NatWest goof is a boon for sketchy bank clients

LONDON, July 21 (Reuters Breakingviews) – A row between right-wing talking head Nigel Farage and UK bank NatWest (NWG.L) could have much broader consequences. Late on Thursday, CEO Alison Rose apologised to Farage after closing his account, while the UK government said it would force lenders to respect freedom of expression. Those measures will make it harder to ditch other, more problematic clients – and potentially even weaken the fight against money laundering.

Last November, a reputational risk committee of NatWest’s exclusive private bank Coutts decided to ditch Farage by summer 2023. Its deliberations, obtained and published by the media personality and Brexit advocate, said he didn’t meet Coutts’ wealth criteria and also held views that clashed with the bank’s self-described “inclusive” purpose. NatWest boss Rose apologised for comments contained in briefing papers prepared for the committee, which included the phrases “xenophobic and racist” and “disingenuous grifter”. Farage, who called the comments “vile”, said Rose’s apology was just a start and that he wanted to defend anyone else who had been “de-banked” by NatWest.

The Conservative government’s intervention matters more than the back-and-forth between Rose and Farage. The economic secretary to the Treasury, Andrew Griffith, wants to address fears that banks are ditching clients based on their political beliefs. He’ll introduce a 90-day notice period for account closures, compared with two months currently, and will force lenders to explain their decisions. The Treasury reckons these changes will help customers lodge appeals against banks’ termination decisions to the Financial Ombudsman Service, which adjudicates complaints.

In reality, there’s little sign that right-wingers are being shut out of the financial system. After closing the Coutts wealth account, NatWest offered Farage a standard one at the parent group instead, for example. Meanwhile, the government’s measures risk making life easier for other, potentially trickier clients.

First, the changes disincentivise banks from proactively dumping customers. Lengthy appeals, once that process commences, cost money. And lenders must keep running expensive legal and reputational-risk checks throughout the notice period, adding to the bill. Imagine a bank with an important wealth client who was facing sexual-harassment allegations. Investors would probably want the lender to dump the customer before lawsuits or further stories emerged. The new rules would instead give the customer ammunition to fight back, potentially nudging the bank to keep managing money for unsavoury characters.

Second, the reform risks undermining law-enforcement agencies’ fight against illicit cash. The Financial Action Task Force (FATF), which develops global anti-money-laundering policies, recommends that banks keep the filing of suspicious-activity reports secret, to avoid tipping off the subject to the fact that authorities may be onto them. That’s hard to square with the UK government’s new requirement that lenders tell customers why they are being dumped. Taken at face value, a bank would have to tell an organised-crime boss that it was closing the account because of money-laundering suspicions. That seems to undermine the FATF no-tipping-off rule.

The plans are still nascent, so the government may have a way around these problems. But for now the biggest winners from the Farage-Coutts row seem to be sketchy UK bank customers.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

CONTEXT NEWS

NatWest CEO Alison Rose on July 20 apologised to Nigel Farage for “deeply inappropriate” comments about the UK media personality. They were contained in published internal papers about Coutts’ decision to ditch him as a client. The 23 billion pound lender fully owns Coutts, an exclusive private bank and wealth manager.

Briefing papers presented to Coutts’ wealth reputational risk committee said Farage was “considered by many to be a disingenuous grifter”. The documents also said: “at best he is seen as xenophobic and pandering to racists, and at worst, he is seen as xenophobic and racist.”

Farage published the papers, which he obtained through a personal data request.

The Coutts committee resolved in November 2022 to drop Farage as a client. The meeting’s minutes, also published by Farage, cited both commercial reasons and reputational risks from having the former UK Independence Party leader as a client.

Also on July 20, the British government said that banks will be forced to explain and delay any decision to close an account under new rules. The government has been looking into concerns that banks are excluding certain customers over their political views.

Editing by George Hay and Oliver Taslic

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