What does Farage fallout mean for Coutts and private banking?

How did Peter Flavel's transformation of Coutts lead to a showdown with a populist politician?

Recent high-profile events at the NatWest group have shone a spotlight on two very different men. One of them, Nigel Farage, former leader of both the UK Independence Party and the Brexit Party, has always courted controversy and publicity. The other, Peter Flavel, until recently CEO of Coutts, NatWest’s elite UK private banking unit, has done his best to avoid it.

Much has been written about Mr Farage’s 25-year pursuit of Brexit, including run-ins with pro-European politicians and his recent vendetta against NatWest management, after Coutts cancelled his account. UK media were led to believe this was for commercial reasons.

However, his claims of “political persecution”, backed by a data request showing his views did not chime with the bank’s values, triggered the late-night resignation of NatWest chief executive Dame Alison Rose, after the leak of inaccurate information to a BBC journalist.

Her departure followed pressure from prime minister Rishi Sunak. The government currently owns a 39 per cent stake in NatWest, and at one point owned 84 per cent of the bank following a £45.5bn ($58.3bn) taxpayer rescue during the 2008 financial crisis. The market value of NatWest shrunk by £850m after her resignation.

Flavel's fall

Much less has been written about Peter Flavel, the plain-speaking Australian who successfully engineered Coutts’ digital rebuild through the Covid era, and who eventually followed Dame Rose to the corporate exit. How did his transformation of Coutts, founded in 1692, lead to the bank’s showdown with a populist politician, and what will it mean for the future of private banking?

Despite his man of the people image, Mr Farage has been happy to deal with the royal family’s bankers. Coutts’ clients can feed koi carp in the atrium of the bank’s Strand headquarters and admire paintings of the firm’s 17th century founders, after a boardroom lunch cooked onsite from sustainable ingredients, including berries grown on the roof terrace.

While hosting these lunches and other exclusive client events, Mr Flavel regularly checks his beloved Australian cricket team’s run rate on his phone, particularly when they are contesting the ‘Ashes’ with England, his latest host country. Having cut his teeth as a lawyer and management consultant, before working for the Axa insurance company and the National Australia Bank, Mr Flavel became a leading light in the region’s booming private banking sphere. He ran the global private banking arm of Standard Chartered, before becoming Asia private banking CEO at US  ‘bulge bracket’ house JP Morgan.

Many were surprised at his move from Singapore to Coutts in London in 2016, soon after NatWest sold its Asian, European and Middle Eastern private banking operations to UBP, to concentrate on domestic UK business. But Mr Flavel quickly got down to work, sorting out some major compliance issues, before developing the Coutts 24 telephone banking service. He later overhauled a creaking digital infrastructure and introduced a ‘Council’ of 700 key clients to help shape bank strategy. His “impressive velocity” of profit growth has been partly down to democratisation of Coutts’ historically exclusive brand.

A frequent attendee at Buckingham Palace garden parties, Mr Flavel networked with environmentally-conscious city bosses, convened by King Charles, while also making inroads into the music business. Hobnobbing with US music royalty, including legendary Chic guitarist and songwriter Nile Rodgers, he also courted a newer generation of British musicians led by Stormzy, recalling how “hits on the website went crazy” after the rapper revealed he was a Coutts client on BBC TV.

This cultural journey has been no mean feat. In his own way, Stormzy has been as radical as Mr Farage. He backed previous Labour leader Jeremy Corbyn, slighted government ministers in his songs and performances, and most importantly, introduced the Stormzy Scholarship in 2018, supporting 32 black students through their studies at Cambridge University. Mr Flavel recently talked about the new cohort of clients which the artist typifies.

“We’re still being true to our roots and our history and existing client base,” Mr Flavel told PWM over a boardroom lunch in June. “But we're now modern, contemporary and relevant to a new group of clients.”

Influenced by the experience of these entrepreneurs and internal dialogue with minority employee groups, Mr Flavel embraced both the Black Lives Matter movement and the LGBT+ cause, attending Pride rallies and reaching out to a wider clientele.

These dramatic changes to Coutts’ brand image and business model – shifting to embrace entrepreneurial, progressive, multi-ethnic ‘new money’ – left dealings with the likes of Mr Farage, sitting uncomfortably with an internal committee that decided to ‘debank’ him.

The politician had criticised Nato for its policy on Ukraine and appeared on Russia’s TV propaganda channel RT in 2016 and 2017, well after Moscow’s initial invasion of Ukrainian territories in 2014. As Brexit Party leader, he discussed forming an alliance of far-right European politicians with Mr Trump’s ideological adviser Steve Bannon.

While Mr Flavel has not explicitly criticised Brexit, calling the trade barriers affecting many of his clients “annoying” rather than “fundamental”. his adaption to values of the “next generation” has been core to Coutts’ developing strategy. He has also been in the vanguard of bankers “de-risking” clients with Russian connections, who have been “asked to take their business elsewhere”. The statement made by Dame Rose, before her resignation, highlighted "reputational concerns” alongside commercial viability and “legal and regulatory requirements” when deciding whether to close an account.

Reputational risk

Leading industry voices say this reputational protection is part of a growing trend. “I would tell my bankers to stay away from anyone who could embarrass you and the bank on the news tomorrow morning, regardless of their wealth,” says Gerard Aquilina, partner at international law and accountancy firm Cone Marshall and a former CEO of HSBC Private Bank in the Americas. He has previously instructed bankers to avoid Saudi royals and high profile politicians: “Would I have taken Boris [Johnson] on as a client? Probably not.”

Mr Farage may be considered a Politically Exposed Person (PEP) by some banks, although the classification is highly subjective, according to a former director at a leading UK private bank. “Coutts have a minimum account size of £3m. In the past, they have not strictly enforced this minimum level. However, when it comes to people they don’t like - and who likes Farage? – they are being asked to close their accounts,” says the former banker.

Banks across Europe have become more restrictive around PEPs, because regulatory hurdles for their acceptance and monitoring have risen. “Any such clients must be approved by the top management of the bank and regularly monitored, typically on a yearly basis, which may trigger material costs and compliance issues,” reveals Shelby du Pasquier, head of the banking and finance practice at Geneva-based lawyers Lenz & Staehelin.

The perception at banks, he says, is that such clients generate reputational problems for managers increasingly aware of geopolitical risks. “A number of high profile scandals involving politicians and the systematic use of financial sanctions in Europe, including those resulting from the Russian invasion of Ukraine, that often target PEPs, have reinforced this trend,” adds Mr du Pasquier.

The notion of banks attracting clients with marketing messages addressing shared values is also not new, says April Rudin, founder of the Rudin Group global marketing consultancy for wealth management firms, although the nature of these clients is changing.

“In this case, I think that with Coutts seen as the highest rung of the ladder in the UK, where they are serving the royal family, there is a new majority of self-made clients, who are aspirational to be a client of Coutts. Posting a pic with Peter Flavel or outside the HQ is a sign that they have made it.”

Former Citi banker Malik Sarwar, now senior partner at Global Leader Group in New York, says that under Mr Flavel, Coutts was perceived as among “few firms that put values ahead of assets, revenues and profits” when choosing which clients to accept.

Before his inevitable resignation, Mr Flavel thanked his team for building a “high performing business” and admitted to “bearing the ultimate responsibility” for having “fallen below the bank’s high standards of personal service” in Mr Farage’s case.

It is unlikely we have heard the last of either protagonist. Mr Farage’s attack on financial services, the UK’s last remaining success story after a faltering Brexit, has returned him to the centre of public and media attention. Mr Flavel, who mingled with wealthy entrepreneurs, but avoided the personal limelight, has hit the lowest point of a glittering career. Those who know him believe he will return stronger, with a renewed vision for successful private banking.