What to do if your bank closes your business bank account

Your business bank account is a vital tool for running your business, for buying what you need to do your job, paying suppliers and, most importantly, getting paid. So, it can be a major headache if your bank decides to close your account. Find out why it happens and what you can do about it.

Why has your business bank account been closed?

Banks can decide to close your bank account for a variety of reasons. From July 2022 to July 2023, between 1% and 6.9% of business accounts were closed, according to a review by the Financial Conduct Authority (FCA) published in September 2023. This compares to between 0.2% and 3.4% for personal accounts.

The most common reasons for declining, suspending, or closing an account were either its inactivity or dormancy, or concerns that the account was being used in financial crime.

By law, banks have to take steps to make sure their services aren’t being used for financial crimes, such as money laundering or financing terrorism. As part of this commitment, they may close accounts suspected of being involved in such behaviour or those for which they are unable to complete the checks they are legally required to perform. 

There has been an increase in the number of accounts closed as a result of financial crime in recent years, which may be down to the increased monitoring banks are now doing to comply with the law.

Banks also have to prevent fraud – in fact, a law that came into force in 2023 that made “failure to prevent fraud” a criminal offence. As levels of fraud have grown and detection techniques have become more sophisticated, more fraudulent activity has been uncovered.  

Other reasons for closing a business bank account

Your bank could close your business bank account for commercial reasons, such as to reduce the risk it’s exposed to. For example, it may consider you to be a higher credit risk than you were before, or it may have changed its risk appetite since you opened the account. 

Banks are required to carry out quarterly immigration checks to make sure existing current account customers are in the UK legally and may have to close accounts held by those who are not – but this isn’t a requirement when accounts are being used for business purposes.

They’re not allowed to discriminate against customers on characteristics such as race or gender under the Equality Act 2010.

The government and the FCA have both said banks shouldn’t close people’s accounts due to their political beliefs or if they’ve legally exercised their right to freedom of expression. However, the FCA found that some accounts had been closed due to customer behaviour arising from their views, such as using racist language.

Your account could also be closed if it’s discovered that you didn’t disclose relevant information when you took out the account, such as having a criminal conviction.

Can a bank just close your business account?

Your bank can just close your business account if it has legitimate reasons for doing so, but under banking regulations must give you at least two months’ notice in writing. It doesn’t have to tell you why it’s closing your account.

In some cases, it can give less or no notice, such as if you’ve breached the terms of the contract that applies to your account. In the case of business accounts, however, you and your bank can agree that this notice period doesn’t apply. 

The government is planning to increase the notice period from two to three months and to require banks to explain why they’ve closed an account.

Your bank can also stop you from using a payment method, such as a debit or credit card, if it’s concerned about its security, suspects unauthorised or fraudulent use or thinks there’s an increased risk that you won’t be able to repay the credit. It must tell you that it’s doing it and why, investigate the problem within a reasonable amount of time and allow you to make payments again if the reasons no longer apply.

What to do if your business account is closed

If you think your account has been closed unfairly or you weren’t given enough notice, make a formal complaint to your bank. It has to give you a final response within 15 days if your complaint is to do with charges for closing the account or not being given enough notice, and eight weeks for other types of complaints.

Once you’ve received your bank’s final response, if you’re still not happy, you can take your complaint to the Financial Ombudsman Service (FOS). The Service handles complaints from small businesses as well as individual consumers.

If the FOS considers your bank was wrong to close your account, it can tell the bank to pay you compensation for any money you’ve lost, charges you’ve had to pay, inconvenience or distress resulting from it, or to take other action such as reopening your account.

In cases where your account was closed legitimately, you may be able to open another business account if you can resolve the issue that led to the closure. If it was because of criminal activity, however, it’s unlikely you’ll be able to open another account.