They are a business not a public service and they can accept or decline anyone for absolutely any reason they want to. Being regulated by the FSA does not change that they are still not a bank so have no duty to provide any minimum service. (AFAIK) Regardless the FSA is as useless as a chocolate tea pot so I doubt anybody cares what they have to say about it anyway.
Whether you will last long as a business if you have that attitude is debatable but they have no need to justify anything to anyone it is up to them who they deal with.
From here it is probably best if those two now take the matter up in private.




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