UK regulator warns banks not to close client accounts without warning at end of Brexit transition
The FCA’s Chief Executive Nikhil Rathi acted in response to requests from the parliamentary Treasury Committee, which was concerned at reports that British expats in the EU have begun to receive letters informing them that their current accounts will be closed after 31 December. Committee Chairman Mel Stride asked the FCA to set out its expectations for how much notice firms must provide such customers with if they decide to close their customers' accounts, and how its expectations will be enforced.
Rathi's response indicates that not all firms are informing customers that their current accounts will be closed. He noted that there are as yet no pan-European schemes allowing UK banks to continue to offer financial services to EU residents, although the UK authorities have created temporary measures such as the temporary permissions regime, to ensure that UK households and businesses will be able to continue accessing services from EU financial institutions after 2020.
As a result, said Rathi, the extent to which UK banks can service EEA-based retail customers is a matter of local law and regulation, 'as well as the decisions firms take in light of their particular business models and structures'.
Banks who plan to close expatriate UK customers' accounts must give at least as much notice as is stated in the customers' contractual rights, said Rathi. Moreover, under the Payment Service Regulations 2017, banks must provide a minimum notice period of two months when closing in-credit current accounts.
'Firms must be able to show they have considered how their plans for the end of the transition period may affect their customers, keeping in mind that different categories of customer might be affected in different ways', said Rathi. 'This includes identifying whether closing accounts would cause any particular customers or classes of customer undue financial hardship, taking into account the availability of alternative products.'
The FCA and the Bank of England Prudential Regulation Authority jointly wrote to banks last week on the importance of being prepared for the end of the transition period, and warned of potential market volatility and disruption to financial services to EU-based clients. The letter tells banks that 'in many cases, it would be a poor outcome for the customer for you to suddenly stop servicing them'. In particular, it says, banks should continue to take 'all reasonable steps' to avoid disruption to payments.
Stride welcomed the FCA's intervention. 'British expats in the EU must be given fair warning by their UK banks if their accounts are to be closed at the end of the transition period', he said. 'The FCA has now told banks that they should provide timely communications with customers, ensuring that they are treated fairly and provided with sufficient notice to seek alternative arrangements.'