Recently, there has been a spike in complaints from customers who have had their bank accounts frozen for apparently no reason. News coverage of this has focussed on challenger banks – Watchdog even dedicated a section of their show to the issue – but in actual fact, it can happen regardless of who you bank with.
We’re going to take a look at why financial service providers have that power, and what you can do if it happens to you.
Suspicious activity reports
Usually, a bank will only freeze your account if they have reason to believe that it is being used for illegal purposes, such as money laundering. Every bank will have its own criteria for suspicious transactions, and if the computer system sees something that matches that criteria then it will flag the transaction to be reviewed by a nominated officer. They will look at the transaction and decide whether it needs to be investigated or not. If they think there might be an issue then the suspicious activity report is raised and the account is frozen.
For instance, a customer who typically deposits the same amount of money into their account each month – say, £2000 – may raise alarm bells by suddenly depositing a much larger sum. If that’s combined with other factors, such as the money being deposited from a country that the bank has on the watch list, then it will probably be enough to trigger a report.
While this can be unpleasant for customers, the bank doesn’t really have much of a choice. They have a responsibility to remain vigilant against potential criminal activity. They have a legal obligation to ensure that there are mechanisms in place to filter out fraud, and unfortunately innocent customers can sometimes be caught in the crossfire.
What happens next?
When your account is suspended or closed in these circumstances, it’s actually against the law for the bank to tell you why they’ve done it. Specifically, it would be illegal for them to tell you that they have raised a suspicious activity report against you. You’ll likely be told that your account is suspended, but they’re not able to give you any other information. Crucially, you won’t be able to access the money in your account until the bank’s investigation is finished. This means that it may be a while before you’re refunded. This is why it’s always suggest separating your money into multiple accounts.
If you have recently made a large and unusual transaction – maybe you won a lot of money or received an inheritance – then it may be worth flagging this with the bank and providing them with any proof that you have. This may or may not help to speed up getting your money back, but it’s unlikely to hurt.
Otherwise, you may just have to wait it out. Although it’s an unusual situation, when it happens it puts you into a legal grey area: you may have a right to your money, but the bank is obligated to investigate thoroughly before unfreezing or refunding you. In the meantime, you would have to fall back on a back-up, such as an easy access savings account with another bank, or a credit card that you can use for essential purchases.