N v The Royal Bank of Scotland Plc [2019] EWHC 1770 (Comm)

On 8 July 2019, the High Court dismissed claims brought by a money services business (N) against its bank (RBS) for, among other things, breach of contract following RBS's decision to freeze N's accounts and terminate their banking relationship without notice. This ruling offers reassurance to banks taking such action in exceptional circumstances where they have genuine suspicions of financial crime, notwithstanding the potential damage it could have on a customer's business.


N's business and risk controls

N was an authorised money services business in the UK which offered foreign exchange and payment services to its domestic and international clients. N had held a number of main accounts (the Main Accounts) and client sub-accounts (the Sub-Accounts) with RBS since January 2013. These accounts saw a high number of regular transactions on a daily basis with funds entering, leaving and being transferred between the Main Accounts and the Sub-Accounts. N operated pooled client accounts, which allowed funds from the Sub-Accounts to become comingled with funds in the Main Accounts. N's risk management systems and controls were found to be "materially inadequate", ranging from poor record-keeping to an absence of formal risk assessments. Serious concerns had been raised by N's external auditors and its internal compliance official.

RBS's response to suspicions

Included in the terms governing N and RBS's relationship were two clauses: (1) that RBS could side-step a 60-day written notice requirement to close an account in circumstances which RBS considered exceptional, and (2) that RBS would escape liability for any such closure if it reasonably considered it to be prudent to do so in the interests of crime prevention or legal and regulatory compliance.

Following an investigation, RBS had grounds to suspect investment fraud and money laundering on the part of N's clients relating to transactions in certain Sub-Accounts and a comingling of criminal and clean funds in the Main Accounts. In October 2015, RBS took the decision to freeze N's accounts and terminate their relationship. RBS made an authorised disclosure to the National Crime Agency (the NCA, which was listed as an interested party in the claim) by filing a suspicious activity report (SAR). RBS reasoned that a failure to take action would place itself at risk of committing money laundering offences and facilitating financial crime.

N brought a claim for breach of contract and negligence, arguing that RBS could not establish the exceptional circumstances required to empower it to take the action it did.


Knowles J dismissed N's claim and found resoundingly in favour of RBS on all aspects of the case. Whilst the judge recognised that RBS's decision had substantial operational and financial consequences for N, this was outweighed by the prevailing public interest in the prevention of crime. Such was the seriousness of the situation that the impact on N's business ought not to have altered RBS's thinking, and it was "rightly acknowledged … [that RBS] would be unable to countenance a risk that it would be laundering money."

In its claim, N suggested alterative courses of action which RBS should have taken to avoid N suffering loss, such as ring-fencing suspect funds or adopting a cooperative approach with N and the NCA to exit the relationship within the contractual notice period. The judge ruled that none of these alternatives were practicable in the circumstances, not least because remaining obliged to operate N's accounts would have required RBS repeatedly to seek separate consents from the NCA for each suspicious transaction identified (of which there had been, and would likely continue to be, many). The simple existence of a range of decisions available to RBS, in itself, did not mean that the decision reached by RBS was not a reasonable conclusion to have reached, in good faith, and within the scope of its contractual discretion.

N's contention that there was no suspicion as to its own direct complicity in money laundering, and that suspicion was only in relation to its clients, was rejected. The practical effect of N's risk control failings had clearly facilitated money laundering; N's mental state and level of awareness was therefore immaterial. Referring to the contract, the judge held that RBS need only establish that it considered there to be exceptional circumstances, which a genuine and well-founded suspicion of money laundering would amount to.

N also sought to argue that it was incumbent on RBS to investigate each suspicious transaction. The judge dismissed this suggestion, given the volume of transactions involved (around 150 per day) and the challenge of investigating each one. In fact, the judge commended the caution that had been employed by RBS in reaching its decision.

Throughout his judgment, Knowles J made a point of singling out the particular vulnerability to financial crime N found itself exposed to as a money services business. The judge cautioned that added sensitivity over client due diligence, anti-money laundering procedures, and regulatory compliance ought to have been of particular importance to a business such as N's.


Banks have faced criticism in some quarters of becoming increasingly overzealous in their reporting of suspected financial crime: 2018 saw the highest number of SARs received by the NCA at 464,000 (up around 10% from 2017, with 80% of SARs coming from banks). Customers have been more willing to test the banks' actions in court.

This decision supports a precautionary approach by banks where suspicions are raised, irrespective of whether a customer is aware of the identified suspicious activity or its implications. For now, this decision resolves the tension between a bank's obligations under the Proceeds of Crime Act 2000 and duties owed to its customers, where there is a genuine suspicion of involvement in financial crime, in favour of public interests in the prevention of crime and in order to protect banks from risk of facilitating financial crime. Of course, the exact terms and conditions of the customer relationship remain central to an enquiry as to the legitimacy of a bank's actions.

The claimant applied for permission to appeal in August 2019.

David Wigg and Robert Cox

David Wigg

David Wigg

Legal Director, Dispute Resolution

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