A payment institution has failed in its action against RBS, after the bank closed the institution’s accounts with it and ended the banking relationship. The payment institution (P) was an FX and payment services provider and had been a customer of the bank since 2013 with around 60 active accounts, of which the main accounts had a high volume of transactions, an annual turnover of around £700 million and included a pooled client account. P had access to internet banking and an online FX liquidity platform.
The bank’s account terms generally allowed the bank to close a customer account on not less than 60 days’ notice, unless it considered there were exceptional circumstances, and also provided that it would have no liability if it delayed or refused to process any payment if it believed it prudent to do so in the interests of crime prevention or in compliance with laws.
Evidence suggested that P’s AML systems and controls were materially inadequate during 2013 and 2014. While it intended to improve the systems and controls (and had taken large steps to do so by 2015), and to onboard legitimate clients, the court heard of at least one instance in which its automated systems allowed it to take money in relation to something it knew was a scam.
In late 2015, the bank froze 7 accounts associated with clients of P that were suspected of investment fraud. It then swiftly discovered P was banking 9 boiler rooms. P accepted that there were soon 10 accounts where the bank suspected proceeds of crime were held, and was therefore entitled to freeze the accounts. There was then an attempted payment using a main account which appeared to be an effort to circumvent the sub-account freeze. The bank felt this heightened the risk, and the judge agreed that at the time, P’s systems and controls were still inadequate. The bank froze the main accounts (and others), decided to terminate the relationship immediately, and sought consent from NCA to return the balance on the accounts.
Having heard evidence from key individuals within the bank, the Court considered it had carefully evaluated the information it had, and made the reasonable decision that the proceeds of crime were commingled with other client funds. It did not underestimate the effect of terminating the relationship but having weighed up all the evidence decided that the bank had to do so, and at that time. The Court did not accept P’s argument that the fact the bank did not suspect P itself of criminal involvement meant that its actions were unnecessary, and that any action other than the course the bank took would have been impractical. The Court therefore held that:
- the bank’s decision was informed, taken in good faith, and it exercised its discretion reasonably;
- the bank had not acted negligently (on the same reasoning); and
- given this, there was no need to assess the extent to which the bank could have relied on the protection in POCA against civil liability where it had made a disclosure.
In closing, the judge noted P just had to be better prepared to guard against money laundering than it then was. It was reported that P subsequently found, and continues to bank with, an alternative institution.