Bank's right to terminate a bank account agreement with a client

On November 6, 2024, the Supreme Court of Lithuania (SCL) reviewed a case concerning the bank’s right to unilaterally terminate a bank account agreement with a client. The court established clear guidelines on when such actions can be deemed lawful and proportionate.

The dispute arose between a bank and its client over the unilateral decision to terminate the bank account agreement. The courts of first instance and appeal ruled in favor of the client, finding that the bank did not have a valid reason to terminate the agreement.

The courts noted that the bank based its actions on anti-money laundering (AML) and counter-terrorist financing (CTF) requirements. However, it was determined that compliance with these requirements alone cannot serve as a formal basis for terminating an agreement unless there are clear and compelling reasons.

In its decision, the SCL stated that payment service providers (e.g., banks) may terminate a bank account agreement only:

1. When grounds specified in the agreement exist – if the agreement explicitly lists circumstances allowing its termination.

2. For significant reasons – if such reasons exist, even if they are not directly outlined in the agreement.

The court emphasized that under the Law on the Prevention of Money Laundering and Terrorist Financing, a significant reason may include a situation where a client’s activities pose a genuine risk of money laundering or terrorist financing. However, the bank must prove that terminating the agreement is a proportionate and necessary measure to manage this risk.

The court also highlighted that:

The bank must inform the client about the reasons for terminating the agreement, providing sufficient details to identify the issue.
At the same time, the bank must comply with legal provisions that limit disclosure of information about preventive measures (pursuant to Article 23(1) of the Law on the Prevention of Money Laundering and Terrorist Financing).

The SCL upheld the appellate court’s decision, which was favorable to the bank’s client. The ruling is final and not subject to appeal. This decision is significant as it establishes a practice aimed at protecting clients’ rights and ensuring proportionality in the operations of financial institutions. It also underscores the obligation of payment service providers to adhere to the principle of caution, avoid formalism, and substantiate their actions with essential evidence.

This ruling underscores the importance for financial institutions to clearly and comprehensively define the general conditions for the provision of their services, including specific and objective circumstances and conditions for contract termination. Such preventive measures ensure legal certainty and help avoid disputes with clients. Transparency in contract terms not only protects clients but also reduces the risk of financial institutions facing legal proceedings.