closures' regarding the decisions firms make regarding onboarding and exiting customers. The report makes for interesting reading against the backdrop of the broader debate regarding de-banking in the industry triggered by Nigel Farage last year. 

What are the key findings?

The FCA's initial report from 2023 looked at the reasons behind banks terminating customer accounts, and concluded there was no evidence that clients had lost their accounts due to political beliefs or lawfully expressed views. The most common reason for termination was account inaction or concerns about financial crime.

Following last year's report, the regulator undertook to validate the data it had received, engage with consumer groups to improve their understanding of customers' experiences and further investigate how "reputational risk" was being considered in account access decisions and, in particular, whether it was being used too broadly.

In its recent follow-up report, the FCA confirmed its previous findings, that political beliefs did not appear to be influencing account closure decisions - albeit this was caveated by the fact that banks' record-keeping on account opening and closure was often limited or unclear. It found that "reputational risk" was being used in varying ways by different firms, although it did not appear to be used as a purported means of denying customers on the basis of political beliefs or views lawfully expressed. 

What should banks focus on?

Interestingly, in this report, the FCA has set out its expectations of firms through the lens of the Consumer Duty: it expects firms to deliver good outcomes for retail customers and this should apply in all aspects of a firms' relationship with its customers, including account opening and closure. 

The FCA identified specific areas for firms to focus on:

• Improving customers' / prospective customers' awareness of the availability of basic bank accounts;
• Ensuring they have appropriate, Consumer Duty-compliant policies and procedures in place and ensure 'reputational risk' category is used reasonably and consistently;
• Maintaining good governance and oversight of account access decisions, and recording these accurately;
• Acting proportionately in relation to financial crime controls and account access; and
• Maintaining robust policies on identifying vulnerable customers and ensuring that vulnerable customers are given appropriate levels of care.

Banks should continue to keep a watch on this evolving issue: as, since 2023, the FCA has proved itself committed to expanding and refining its questions on de-banking and related issues, as well as engaging with firms on this topic as part of its ongoing supervision. Given the FCA's increased expectations in this area, firms should continue to review their processes, policies and procedures for onboarding and offboarding customers and ensure that decisions are taken with the Consumer Duty fully in mind.

Author: Asha Owen-Adams