Compliance Restriction vs Closure: How Banks Decide Between Review, Limits and Exit

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Quick Summary

Banks typically start with review when something changes in the risk picture (activity, ownership, geography, sector, counterparties, or screening results). If the bank believes risk can be controlled while it gathers evidence, it may use restrictions (limits) as a temporary control.

If the bank concludes risk cannot be mitigated within its policies – or the relationship no longer fits its risk appetite – it may exit by closing the account.

A key frustration is that a bank may not be able to explain what triggered the restriction or why it escalated, especially where disclosures could prejudice enquiries or breach legal constraints. That lack of detail often reflects the rules the bank must follow, not necessarily a judgement about wrongdoing.

This article is educational and not financial advice.

What “review”, “restriction”, and “closure” mean in practice

Review

A review is an internal process where the bank re-checks whether it can continue providing services safely and lawfully. Reviews can be routine (periodic refresh) or triggered (an alert, a change in profile, or a third-party report). Reviews often overlap with enhanced due diligence processes described in EDD triggers, checks, and outcomes.

Restriction

A restriction is a control that limits what the account can do while the review is ongoing. Common patterns include:

• outgoing payments paused or capped

• inbound payments allowed but “held” pending checks

• cash deposits limited (or disabled)

• international transfers blocked or delayed

• online banking or card functionality partially disabled

Restrictions are not always the same as a legal “freeze”. If you need the terminology split clearly, see Frozen vs closed business accounts.

Closure

A closure (exit) is the bank ending the relationship under the account terms (often with notice, sometimes with shorter notice in defined circumstances). Operationally, closure also raises “plumbing” questions: what happens to inbound payments, pending outgoing payments, payroll runs, and settlement flows – covered in Incoming payments when an account is closed and Outgoing payments if an account closes mid-processing.

Why banks intervene: the constraint stack behind the decision

Banks aren’t deciding in a vacuum. Their choices are shaped by overlapping constraints:

• AML/CTF obligations and risk-based due diligence under the UK regime (including the Money Laundering Regulations) – see the official legislation text Money Laundering Regulations 2017 (PDF).

• Sanctions compliance where an asset-freeze risk can require immediate controls – see UK financial sanctions general guidance.

• Regulatory expectations for financial-crime systems and controls – see the FCA’s overview Money laundering and terrorist financing and related guidance publications such as FG15/7 (FCA).

• Governance and fairness expectations around access/closures, including how firms use “reputational risk” and how long suspensions should run – see UK Payment Accounts access and closures update (FCA PDF).

• Complaint handling and notice expectations (what “reasonable notice” often looks like, and how complaints are assessed) – see Bank account closures (Financial Ombudsman Service).

• Voluntary standards some lenders follow for SME customers – see LSB Standards & Codes.

And crucially: banks may be constrained in what they can tell a customer, especially where disclosures could create “tipping off” risk. For background, see Tipping off and prejudicing an investigation (Law Society) and our explainer Why banks can’t explain restrictions.

The typical decision pathway: trigger > triage > review > outcome

Banks commonly run something like this internal pathway (names differ by bank):

Trigger

Examples: unusual payment pattern, cross-border transfer held, cash deposit anomaly, ownership/PSC change, sanctions/PEP screening “hit”, suspected fraud indicator, merchant category mismatch, elevated chargeback patterns.

Triage

A quick internal check: is this obviously benign (false positive), or does it justify escalation? Some cases clear here with no customer impact.

Review

Deeper checks: customer due diligence refresh, transaction review, counterparties, source-of-funds logic, documentary evidence. The bank may ask for specific items – see Documents banks ask for when considering closure.

Outcome selection

• Continue with no change (monitoring only)
• Continue with limits (restriction)
• Exit (closure)
• Escalate outside the bank where legally required (which may constrain what can be said)

Where the trigger is identity/screening-related, the review often intersects with PEP and sanctions screening for directors and PSCs. Where it’s behavioural (activity doesn’t match stated model), it may intersect with Business model mismatch and MCC flags.

When banks tend to use restrictions (limits) instead of closing

Restrictions are usually the “middle tool” when the bank believes:

• risk can be controlled temporarily (e.g., pausing one payment rail) while information is gathered; and/or

• there’s a plausible benign explanation, but it needs evidence; and/or

• the bank wants to prevent “risk leakage” (money moving out) while the review completes.

Typical restriction designs aim to be proportionate to the risk signal. For example:

• A single high-risk outbound transfer might trigger a hold on that transfer type rather than full account shutdown.

• A cash-intensive pattern may trigger cash deposit questions and tighter handling – see Cash-intensive businesses and deposits.

• Cross-border anomalies may trigger longer screening/holds – see International payments under review.

Some regulators have highlighted that suspensions should not run longer than necessary and that investigations should be carried out in a reasonable timeframe (in the context of payment accounts). See the FCA’s discussion of suspensions and harm in UK Payment Accounts access and closures update (FCA PDF).

What banks typically cannot say (or will avoid saying)

When “tipping off” risk is in play, banks typically avoid statements that would confirm or strongly imply:

• that a suspicious activity report has been made

• that law enforcement has been contacted (unless formally disclosed by authorities)

• that a specific investigation is contemplated or ongoing

• the internal “trigger” that caused a monitoring alert (for example, specific rule thresholds)

• the precise risk label attached to the account (for example, money laundering suspicion vs other internal categories)

Guidance in this area often stresses that once a report is made, disclosing that fact (or disclosing information likely to prejudice an investigation) can be problematic. See POCA s333A and the Gambling Commission’s section on tipping off.

Summary table

When banks tend to choose closure (exit)

Closure is more likely where the bank concludes one (or more) of the following applies:

• Unmitigable risk within policy
  The bank believes the risk cannot be reduced to an acceptable level using controls it’s willing or able to operate (cost, complexity, or policy constraints).

• Non-cooperation or incomplete evidence
  If essential information is missing, inconsistent, or can’t be verified, the bank may treat the residual risk as too high.

• Risk appetite / portfolio decisions (de-risking)
  Sometimes it’s not about one business; it’s about the bank’s exposure to a sector, geography, product type, or operating model. See De-risking and exit management.

• Legal constraints (not just “bank policy”)
  For sanctions-linked issues, controls can be immediate and strict; see UK financial sanctions general guidance. In such cases, the bank’s options may be constrained by law and licensing pathways.

Closure doesn’t necessarily mean the bank has “proven” wrongdoing. It can reflect a decision that the relationship no longer fits the bank’s operating boundaries, governance expectations, or risk tolerance.

The grey zone: how restrictions turn into closure

A common pattern is restriction first, closure later. That often happens when:

• initial questions uncover new complexity (ownership chain changes, counterparties, unusual flow logic)

• the bank’s confidence in the explanation doesn’t increase with evidence received

• alerts repeat, suggesting the signal is structural, not one-off

• the case requires ongoing enhanced handling that the bank won’t sustain at scale

Communication can be thin because giving specifics can be risky. The legal “tipping off” concept is one reason banks may refuse to detail what they’re checking; see Tipping off explainer and background reading Law Society guidance.

What closure means operationally: notice, payments, balances

Notice periods and documentation requests

Notice is commonly driven by account terms, but external guidance and complaint frameworks often reference “reasonable notice” and common minimums (with exceptions). The Financial Ombudsman Service summarises typical expectations and exceptions in Bank account closures (FOS).

During a closure pathway, banks often request evidence to finalise risk decisions and to process remaining funds. For a practical list of common document types, see Documents banks ask for when considering closure.

Incoming payments, outgoing payments, and payroll

Even when an account is closing, payment “plumbing” can create edge cases:

• inbound payments may reject, bounce, or be returned depending on payment type and timing – see Incoming payments when an account is closed

• an outgoing payment already “in flight” may complete, fail, or return depending on scheme cut-offs – see Outgoing payments if closed mid-processing

• payroll files and direct debits can be disrupted during a restriction/closure window – see Payroll during restriction or closure

For remaining balances, process and timelines vary by bank and case context; see How long banks return remaining balances for operational expectations.

Scenario Table

Frequently Asked Questions