Businesswoman and aspiring MP Gina Miller has said Monzo Bank’s decision to close one of her accounts is a case of “democracy gone wrong”.

Ms Miller, the legal activist who challenged the government’s handling of Brexit, told Sky News that Monzo Bank had written to her on 13 July to explain that her account for her True and Fair Party would be closed in September without providing an explanation.

However, the bank later confirmed it did not allow political party accounts and the initial decision to open it had been made in error.

Ms Miller, who is standing for the True and Fair Party in the next general election, said she had tried to set up an account with “almost every other bank in the UK” before approaching Monzo, but they all turned down her application.

She warned “we don’t have a functioning democracy” if new political parties cannot access banking services as she urged the government and financial services watchdog to step in.

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Concerns about “de-banking” have mounted after former Brexit Party leader Nigel Farage complained that his account with private bank Coutts had been closed owing to his political views.

The story first came to light when the BBC inaccurately reported the account was shut because he did not meet Coutts’s financial thresholds – for which the reporter in question later apologised.

A 40-page document obtained by Mr Farage through a subject access request subsequently revealed his political beliefs and connections formed part of its decision to close his account, sparking a debate about freedom of speech among politicians.

The fallout saw Dame Alison Rose, the chief executive of NatWest, which owns Coutts, resign early on Wednesday morning after she admitted she had been the source of the BBC story about Mr Farage’s account.

She was followed by Coutts chief executive Peter Flavel, who resigned on Thursday, while pressure is also mounting on NatWest chairman Sir Howard Davies – who initially backed Dame Alison’s position before an apparent change of heart.

Mr Farage described the row as “serious political persecution at the very highest level of our system”.

Ms Miller told Sky News’ Sophy Ridge she had some sympathy with Mr Farage, but that her case was a “bigger issue” because “as a new insurgent political party you have no access to banking services, which is extraordinary in a democracy”.

“The three main political parties – the status quo system supports them, but not new entrants,” she said.

She said she believed banks have “overstepped the mark when it comes to politically exposed persons” – someone who holds or has held public office and therefore may be more susceptible to bribery or corruption.

“Nigel’s case is about an individual, but this is actually about how our democracy runs,” she said.

“You cannot have a bank account as a political party – it doesn’t make any sense and this is democracy gone wrong.”

Sky News understands that political views and affiliations did not factor into the decision to close Ms Miller’s True and Fair Party account and that the only issue was the type of account that was requested.

A Monzo spokesperson told Sky News: “Like lots of banks, we do not accept any political parties as Monzo Business customers in the same way that we don’t currently accept trusts, clubs and a range of other organisations.

“In this case, the account wasn’t originally categorised as a political party. After this was identified and corrected, the customer was given notice that the account would be closed. We recognise that this experience will have been frustrating for the customer and we’re sorry for that.”

Ms Miller said that as well as being denied accounts by various high street banks, she had also been denied access to other financial services products such as professional indemnity insurance.

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“The whole system is broken,” she said.

Ms Miller said she had managed to open an account with a smaller bank but added: “My worry is that there’s no guarantee they won’t turn around and do the same thing.”

Last week, the Treasury announced reforms designed to offer customers greater protections, including more time to challenge decisions or to find replacement banks.

New measures include forcing banks to explain why they are shutting an account and extending the notice period from 30 days to 90 days.

While the reforms have yet to be enacted legally, they appear to have been accelerated in response to Mr Farage’s experience, which sparked outrage among senior Tory MPs.