Until the law says otherwise, Finance Minister Enoch Godongwana has affirmed that banks in South Africa have the right to close accounts, provided they adhere to fair and transparent processes. He believes immediate changes to South Africa’s banking laws are unnecessary at this stage.
In a written response to a parliamentary question, Godongwana stated that although the Zondo Commission made recommendations regarding 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”.
The issue of bank account closures was a focus of the Zondo Commission’s final report, officially titled the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector including Organs of State. Released in June 2022, the report extensively examined state capture, corruption, and the conduct of financial institutions.
Chief Justice Raymond Zondo, who chaired the inquiry, recommended legislative changes to ensure clients have the opportunity to be heard before banks close their accounts. Justice Zondo argued it is unacceptable that an institution as powerful as a bank should have no obligation to hear what a client has to say before the bank closes the client’s account on suspicion that the client may be involved in illegal or corrupt transactions.
However, at the time, legal expert Aslam Moosajee, an executive in ENSafrica’s dispute resolution practice, pointed out that Justice Zondo’s recommendations contradicted a prior Supreme Court of Appeal ruling. Moosajee explained that Justice Zondo justified his stance by emphasising the need for fairness, even in contractual relationships, drawing parallels to laws regulating employment terminations and property evictions.
Justice Zondo’s report recommended amending existing banking legislation or introducing new laws to mandate fairness in account closures.
Moosajee also noted that South Africa already has conduct standards obliging banks to treat customers fairly, including providing reasons for account closures. He questioned why Justice Zondo’s recommendations did not focus specifically on requiring banks to allow customers to be heard beforehand, highlighting potential complexities, such as whether banks could terminate relationships solely to protect their reputations when customers deny media allegations.
The parliamentary question came from Des van Rooyen, National Assembly Whip for uMkhonto weSizwe. Van Rooyen asked about progress on addressing regulatory gaps identified in the Zondo Commission’s report, including its condemnation of the unchecked “weaponisation” of reputational risk by banks.
In his written response dated 29 November, Godongwana acknowledged the Zondo Commission’s recommendations but reiterated 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”.
He added that banks have the legal right to refuse or terminate services, provided such actions 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,” Godongwana wrote.
To promote fairness, section 106 of the Financial Sector Regulation Act empowers the FSCA to issue conduct standards for financial institutions. One such standard, Conduct Standard 3 of 2020, came into effect on 3 July 2020. It mandates banks to:
- conduct their business in a manner that prioritises the fair treatment of their customers;
- 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;
- provide reasonable notice of the intention to withdraw or terminate a financial product or financial service, including closure of a bank account;
- provide reasons for the proposed withdrawal, termination or closure, unless the following circumstances prevail:
‒ the bank is compelled to do so 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.
Godongwana explained that these standards ensure account closures are not unilateral but follow contractual obligations. He cited the 2010 Bredenkamp and Others v Standard Bank of SA case, which concluded that fairness applies to both parties in contractual matters, including account closures justified by reputational concerns.
Godongwana confirmed plans to involve National Treasury, the FSCA, the Financial Intelligence Centre, the Prudential Authority, and the Banking Association South Africa in evaluating potential improvements to the Conduct Standard. He said that these efforts would align with the upcoming Conduct of Financial Institutions (COFI) Bill, which is expected to strengthen customer protections.
‘Weaponisation of reputational risks’
Van Rooyen’s question recalls his own controversial appointment as Minister of Finance by then President Jacob Zuma on 9 December 2015. The decision to replace Nhlanhla Nene with Van Rooyen, an inexperienced candidate, sparked public and market outrage, leading to the rand plummeting. Four days later, Zuma reversed his decision, reinstating Pravin Gordhan as Finance Minister. The episode, dubbed Nene-gate, fuelled allegations of state capture and was later scrutinised by the Zondo Commission.
The commission also investigated the appointment of Van Rooyen’s advisers at National Treasury without following due process.
The debate over the banks’ right to close accounts resurfaced after Nedbank and other major banks shut the accounts of Iqbal Survé’s Sekunjalo group of companies, including Independent Media, in 2021 and 2022, citing reputational risk. According to BusinessDay, Sekunjalo has repeatedly challenged these closures in court and before the Competition Tribunal, but with little success.
In September last year, the Constitutional Court dismissed Sekunjalo’s appeal to prevent Nedbank from closing its accounts, stating that the case had no prospects of success.
On 9 January, News24 reported that the Competition Tribunal had also rejected an urgent application by Sekunjalo to compel Nedbank to re-open its accounts.
A FSP / Bank’s risk appetite in relation to client relationships (covering a host of risk factors) would also be indicative of their decisions on whether to exit a client relationship.
Gondongwane’s view is misplaced. The analyst, Edmond Phiri (on IOL), argued that the banks’ conduct is riddled with potential conflicts of interest, as they wield extensive powers to shut down competitors.
For instance, in Sekunjalo’s case, the banks closed their accounts, yet those same banks hold shares in companies that directly compete with Sekunjalo. The notion of ‘fairness’ cannot stand when banks face a clear conflict of interest.
Zondo is correct that legislative amendments are required, because the closure of a bank account effectively amounts to an economic death sentence.
No business or individual can operate without a bank account; therefore, the closure of accounts must follow a thorough and transparent process—something current legislation fails to address.