Insights

STUART THEOBALD: Farage bank account imbroglio will have implications for FATF

August 7, 2023
Insights

Should a bank be able to close your accounts because it disagrees with your political views? That question exploded into Britain’s national debate thanks to right-winger Nigel Farage, after elite bank Coutts closed his accounts.

The conflagration has important lessons for SA, where the issue of banks’ rights to close accounts has been burbling through the courts and regulatory circles. It may even lead to change in the rules of the Financial Action Task Force, which in 2022 greylisted SA over enforcement of international money-laundering rules.

In the UK, it has emerged that Coutts decided to “exit” Farage because his views “do not align with our values”, citing his relationship with Donald Trump, his reputation for being “xenophobic and racist”, and comments against LGBTQ+ rights, among other things.

The ensuing imbroglio led to the CEOs of Coutts and its parent company NatWest resigning, a summonsing of 19 CEOs of the UK’s banks to explain to the UK Treasury how they “debank” people, a rushing of new regulations on account closures and the chancellor of the exchequer calling on the Financial Conduct Authority to investigate the practice in the industry.

That may lead to fines for banks, because — and the irony will be dripping — regulations require that financial institutions do not discriminate against people in terms of the EU Charter of Fundamental Rights, which includes protection of political opinion. Farage, a prominent Brexit campaigner, called repeatedly for the EU charter to be scrapped.

Farage has now launched a website to collect reports from other people who were debanked, which it turns out ranges across the political spectrum, including embassies of smaller countries in the UK. Politicians of the Left and Right have taken to the media to share their difficulties in getting banking services as “politically exposed persons” (PEPs).

Banks’ enthusiasm for closing accounts is understandable. On the one hand, they have been forced to police account activity for anything illegal. FATF sets clear rules for compliant countries. Among those is the requirement that banks undertake enhanced due diligence on anyone considered a PEP. Those rules are embodied in SA law through the Financial Intelligence Centre Act.

Banks are required to judge the risks of a client being engaged in illegal activity and withdraw services accordingly. Failures to do so can result in large fines. Allied to that, banks have regulatory responsibility to protect their reputations, which includes doing business with counterparts engaging in activities that could embarrass the lenders. Banks may well interpret embarrassment to include clients drilling for oil or advocating LGBTQ+ discrimination. One can imagine Coutts reputational risk committee fearing a headline such as “Coutts happy to bank xenophobic homophobe Farage”.

Legal tension

There is a deep legal tension at the heart of the matter. On the one hand, banks have the right to contract. They should be free to decide who to do business with, especially other legal entities. It is right that they protect their reputations. On the other hand, inability to operate a bank account is hugely detrimental to businesses and individuals, meaning they cannot exercise their fundamental rights. As economies become cashless, driven by regulation, this has become a greater concern.

Closure of accounts in SA is subject to several legal proceedings by Iqbal Survé, owner of Independent Media and his company Sekunjalo, whose accounts are threatened with closure. In SA, a 2010 Supreme Court of Appeal judgment in the Bredenkamp case gave banks a clear right to close accounts on grounds of contract law. That precedent has since emboldened banks to act. However, that court expressly did not consider the impact on the rights of individuals. The matter has not been tested in the Constitutional Court, and I can imagine a case where there are clear rights implications leading to an overturning of the precedent.

The Zondo commission expressed concern at account closures. Chief justice Raymond Zondo recommended that banks give clients the right to be heard before accounts are closed, though he also said banks acted in line with their legal obligations in closing the Guptas’ accounts, a move that undoubtedly stymied their looting spree.

In 2020, the Financial Sector Conduct Authority implemented conduct regulations that require banks to give notice to customers and the reasons for closure, but this falls short of the Zondo recommendation that banks engage with clients. Sekunjalo, fighting through the Competition Tribunal and the Equality Court, has so far won interdicts against closure. It could succeed in setting new precedents.

More important, though, will be the impact of the UK matter on global regulation. The UK is highly influential in the FATF, a body that has been criticised for its approach to emerging markets in particular. The FATF doesn’t require countries to respect human rights in implementing its rules, and it has no mechanism to consider whether violation of the recommendations can be justified on human rights grounds.

The issue of PEPs, to which SA politicians have also taken umbrage, also looks set to be reviewed, with UK politicians for once feeling the public is on their side on the issue. The UK may well see SA as an ally in pushing for global change.

• Stuart Theobald is chair of Krutham.

This article first appeared in Business Day