Godongwana backs the right of banks to close accounts

• Competition Tribunal dismisses interim relief application for reinstatement of bank accounts

Finance minister Enoch Godongwana is not at present 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 National 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

IT IS NOT CLEAR TO ME …THAT CHANGES TO THE COUNTRY’S BANKING LAWS ARE IMMEDIATELY NEEDED

Enoch Godongwana Finance minister

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.

CHALLENGED

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

THE CIRCUMSTANCES IN WHICH TERMINATION MAY OCCUR MUST BE DISCLOSED

Enoch Godongwana Finance minister

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 bank accounts.

Iqbal Survé’s investment outfit Sekunjalo Investment Holdings has failed in its latest bid to compel Nedbank to reopen its accounts, in a drawn-out dispute that has played itself out for several years.

The Competition Tribunal on Thursday said it had dismissed an interim relief application by Sekunjalo and 27 entities in the stable, which sought an order forcing Nedbank to reinstate their bank accounts.

The Cape Town-based Sekunjalo approached the tribunal after Nedbank terminated its accounts in early December.

“On December 17 2024, the tribunal heard an urgent interim relief application by Sekunjalo, which sought an interim order to reinstate or restore the accounts and all associated banking services under the same terms and conditions that existed prior to the termination,” the tribunal said.

“Sekunjalo requested the reinstatement of the bank accounts for either six months or until the conclusion of a hearing into the alleged prohibited practices complaint against Nedbank, filed with the Compe

THE APPEAL COURT JUDGES SAID THERE WAS NO EVIDENCE BEFORE THEM THAT NEDBANK BEHAVED IN A RACIST MANNER

tition Commission, whichever comes first. Nedbank opposed the interim relief application.”

Nedbank has cited “reputational risk” for closing the Sekunjalo accounts, while the company has claimed racial bias on the part of the lender.

In December 2023 the Supreme Court of Appeal (SCA) set aside an equality court interdict barring Nedbank from closing the accounts of companies in the Sekunjalo stable.

Survé and Sekunjalo argued before the equality court that the bank’s decision to close the accounts amounted to unfair discrimination on racial grounds. The applicants in the case were Survé and 43 others representing the Sekunjalo Group, while the respondents were Nedbank and Nedbank Private Wealth.

The basis of Sekunjalo’s racism allegations was that it was treated differently because it was black owned, while entities such as Steinhoff and Tongaat Hulett were treated with kid gloves even after allegations of fraud against the companies were proved true.

The SCA judges said there was no evidence before them that Nedbank behaved in a racist manner.

Nedbank, in its 2024 annual report, said in 2023 it severed ties with nearly 200 customers over “reputational risk” concerns. It said it had to take action and offboard the accounts.

“Such decisions are taken only after a rigorous assessment and an internal independent governance process with reference to all the relevant information and facts have been followed, including a comprehensive due diligence process overseen by the board,” Nedbank said in the report.

“Nedbank is bound by client confidentiality and therefore does not disclose client matters in our external disclosures. As a result of our ongoing reviews| of client activity and related| reputational risks, during 2023 we offboarded just more than 190 clients.”

Financial Sector Conduct Authority (FSCA) commissioner Unathi Kamlana last year urged banks to reflect on whether the prevailing common law position relating to closure of customers’ accounts is fair to clients.

“As the FSCA, our primary interest on this issue lies on ensuring that the process of bank account closures is fair and transparent. So what do we envision when we talk about a fair and transparent process?

“In accordance with our conduct standard for banks, we mean fully engaging with customers and providing them with reasonable notice and clear reasons for the closure of their accounts,” Kamlana said in his prepared speech.

“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.

“The mechanism for appeal and redress should be straightforward and accessible, enabling affected parties to challenge decisions they believe are unfounded or have been applied unfairly,” he said.