Banks to suffer wide-scale fallout from Nigel Farage row, warn experts
The crisis at NatWest which led to the resignation of boss Dame Alison Rose is expected to lead to reforms over the way banks handle account closures.
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Your support makes all the difference.Britain’s banking sector is likely to face political and regulatory fallout which will “ripple out for months to come” after the furore surrounding the closure of Nigel Farage’s Coutts account, according to experts.
NatWest has been thrown into a crisis mode in recent days, culminating with the resignation of boss Dame Alison Rose in the early hours of Wednesday after she admitted discussing Mr Farage’s relationship with private bank Coutts, owned by NatWest Group, with a BBC journalist.
Shares in NatWest slumped by 3% on Wednesday, wiping more than £600 million off the bank’s stock market value, which is still 38% owed by the taxpayer, as the crisis showed little sign of dying down, with Mr Farage saying more of the lender’s board should quit.
NatWest is no ordinary bank; it is still almost 40% owned by the UK taxpayer, and the political and regulatory ramifications of this episode are likely to ripple out for months to come
But shares across the sector were also hit as the former Ukip leader called for “cultural change” across the wider banking industry and promised to continue to campaign on account closures.
Lloyds Banking Group shares dropped by 3% on the FTSE 100 Index despite posting surging half-year profits on Wednesday, while Barclays stock was also nearly 2% lower.
Danni Hewson, head of financial analysis at AJ Bell, said: “Banks play a crucial role in making the country tick. They are trusted with our hard-earned cash and relied upon to fund a myriad of purchases from buying a house to business expansion which delivers jobs and prosperity.
“With that in mind it now seems absurd that the board of NatWest had considered that Alison Rose could ride out this storm.”
She said despite being highly respected and having an impressive track record at the helm, her decision was the “only viable path”, but said the knock-on effects of the saga will be felt sector-wide.
“NatWest is no ordinary bank; it is still almost 40% owned by the UK taxpayer, and the political and regulatory ramifications of this episode are likely to ripple out for months to come,” she said.
These are independent businesses and they have got to look at their customers from a perspective of whether they going to add economic value. There's no point dealing with customers who will lose you money
The Information Commissioner’s Office (ICO) said it was concerned over NatWest’s sharing of personal information on Nigel Farage and has written to banks reminding them of their responsibilities on customer data.
Mr Farage lodged a complaint with the ICO, but the regulator said its procedures mean NatWest must be given a chance to respond before the ICO gets involved.
Information Commissioner John Edwards said: “We trust banks with our money and with our personal information. Any suggestion that this trust has been betrayed will be concerning for a bank’s customers and for regulators like myself.”
Gary Greenwood, a banking analyst at Shore Capital, told the PA news agency NatWest may face a financial penalty for its actions and possible compensation claims from other customers who feel their accounts have been wrongly closed.
Mr Greenwood said the entire sector may also have to change the way it approaches account closures, in particular with new consumer duty rules coming into effect at the end of this month and ministers pressing for speedy reforms.
He said lenders will need to “demonstrate that they have gone through the proper processes” on account closures and when customer criteria has not been met.
But he said banks will still need to consider legal and regulatory requirements such as financial crime, as well as whether their reputations will be tarnished by having some customers on their books.
Mr Greenwood added: “These are independent businesses and they have got to look at their customers from a perspective of whether they going to add economic value. There’s no point dealing with customers who will lose you money.
You wouldn't expect any other independent business to be forced to take on any customer under the sun regardless
“Equally there’s a risk-management assessment that’s got to be done as well… whether there are links to criminal organisations or politically exposed persons who could potentially abuse their position. That’s a legal requirement.
“They’ve got their brands and reputations to consider as well.
“You wouldn’t expect any other independent business to be forced to take on any customer under the sun regardless.”
A new consumer duty coming into force from July 31 will set higher and clearer standards for financial firms to follow in general.
Firms will be required to communicate in a way which is timely, clear and understandable, putting customers at the heart of what they do.