Finance minister Enoch Godongwana is not presently considering amendments to banking laws to prevent what the Zondo commission of inquiry referred to as the arbitrary closure of banking accounts.
Godongwana replied in writing to a question in parliament that “notwithstanding the conclusions and recommendations of the Zondo commission on any proposed amendments to financial sector legislation to address the perceived arbitrary closure of bank accounts, it is not immediately clear to me, in the absence of further research and analysis, that changes to the country’s banking laws are immediately needed”.
However, he said he would initiate an evaluation of any potential improvements that may be needed to enhance the Financial Sector Conduct Authority’s (FSCA’s) conduct standard for banks to ensure that financial customers continued to be suitably protected. He would ask the Treasury and the FSCA working together with the Financial Intelligence Centre and the Prudential Authority, to engage banks and the Banking Association SA (Basa) on this matter.
“Any proposed improvements will further be supported by the Conduct of Financial Institutions Bill, which will be submitted for the cabinet’s consideration in due course, once the drafting process has been concluded.”
Godongwana was replying in writing to a question asked by MK party MP Des van Rooyen about what progress had been made with regard to the Zondo commission’s recommendation regarding the arbitrary closure of bank accounts. Van Rooyen shot to prominence when he was appointed finance minister in December 2015 by former president Jacob Zuma and then summarily removed after a few days because of the negative reaction by the markets.
The issue came to the fore due to the closure in 2021 and 2022 by Nedbank and other major banks of the accounts of Iqbal Surve’s Sekunjalo group of companies, which owns Independent Media, due to reputational risk. Sekunjalo has repeatedly challenged — largely unsuccessfully — the closure in court and in the Competition Tribunal. In September last year the Constitutional Court rejected its appeal to prevent Nedbank from closing its accounts on the grounds that it had no prospects of success.
Godongwana said in his reply that a bank has the legal right to refuse to take on a customer, or terminate its services to a client, for many reasons, provided the reasons for such refusal or termination do not violate public policy or constitutional values.
“In exercising this right, it is important that financial institutions treat their customers fairly, while also supporting increased financial inclusion and market access.
“While I acknowledge that the Zondo commission made recommendations for the amendment of the country’s banking laws to prevent, among other things, the arbitrary closure of banking accounts, the honourable member would be aware that any recommendations or proposed changes to legislation still need to be thoroughly evaluated before any proposed draft changes to legislation are submitted to cabinet and/or tabled in parliament.”
In terms of the FSCA’s conduct standard for banks, they are required to adopt and implement processes and procedures relating to the withdrawal or termination of a financial product or financial service, including closure of a bank account.
They also have to provide reasonable notice of the intention to withdraw or terminate a financial product or financial service, including closure of a bank account, and provide reasons for the proposed withdrawal, termination or closure, except in specific circumstances. These include when the bank is compelled to close an account by the law; the bank has reasonable suspicion that the financial product or financial service is being used for any illegal purpose; and the bank has made the necessary reports to the appropriate authority.
“The conduct standard furthermore provides that contractual agreements between banks and financial customers must make provisions for circumstances in which the contractual agreement may be terminated or withdrawn by the bank,” Godongwana noted.
“This implies that the closure, termination or withdrawal of a financial product or service will not be done unilaterally, but as part of enforcing contractual obligations and remediating breaches. The circumstances in which termination may occur must be disclosed to the customer in terms of the contract.”
Godongwana referred to a 2010 legal case between Bredenkamp and others v Standard Bank which dealt with the issue of reputation as a reason to close an account, with the judgment concluding that when it came to contractual matters, fairness applied to both contracting parties.
FSCA commissioner Unathi Kamlana said at a Basa conference last year that more transparency was needed before closing client bank accounts. The process had to be fair and transparent.
“Banks should not simply cite reputational risk; reasons must be concrete and consistently applied to prevent what might appear as arbitrary account closures. Customers must also have the right to appeal or seek redress to ensure the process remains just and equitable,” Kamlana said.
Updated: January 9 2025
This story has been updated with additional comment.
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