In the small number of weeks since the news of Nigel Farage’s ‘debanking’ at the hands of British private bank and wealth manager, Coutts, came to light, the issue – or indeed the scandal, as our animated protagonist has labelled it – has made national headlines and attracted the attention of the country’s most senior politicians. And in the latest twist, the UK’s Financial Conduct Authority has also responded.

The decision by Coutts to debank the former UK Independence Party leader was based, it said initially, on purely “commercial” grounds. Only later did it declare that offering banking services to Mr Farage was not “compatible” with the bank, as his views were “at odds” with its position (somewhat ironically) as an “inclusive” organisation. It was Mr Farage’s data subject access request to Coutts that later revealed a dossier of evidence accumulated by the bank over many months, ultimately flagging the “significant reputational risks” of their association with him. And then all hell broke loose.

In seeking to avert the reputational risk of being linked with Mr Farage, the backlash to the decision has arguably been much more harmful for Coutts. Parent company, NatWest’s handling of the issue was roundly criticised, and it was no surprise in the end – particularly given the Government’s intervention – that the group chief executive, Dame Alison Rose, was forced to resign. Both the Prime Minister, Rishi Sunak, and Home Secretary, Suella Braverman, had condemned NatWest’s actions, with Ms Braverman accusing it in a tweet of “politically biased dogma”. “The Coutts scandal exposes the sinister nature of much of the diversity, equity and inclusion industry,” she added.

Mr Farage may be the most high-profile individual embroiled in the debanking debacle thus far, but it would appear that he is in good company. In the short time since the saga began, stories have emerged of numerous other cases, prompting the FCA’ investigation into what chancellor Jeremy Hunt has warned may in fact be a “widespread” practice. It is thought that many thousands of individuals (who are not ‘politically exposed persons’) have had their accounts closed by banks with little or no warning.

The financial watchdog has subsequently outlined a number of issues that it is planning to consider in its review of the treatment of domestic PEPs by financial services firms based in the UK. While the FCA cannot change the law putting in place the PEPs regime, the review will consider how firms are applying the definition of PEPs to individuals; how they’re conducting proportionate risk assessments of UK PEPs, their family members and known close associates; and how they are applying enhanced due diligence and ongoing monitoring proportionately and in line with risk.

The review, expected to report in June 2024, will also look at how firms are deciding to reject or close accounts for PEPs, their family members and known close associates; how they are communicating with PEP customers; and how they are keeping their PEP controls under review to ensure they remain appropriate.

Commenting on the FCA’s announcement, dispute resolution specialist and partner at City law firm, Charles Russell Speechlys, Rhys Novak, says that when dealing with regulatory risk, extremes are, in theory, relatively straightforward to address, but that the challenge lies in determining the boundary in each specific case. “It’s entirely possible for a marginal case to fall one side of the line at one firm but fall on the other at a different firm. The critical factor is whether the decision is objectively defensible based on sound reasoning, whether it disregards irrelevant factors, and whether it has undergone appropriate scrutiny and documentation.”

CIR will report on the outcome of the FCA’s review next year. In the meantime, more details will no doubt emerge from other companies facing similar ‘dilemmas’ around risky associations. And in a closely-related topic, our cover story this issue considers the wider arena of reputational risk management for a divisive era.

This article was published in the Q3 2023 issue of CIR Magazine.

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