Recent events between Coutts, NatWest and Mr Farage will give banks and wealth managers plenty to think about.

For more than 30 years banks have been under increasing pressure to “know their customers”. The requirements arise principally from anti-money-laundering legislation, to ensure that banks’ customers are not money launderers and that their funds have not arisen from illicit activities. The requirements apply to all customers, but a higher standard is required in relation to politically exposed persons.

Alongside this, banks are also required to define their target markets and ensure their products and services are only promoted to customers for whom they are designed. As commercial organisations, banks and wealth managers are broadly free to decide to whom they want to offer services.

As commercial organisations, banks and wealth managers are broadly free to decide to whom they want to offer services.

The “know your customer” obligation is a continuing one, and for years banks have been off-boarding riskier customers following annual reviews of relationships, often as a result of significant regulatory pressure.

If such a review leads to suspicions of criminal activity, the processes that the bank needs to follow are well trodden. If it can demonstrate that the customer no longer meets the eligibility criteria, for example by falling below specific financial metrics, then that will usually be valid grounds for ending the relationship.

What is clearly unacceptable is the idea of a terminating a relationship purely on the basis of political views.

But if the view of the bank is simply that the face doesn’t fit, then its choices are harder. What is clearly unacceptable is the idea of a terminating a relationship purely on the basis of political views. But what if a bank genuinely believes that the customer is capable of causing reputational damage to the bank’s brand?

Politically exposed persons regime

The regime around politically exposed persons requires a higher level of due diligence and scrutiny because of the perceived risks around such individuals. Unfortunately the legislation fails to make a distinction between domestic and non-domestic PEPs, meaning that all need to be treated with heightened standards of review than other customers.

Arguably this imposes too strict a requirement in relation to UK PEPs who are likely to be more expensive to service and may therefore be a less attractive commercial proposition, and of course many people may not have been PEPs when they first opened their accounts. A review of the regime is well overdue and the government proposals for a review of the domestic PEPs regime should be welcomed.

Termination of banking relationships

Banks must strike a careful balance between the rights of users of their services and their own obligations. There will always be occasions where banks wish to terminate their relationships with customers and as commercial organisations they have wide choice as to who they want as customers.

Many will now be reviewing their internal processes around how they do this. The recent announcement from the government that it will extend the required notice period from one month to three is a sensible reaction to recent events.

Ben Blackett-Ord founded Bovill in 1999 and led it as CEO until 2022. Ben continues to support Bovill’s executive team and clients, as well as being a prominent figure in the financial services industry.