So many different reasons why a bank account might get closed or get frozen by the bank.
It could be due to various risks arising from fraud , credit risk, reputational risk, or some other apparent risk resulting from the bank’s lack of expertise in relation to a particular industry, business, or country.
However, if your account has been frozen, the most common trigger is generally perceived fraud and/or money laundering, which can occur when large or unexpected sums are transferred in or out, particularly to and from accounts with links to certain countries that are deemed higher risk.
How to deal with it
There is not much that you can do about it if you were advised and given a reasonable amount of notice that it was going to happen. In some cases the financial institutions DO NOT need to give you adequate notice if they suspect that there is fraud involved.
The Financial Ombudsman has made it clear that it requires banks to give reasonable notice of at least 30 days if they intend to close a personal bank account. This is intended to allow the customer sufficient time to make alternative banking arrangements and it is recognised that a longer notice period may be appropriate for business customers.
Importantly, however, the reasonableness of bank’s or electronic money institution’s conduct should always be measured against its customer care obligations in the FCA Banking Conduct of Businesses sourcebook (often referred to as “BCOBS”).
Under BCOBS, a banking institution must always pay due care and attention to the interests of its customers. The customers must be treated fairly, and the banking institution must communicate information to them in a clear manner. Care must be given when dealing with a customer who might be in financial difficulty.
With that in mind, at present the fairness of a bank’s decision to close an account must be viewed considering the ongoing global pandemic. Given the harsh circumstances that many businesses find themselves in, the closure of an operational bank account at very short notice could have a severe impact on an business’s’ ability to continue trading.
For various reasons outside the control of the business – it may find it very difficult at present to open a suitable new bank account. This could be due in part to an uncertain future for the business itself which is causing concern and more so if borrowing is required alongside. Banks are currently very busy dealing with so many issues which have arisen due to the Pandemic with their existing customers and so have their own internal compliance to be dealing with than concentrating on opening new accounts. I am not saying that banks are NOT opening new accounts just that there are some delays along the way.
If you feel that your bank has acted unfairly, you can ask the Financial Ombudsman to review the decision.
In May 2020, the Cabinet Office issued guidance on responsible contractual behaviour in the performance of contracts impacted by the Covid-19 emergency. This guidance emphasised the need for parties to “act responsibly and fairly, support the response to Covid-19 and protect jobs and the economy” to ensure better long-term outcomes for Britain.
Similarly, the FCA wrote to banks in April 2020, imploring them to be “focussed on ensuring that SMEs are treated fairly.” In light of this guidance, the Financial Ombudsman may be sympathetic to your circumstances. It is also worth mentioning that if a bank’s decision to close your account is expected to have particularly adverse consequences (which could not be compensated by an award of damages), then it may be possible to apply for a court injunction restraining the bank from doing so.
What if no notice has been given?
As I mentioned above, if a bank suspects that there is fraud or money laundering occurring on your account then it might freeze or close your bank account without giving any notice. This is contained in their terms and conditions under exceptional circumstances.
The bank has a regulatory duty to freeze the account and report the matter to the National Crime Agency (“NCA”) by filing a Suspicious Activity Report (“SAR”) where they suspect that money laundering activity could be taking place.
If the bank tends to be very cautious as they can also be prosecuted if they fail to report the matter to the NCA.
Once an SAR has been filed, the NCA has seven working days within which to respond to the bank. In that period, the NCA can either agree that the suspension should be lifted or send a refusal letter to the bank. If the NCA refuses to give consent to the account being unfrozen, it will then have a further 31 calendar days to carry on investigations.
During this period of investigation, the bank and the NCA are prohibited from disclosing anything about why the account has been frozen, as it is a criminal offence to “tip somebody off” about the existence of an SAR.
The courts have held that a bank can refuse to execute customer instructions, so there may be little that you can do initially. However, our experience is that even where the NCA consents to a suspension being lifted within 7 days, the bank’s internal processes take some time which ultimately leads to the accounts being left frozen. It is best to keep the pressure on the bank during this time.
If you are in a position where your bank account has been frozen, and the bank has failed to give you notice then it can be assumed that they suspect fraud or money laundering activity.
It is important that you personally do a forensic review of the transactions in your account – both income and expenses so that you have a clear and concise trail of where the monies have come from. It is important also to review the individuals you are trading with and making payments to are legitimate busissnesses and individual and carefully reto make sure that there is nUT also trying to ascertain where the money could have come from
You should therefore provide the bank with as much information as possible to comfort them that your account is not being used for any such purpose. Depending on the circumstances, if an institution then maintains a block on your account or refuses to continue providing banking services to you, there may be further steps which can be taken, such as applying to court for an injunction, making a complaint to the Financial Ombudsman, or commencing proceedings to recover any losses that you have suffered as a result of the bank’s actions.
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