Advice for banks on closing accounts
• Regulator says the process must be fair and transparent
Financial Sector Conduct Authority (FSCA) commissioner Unathi Kamlana has urged banks to reflect on whether the prevailing common law position relating to closure of customers’ accounts is fair to clients.
Kamlana told the Banking Association SA’s Banking on Ethics Conference that because the lack of a bank account severely limited an individual’s or a business’s ability to engage fully in the economy, more transparency was needed before closing client accounts.
“As the FSCA, our primary interest on this issue lies on ensuring that the process of bank accounts 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.
Nedbank last week became one of a few lenders to reveal how many of its client accounts it had closed. The lender in its annual report said it cut ties with just over 190 customers due to “reputational risk” in 2023.
It said the decisions to shut the accounts were taken only after a “rigorous assessment and an internal independent governance process with reference to all the relevant information and facts have been followed”, which it said included a due diligence process overseen by the board.
Though Nedbank did not identify the clients, the group’s run-ins with some of its clients have been well publicised from as early as 2022.
In December 2023 the Supreme Court of Appeal set aside an equality court interdict barring Nedbank from closing the accounts of companies in Iqbal Survé’s investment stable, Sekunjalo.
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.
Nedbank said in its report that decisions to terminate banking relationships with clients were neither “arbitrary nor discriminatory”.
Survé told Business Day that the power wielded by banks had to be challenged. “It is a constitutional matter. We cannot afford a dispensation where one can wake up without banking facilities just because a few people say you present a reputational risk to them, even when they admit you have done nothing criminally wrong,” he said.
NEDBANK SAID ITS DECISIONS TO TERMINATE BANKING RELATIONSHIPS WITH CLIENTS WERE NEITHER ARBITRARY NOR DISCRIMINATORY
190 customers had their accounts closed by Nedbank last year
2023 the year when the Supreme Court of Appeal set aside an earlier interdict barring Nedbank from closing Sekunjalo accounts