FCA reports on PEP and customer account closures
The FCA have published their findings following a data gathering exercise on bank account access and closures. The FCA gathered this data because there are concerns from the Treasury about the scale of account closures and access to financial services, particularly in terms of whether account providers have closed accounts due to customers’ political views.
Following our July Blog on PEP Risk Management we now explore the FCA’s findings and share our tips on the actions that you should be taking.
What are the key findings?
Data Limitations
34 firms were asked to respond to the FCA’s data request. While all responded, there were variations in the information provided. The FCA found that the data was disjointed, not sufficiently detailed and often existed at an account level rather than at an individual customer level. As a result, the FCA does not believe that it can currently accurately use aggregate figures or averages.
Nevertheless, the information gathered to date has enabled the FCA to develop some initial conclusions and helped inform its next steps.
Political views
The FCA found that while some firms used a customer’s political views as the basis for closing an account, on further investigation the real reason was due to customer behaviour towards banks staff.
Due to the inconsistencies in how this criterion is applied, the FCA will be doing some more work in this area. The FCA will also further assess how firms are using reputational risk as a reason for account closure.
Reasons for declining, suspending or terminating an account
The FCA found that the majority of Firms declined, suspended or terminated accounts due to inactivity or dormancy, or because there were concerns about financial crime. However due to the limitations of the data it hasn’t been possible for the FCA to draw any conclusions on the types of customers affected.
The FCA have also published some recommendations for the UK Government
The FCA have also taken the move to further request the governments assistance in legislating against issues such as those caused by lax Companies House controls, the role enhanced digital identities could play in preventing financial crime and publishing the costs of compensating consumers for fraud losses.
What actions you should take?
The FCA will now be conducting some follow up work both to confirm its understanding of the data already provided and to address the causes and impact of the concerns raised. So, what should you be proactively doing in advance of this?
Data quality
If you were not part of the 34 banks reviewed, would you be able to respond to the requests made by the FCA at a customer, not account level? This self-assessment should include your understanding of of how and why customer and accounts have been declined and/or closed.
Policies and procedures
Revisit how you have defined reputational risk and your processes for escalating and decisioning such matters. How do you ensure investigation and reporting processes are structured and objective, avoiding falling foul of making improper decisions. While you’re at it, take a look at how you define dormancy and the controls around suspending or terminating such accounts.
Management Information (MI)
Review your MI and consider whether it is sufficiently detailed to meet your Consumer Duty obligations to measure customer outcomes. Are you able to report at an individual customer level? Can you identify your vulnerable customers? If you can, how do you know if they are receiving worse outcomes?
Payments Firms
If you are a payments firm, have you assessed your customer onboarding controls against the requirements set out in the FCA’s 21 February letter? If not, you need to take prompt action to address any gaps. The FCA is very clear that account suspensions can drive poor outcome for customers and that firms should use this letter to continually improve.
Credit Institutions
If you are a credit institution, have you assessed yourself against the expectations in the FCA’s 3 February letter which focuses on action to deliver good outcomes? The FCA will be doing further work with firms to verify the data it has already collected and to better understand the reasons behind, for example, the closure of accounts due to reputational risk, so it would be wise to be prepared.
The FCA is clear that it will take prompt regulatory action should it identify significant deficiencies in the arrangements of any firm assessed, including under the Duty.
If you need help or you’d like to chat please get in touch.
Helen
