Navigating the de-banking pain

Insight

10.06.2024

In October we wrote on the hidden menace which is de-banking. It is a menace that remains and is on the increase.

The Treasury Committee reported in February that more than 140,000 business accounts had been closed by major banks. In April, the same committee reported that the Financial Ombudsman Service had seen a 69 per cent rise in complaints about debanking between 2022/23 and 2023/24 (2281 to 3858).[1]

Also in February, Radio 4’s You & Yours highlighted the case of a Merseyside-based consultant paediatric oncologist and his wife, a nurse, having their bank accounts closed by NatWest without notice having banked with them for 50 years. As standard, NatWest offered no explanation. It would seem that what drove NatWest to close their accounts was the couple’s charitable giving to an overseas charity which they had been undertaking for several years. Shortly before the programme went to air, NatWest reversed its decision, recognising “shortcomings” in its decision making process. It would seem the daylight of publicity was what was required.

Less fortunate at the end of January was a Mr Ildar Uzbekov who had his legal claim against Revolut for closing his account thrown out in the High Court as an abuse.[2] The Court considered that there was no useful purpose served in seeking a declaration from the court as to the said incorrect decision of Revolut to close Mr Uzbekov’s account as it would not address the underlying media coverage upon which the decision had been based claiming him to be involved in money laundering.

It was also the case that Mr Uzbekov could not point to any financial loss as a result of the account being closed, meaning, in the court’s eyes, the litigation “game [was] not worth the candle.” This was rammed home by the fact that Mr Uzbekov’s costs to the summary judgment application amounted to £147,000, whereas he was only seeking nominal damages to reflect the hurt and embarrassment suffered.

To pour salt on the wounds, he is likely to have been ordered to contribute substantially to Revolut’s costs and his claim has widened the circle of those that now know about the underlying media allegations which were said to be untrue. A case of being careful of what you wish for!

While the media attention has been on de-banking, what is also increasing is the extent to which businesses, investors and individuals will undertake due diligence on third parties that they are considering entering into some form of contractual relationship. At its simplest, this can be little more than a Google search, but it can also easily be a deeper review across the web, due-diligence databases such as WorldCheck and WorldCompliance, as well as numerous subscription based services which provide information on individuals and businesses.

Guidance for navigating de-banking challenges

It remains the case that a somewhat more fruitful approach to dealing with de-banking type events than was Mr Uzbekov’s experience would be for HNWIs to:

regularly monitor what information is available on them, which can also pick up other risks such as data breaches where their personal data becomes available on the dark and (sometimes) open web;
where possible, to de-index urls from search engines (eg Google) and, if possible, remove at source the underlying inaccurate and damaging information;
as appropriate, to explain to stakeholders why the negative information should not be relied upon, sometimes with the benefit of an independent or external investigation and report; and
if there is an appetite, to build an authentic, truthful narrative to balance out the negative information which cannot be removed.

There remain practical hurdles. Google appears to be increasingly dealing with ‘Right To Be Forgotten’ requests by way of a formulaic “public interest” defence response, without any consideration of the issues, even where the offending sources are plainly disinformation websites. Some of the database companies, typically relied upon by banks and financial institutions, will take information from a freely available disinformation website, but not from an authoritative source, such as The Financial Times, which is behind a paywall.

Irrespective of the political colours of the incoming UK Government after 4 July, de-banking and related issues caused by reputation damaging information will continue to be a source of genuine concern for HNWIs as much as small businesses. Any legislative change seems some ways off and unlikely to be high up the list of priorities. Both HNWIs and businesses will require guidance to navigate the fraught consequences of de-banking and to devise strategies to successfully come through the other side intact.

[1] Debanking complaints surge in new figures published by Treasury Committee - Committees - UK Parliament

[2] Uzbekov v Revolut Limited [2024] EWHC 98 (KB), 25 January 2024

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.