More guidance needs to be given to the banking industry on the closure of bank accounts, and potential areas of improvement need to be identified, Financial Sector Conduct Authority (FSCA) deputy commissioner Farzana Badat said in parliament on Wednesday.
While the regulatory authorities cannot intervene in the contractual relationship that banks have with their clients, there are conduct standards that lay down legally enforceable guidelines that require banks to treat their customers fairly.
The issue of the closure of bank accounts shot to prominence in 2016 when the accounts of Gupta-owned Oakbay Investments and 13 other linked companies were closed by all the banks.
Badat told parliament’s finance committee on Wednesday that the FSCA was having ongoing engagements with the banking industry to identify potential gaps in the conduct standards, adding that strengthened fairness requirements were planned by Treasury in a forthcoming Conduct of Financial Institutions Bill.
“The principles in the conduct standard are clear but they are a bit general and it might be useful to develop some sort of guidance to make sure that the way it is applied by the banks are consistent,” Badat said, adding that more research would be conducted into bank account closures.
The policy question for parliament was whether the standards and legislative framework with regard to bank account closures went far enough and whether further legislative intervention was necessary.
The Zondo commission of inquiry recommended that the fairness of the process of closing individual bank accounts could be strengthened. It said a bank would need to afford the client a proper opportunity to be heard and should not just go through the motions or pay lip service to the principle of audi alteram partem (hear the other side).
Badat said the conduct standard required banks to give reasonable notice of the closure of accounts but not for the client to be heard.
Treasury chief director of financial sector policy Vukile Davidson said the Zondo report recommendation would be addressed as part of the government’s comprehensive response, which will be submitted to parliament later in 2022.
Davidson said that data of the ombud for banking services suggested that arbitrary bank account closures for ordinary citizens is not a significant problem though there had been simultaneously a strong increase in the number of users of bank accounts. This did not mean that improvements could not be made on procedural fairness for individuals.
The committee also plans to tackle the issue of policy by calling the banking ombud, the Banking Association SA and the regulators to brief it with chair Joe Maswanganyi saying he had received complaints by individuals whose bank accounts had been closed.
The issue of the closure of bank accounts was raised at the committee meeting by counsel Tiny Seboko representing Gardee Godrich attorneys, which is acting for five clients whose personal and company bank accounts have been closed in what she said was an “arbitrary and unilateral” manner on the basis of what she claimed was racial discrimination as they are all black. The clients were not given details by the banks about the type of risk they posed.
The clients who include a state employee in the Eastern Cape, the sole proprietor of a KwaZulu-Natal company and political party Democracy in Action have been granted leave to join the application by the Iqbal Surve’s Sekunjalo group of companies to the Western Cape Equality Court, to contest the closure of its bank accounts. Seboko said the clients denied any irregularity.
All the major banks closed their accounts with the Sekunjalo group, which in July was granted an interim interdict in the Equality Court stopping Nedbank from closing its bank accounts until the merits of the case could be argued later in 2022. Nedbank, as with other banks, said it had closed the accounts due to reputational harm but Sekunjalo claimed it was unfair discrimination.
Banks started closing the bank accounts of Sekunjalo group companies after the 2020 publication of the findings of the Mpati commission of inquiry into allegations of wrongdoing at the Public Investment Corporation.
With SA facing the risk of greylisting by the Financial Action Task Force (FATF), the international body that sets standards for the combating of money laundering and the financing of terrorism, the measures in place to prevent the banking sector from being used as a conduit for illicit cash will be under scrutiny.
Davidson noted that banks faced more than reputational risk in taking on specific customers regarded as high risk, “as they may also face sanctions from overseas regulators and tend to be risk averse. If banks are considered not to take appropriate actions in making sure that they are not used for illegal activities, other banks in other jurisdictions are required to cut off relationships with those banks. This has massive implications for the economy, jobs and growth.”
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