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UK Government Proposes New Rule Requiring Bank Account Closure Transparency

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The UK government has proposed new rules for banks requiring more transparency with account closures. Under the proposal, banks would be required to delay account closures by 90 days and provide a notice to customers explaining why their account is being closed. Currently, banks are only required to provide a 30-day notice period for account closures. 

This is the latest in a recent string of actions focused on consumer rights and protection in the UK, following The Financial Conduct Authority (FCA) ‘Dear CEO’ letter for payment companies and the UK Payment Systems Regulator (PSR) APP fraud reimbursement requirements. Still, some experts are urging caution in light of financial crime risks and regulations banks are subject to.

New Rule Seeks to Empower Customers and Protect Free Speech

In the wake of recent discussions over the closure of accounts belonging to politically exposed persons (PEPs), His Majesty’s Treasury (HM Treasury) plans to provide customers with more transparency and recourse to appeal closure decisions. According to Economic Secretary to the Treasury Andrew Griffith, “These changes will boost the rights of customers – providing real transparency, time to appeal and making it a much fairer playing field.” 

In parallel with these rule changes, the Financial Conduct Authority (FCA) has also been required to review its current guidance on PEP risk management. The government commissioned the requirement in June as part of the Financial Services and Markets Act 2023.  The outcomes of the review are scheduled to be shared in September 2023.

Experts Recommend Discretion

Some experts have highlighted the tension between customer rights and banks’ anti-financial crime obligations. Recommending caution, Royal United Financial Services Institute (RUSI) fellow and former Financial Action Task Force (FATF) Executive Secretary David Lewis said that “[b]anks will need to carefully consider how to meet these requirements to avoid cutting across their anti-money laundering obligations and undermining the effectiveness of those measures.”

Indeed, it is crucial to deliver a good customer experience in line with a risk-based approach to anti-financial crime compliance. This perennial challenge will remain relevant as banks seek an effective and balanced risk management approach. In response to the proposed rule changes, a spokesperson for UK Finance said:

Customers should receive good communication about their accounts and a notice period should be served before an account is closed. However, there may be exceptions to this if, for example, money-laundering is suspected. We look forward to reviewing the full HM Treasury response to consultation when it is published.

Source: UK Finance

Key Takeaways: Balancing Customer Rights with AML/CFT

Along with the FCA’s PEP guidance review, the proposed transparency rules highlight an ongoing challenge that banks must navigate when designing effective anti-money laundering and counter-terrorist financing (AML/CFT) programs. Any program must manage the needs and rights of customers with legal and ethical obligations to prevent financial and predicate crimes. This is one reason a one-size-fits-all approach is ineffective, as firms must calibrate their risk management to fit their specific needs. 

In light of these proposed changes, firms are encouraged to remain abreast of current legislative developments and understand when there may be exceptions to transparency requirements. In the event of a perceived conflict, firms can consult their legal teams and the relevant regulators for further guidance.

Additionally, firms may choose to refresh their enterprise-wide risk assessment (EWRA) to evaluate their tailored risks and ensure a targeted approach less likely to impact legitimate customers. 

The Compliance Team’s Guide to Customer Onboarding

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Originally published 28 July 2023, updated 28 July 2023

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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