In September 2024, the Financial Conduct Authority (“FCA”) released a follow-up report on access to and closures of payment accounts. Its initial review, published in September 2023,  examined allegations that some account providers were terminating or denying access to accounts based on customers’ political beliefs or lawfully expressed views.

The FCA’s latest report broadens its analysis, focusing on various issues, including financial crime risks, reputational concerns, and vulnerable customers’ challenges. This article summarises the essential findings and outlines actionable questions that firms can use to assess their current practices in managing payment account access.

Key issues highlighted by the FCA

The 2024 report identified several recurring reasons for firms denying or terminating payment accounts, which included:

  1. Financial crime concerns: Firms often cited vague or non-specific financial crime risks as the rationale for account closures. This included a general suspicion of higher-risk customer groups and the potential costs of enhanced due diligence.
  2. Reputational risk: The concept of “reputational risk” was found to be inconsistently applied. In some cases, firms appropriately assessed reputational harm. In contrast, in others, the term seemed to be used arbitrarily or to cover broader concerns, such as staff safety, which were not linked to a reputational threat.
  3. Vulnerable customers: Customers in vulnerable circumstances, such as those lacking standard forms of ID or those with learning disabilities, often face additional hurdles. For example, some were denied accounts due to assumptions that they could not manage their finances, while others could not meet standard identification requirements.
  4. Due diligence compliance: Various stakeholders, including charities and small businesses, reported difficulties complying with firms’ due diligence requirements. The requests were often complex, and customers found them challenging to fulfil.

Applying the Consumer Duty to payment account access and closures

The Consumer Duty applies across the entire customer journey—from onboarding and extending to account termination and subsequent interactions, such as handling customer complaints. The Duty requires firms to ensure their processes consistently deliver positive customer outcomes.

As applied to the operation of payment accounts, the Consumer Duty places specific obligations on firms, including:

 Justifiable decision-making: Firms must ensure that their decisions regarding account access are based on clear, rational, and well-considered grounds. The FCA emphasised that vague rationales, such as “reputational risk”, should be appropriately defined and applied consistently.

Oversight and governance: Firms must establish robust governance frameworks to oversee account access decisions. Accurate and comprehensive data must be collected on each decision to monitor outcomes and ensure customer treatment is consistent and fair.

Proportional financial crime measures: The FCA advises against a “one-size-fits-all” approach to financial crime risk management. Firms must apply proportionate measures, considering the specific circumstances of each customer, rather than blanket policies that may result in unfair exclusions.

Challenges for vulnerable customers

The FCA’s findings highlight persistent challenges for vulnerable customers, including individuals without standard identification or those with disabilities. These customers often face disproportionately adverse outcomes when attempting to access financial services.

Firms were found to have made incorrect assumptions about vulnerable customers. For example, some firms assumed that people with learning disabilities automatically required a power of attorney to manage their accounts, and others refused accounts to customers unable to provide typical forms of ID, such as utility bills.

The FCA stresses that firms must provide alternative options to customers who need help to meet standard identification requirements. Firms should take reasonable steps to assess each customer’s capacity individually, ensuring that decisions are not made on presumptive or discriminatory grounds.

Data collection and record-keeping

One of the most significant areas for improvement identified by the FCA relates to the quality of data collected on account denials and terminations. In many cases, firms were found to have inconsistent or incomplete data on the reasons behind their decisions. Some used overly broad categories, such as “other,” to account for many denials. This lack of detailed record-keeping makes it difficult for firms to demonstrate that their decisions are based on reasonable and justified grounds.

The FCA expects firms to improve their data collection and retention practices. Robust record-keeping is essential for internal oversight and to provide transparency to regulators like the FCA.

Stakeholder feedback

Stakeholders, including small businesses and charities, reported that the current processes for due diligence were often too complex and burdensome. Many customers, particularly those in cash-intensive industries, experienced difficulties accessing accounts due to compliance costs and perceived financial crime risks associated with their sectors.

Some stakeholders suggested introducing a Universal Service Obligation (“USO”) to guarantee account access for specific customer groups, such as charities or smaller businesses. This proposal remains under discussion but highlights the ongoing need to ensure that particular sectors are not disproportionately disadvantaged by current practices.

FCA’s expectations for firms

To address the issues raised, the FCA set out several critical expectations for firms:

  1. Policy review: Firms must review and, if necessary, update their policies and procedures concerning account access to ensure compliance with the Consumer Duty. Particular attention should be given to defining and applying terms like “reputational risk.”
  2. Training and development: Staff should receive comprehensive training to ensure they fully understand the firm’s policies on account access and can apply these consistently. Firms should regularly assess the effectiveness of this training to ensure high standards are maintained.
  3. Data accuracy and oversight: Firms must collect and maintain detailed data on account access decisions. This data should be used to oversee decision-making processes and to ensure consistency with regulatory requirements. Accurate records are crucial for internal governance and demonstrating compliance with applicable laws and regulations when required.
  4. Automated systems: For firms using automated systems to screen account applications, the FCA expects robust monitoring and oversight to ensure that these systems do not inadvertently result in unfair outcomes, particularly for vulnerable customers.
  5. Clear customer communication: Firms must ensure that communications regarding account denials or terminations are clear, transparent, and easily understood by customers. This includes explaining the reasons for a decision and providing information on the customer’s right to complain or seek assistance.

Critical questions for firms to consider

To ensure their operations align with FCA guidelines and the Consumer Duty, firms should regularly evaluate their processes using the following questions:

  1. Decision-making clarity: Are the reasons for denying or terminating accounts clearly defined, transparent, and applied consistently across the firm? How do we ensure that “reputational risk” is used appropriately and not as a catch-all term? Where appropriate, is there evidence that relevant provisions of the FCA’s Financial Crime Guidance (“FCG”) are being considered?
  2. Vulnerable customers: How do we accommodate the needs of vulnerable customers? Are there procedures to allow alternative forms of identification or additional support for those with learning disabilities? Are we communicating with customers in a way which equips them to make “effective, timely and properly informed” decisions?
  3. Data management: Are we accurately collecting and retaining detailed data on account access decisions? How do we ensure this data is used effectively for governance and regulatory reporting?
  4. Staff training: Are staff adequately trained to apply the firm’s policies consistently? How frequently is this training reviewed to ensure it remains effective?
  5. Automated systems oversight: If we use automated systems to screen account applications, how do we monitor these systems to avoid unintended consequences, especially for vulnerable customer groups?

Conclusion

The FCA’s 2024 report on payment account access and closures has highlighted critical areas for improvement in how firms manage account access decisions. By addressing the issues raised, firms can ensure they meet their obligations under the Consumer Duty while delivering fair outcomes for all customers. Firms can contribute to a more equitable financial landscape through consistent and transparent decision-making, improved data collection, and better support for vulnerable customers.

Practitioners are encouraged to regularly assess their operations, using the FCA’s findings and expectations to deliver improved customer outcomes. By focusing on these areas, firms can align with regulatory standards and strengthen their reputation for fair and responsible customer care.

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References

2024. UK payment account access and closures: update, Financial Conduct Authority (last accessed 10th September 2024).

2023. FCA sets out initial findings on bank account access and closures, Financial Conduct Authority (last accessed 10th September 2024).