...tell the business customer that they could no longer service their accounts because there was a regulation that prohibits banking businesses that sell sex toys.
That might make them wonder where all those people with the big signs next to the expressway and the businesses in the seedy part of town with blacked out windows actually bank.
As indicated, there is no legal prohibition. Yet, the FDIC (in its infinite wisdom) once published a list of customers associated with "high risk" activity that included merchants selling dating services, escort services, and pornography. It's not too big a leap to say that selling sex toys poses an equivalent risk of money laundering. (The FDIC later disavowed the list and deleted it from their publication.)
Today, the pendulum has swung to "de-risking;" refusing to provide banking services to a customer simply because of the nature of the customer's business.
FIL 5-2015 basically indicates its a bad thing to refuse to do business with any customer without a customer specific analysis of the risks posed.
Frankly, from what I've seen (or what I haven't seen) I think this is nothing but pure posturing on the part of the agency. If you don't want to bank them because you don't want to bank them, no one is going to care.
[I would be sincerely interested in being corrected by bankers who say the agency has criticized them or at least warned them about de-risking.]
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