On Bitcoin, Fintech Companies and the Basic Right to a Bank Account

On Bitcoin, Fintech Companies and the Basic Right to a Bank Account

December 21, 2021

The practice of opening a bank account has become so obvious in these modern and global era that we perceive the right to open and manage a bank account as a basic right, almost a constitutional right... But may the bank refuse to open an account only because it does not like my field of practice?

Israeli law stipulates that a banking corporation may not unreasonably refuse to open a bank account for a person or a company seeking to do so. However, in contras to the prohibition of the bank to act arbitrarily towards those who seek its services, the regulator imposed on banks strict supervision obligations under the Prohibition on Money Laundering Law, lack of compliance with by the bank and when a money laundering offense is committed "in its territory", the bank may be deemed an accomplice. This obligation comprise two-stages, where in the first stage the bank is required to identify the customer (KYC) for the purpose of assessing the derivative risk level when opening an account for either an individual or company, and in the second stage resources are allocated for ongoing monitoring of the customer and its activity, based on its risk assessment. The higher the risk, the greater resources are to be allocated to for reviewing and controlling the customer’s activity.

In recent years, it seems that this contrast between the restriction on the bank's refusal to provide services and its obligation to supervise and its prerogative to determine the risk level of the customer, has become a “tool” for banks to refuse opening accounts for companies that the bank "does not like their field of practice." One type of such companies is such that engage in cryptocurrencies (of which the most famous is the Bitcoin).

Thus, for example, in a case decided by the Tel Aviv District Court in March 2019, a bank refused to continue managing an account for a company engaged with cryptocurrency mining on the grounds that its activity is contrary to the bank's policy in a manner that establishes a reasonable right to refuse to provide the service. The Court held that the bank's policy must be dynamic and reflect the developments of the era and a bank policy which overwhelmingly and ex-ante denies a certain type of customers who engage in a certain type of activity is unacceptable. Another type of companies for which it seems that banks prefer to refrain from providing services are fintech companies, i.e., companies that use technology to provide financial products and services and which by their nature may sometimes compete with banks, even though they are subject to the same anti-money laundering regulations and thus there is no real reason that the bank will refuse to open an account for such.

In practice, banks sometimes exploit their power and refuse to open bank accounts for fintech companies while giving a broad interpretation to the term "reasonable refusal", including due to vague contentions such as "economic irrationality". For example, in a case decided by the Tel Aviv District Court in November 2021, Leumi Bank tried to shut down an account of a fintech company, contending that its business model is contrary to the bank's policy. The Court held that it is unlikely to allow the bank unlimited freedom on grounds of anti-money laundering and that the bank's inherent conflict of interest vis-à-vis fintech companies requires a particularly high threshold of "reasonable refusal" when it comes to such companies.

In conclusion, in case of a refusal to open an account there is sometimes room to insist because the bank's right to refuse to open an account is not unlimited. Further, because such refusal may cause great damage to the business, it is very important to be accompanied by a lawyer with experience in commercial, antitrust and money laundering fields, who will assist the company vis-à-vis the bank, including duly preparing all documents in the first place, to prevent the bank from taking advantage of lack of data as a reason for refusal.