By Feroza Petersen
The arbitrary closure of personal and corporate bank accounts, euphemistically termed “client de-banking”, has become a disconcertingly widespread practice, transcending geographical borders.
The United Kingdom’s Financial Ombudsman Service, for instance, recorded 1,389 complaints about account closures in 2022 and 2023, reflecting a global trend. Such actions, often cloaked in pre-emptive measures, highlight the unchecked power wielded by banking institutions and their moral inconsistency in selecting clients.
Emerald Van Zyl, a prominent financial analyst and advocate for banking reform, succinctly summarises the issue, stating: “The perception that banks are ‘a law unto themselves’ is shared, in general, by several other key sectors of the economy, including government bureaucracies, financial services, airlines and other transport segments, and utilities. Whether they are privatised or state-owned is immaterial.”
Van Zyl’s words underscore the pervasive nature of the problem – a culture of unchecked power that transcends sectors and ownership models.
South Africa, too, has been a battleground for banking controversies. In 2021, Absa and FNB abruptly terminated accounts linked to Sekunjalo Investment Holdings, a broad-based BEE company. These actions, taken without due process, underscore the lack of transparency and fairness within the country’s financial sector. And to date, no reason for these bank account closures besides that of “Reputational Risk”.
Dr Iqbal Survé, chairman of the Sekunjalo Group, has confronted this issue head-on, accusing major banks of discriminatory practices, amongst others. This confrontation unveils deeper systemic issues plaguing South Africa’s financial landscape.
Van Zyl’s words resonate powerfully: “The arbitrariness belies the fact that it was made as a pre-emptive move without giving due process to any potential court proceedings, and the banks’ seeming moral inconsistency in their choice of corporate clients.”
His critique encapsulates the urgent need for regulatory intervention to dismantle the culture of unilateral actions that lack accountability.
The UK’s response to such issues sets a precedent for South Africa. Nigel Farage’s public tussle with Coutts Bank prompted the UK government to commit to legal reforms that mandate clear explanations for account closures, along with a 90-day termination notice for affected customers. In contrast, South Africa’s regulators and policymakers have yet to follow suit, leaving individuals and businesses vulnerable to opaque practices.
Here, the role of South African regulatory bodies – the South African Reserve Bank (SARB), the Financial Intelligence Centre (FIC), and the Financial Sector Conduct Authority (FSCA) – becomes pivotal. These entities should take inspiration from international standards and reinforce their mandate to ensure ethical conduct within the financial sector. The SARB’s commitment to drafting new standards for deposit-taking institutions is a step in the right direction. However, to be truly effective, these standards must prioritise transparency, fairness, and the protection of consumers.
Van Zyl’s incisive words continue to echo: “From past and current evidence, these include money laundering; insider trading; profiteering, especially during times of high interest rates... the massive bonuses and share handouts to senior executives; and even being rewarded for failure.”
His words are a call to action, urging regulators to create a level playing field that upholds accountability and ethical integrity.
Reforming the banking sector and democratising access to capital markets is no small feat. However, the urgency of the matter necessitates a comprehensive approach involving all stakeholders. Government policies, regulatory updates, effective monitoring, capacity building, innovation, financial inclusion initiatives, and competition enhancement are all critical components of this transformation.
While conventional banking has evolved over centuries, developing nations like South Africa cannot afford to wait that long. By embracing legal reforms akin to those in the UK and bolstering the roles of regulatory bodies, South Africa’s leaders can fortify their commitment to transparency, fairness, and ethical conduct within the financial realm.
President Cyril Ramaphosa and Finance Minister Enoch Godongwana have an opportunity to lead the charge towards a more equitable financial sector that respects the rights and interests of all its stakeholders.
As Emerald Van Zyl aptly summarises: “Developing countries can ill-afford to wait that long.”
* The views expressed do not necessarily reflect the views of IOL or Independent Media.