The Financial Sector Conduct Authority (FSCA), which supervises bank compliance around “Conduct Standards” in the treatment of clients, is currently assessing the extent to which fairness is understood and applied across the banking sector, when decisions are taken to close bank accounts.
This was according to a response from the National Treasury to questions submitted to it by Business Report. The Judicial Commission of Inquiry into State Capture’s chairman chief Justice Raymond Zondo has recommended that existing legislation be changed, or that new laws be introduced, that will require banks to allow customers to defend themselves before their accounts are shut down.
Recently the bank accounts of the companies owned by Sekunjalo Group, including that of Independent Media, the owner of this newspaper, had bank accounts threatened to be closed unilaterally, and various legal actions are under way.
The increasing opaqueness of banking policies that has led to the closure of bank accounts, or “debanking” as it has become known colloquially, has also, for example, invoked controversy in the UK where, The Guardian reports on its website, banks are closing more 1 000 accounts every working day, with clients often receiving little or no explanation as to why this has happened, though the banks sometimes claim that it is due to concerns over financial crime such as money laundering and fraud.
National Treasury said the outcome of the FSCA’s assessment would be used to determine whether the “Conduct Standard” needed to be amended, or any additional regulation or guidance needed to be introduced in this regard.
National Treasury said the termination of banking relationships, including closure of bank accounts, was currently regulated in terms of Conduct Standard 3 of 2020 (Banks).
The Conduct Standard, which became effective on July 1, 2021, describes how banks are expected to deal with financial customers to ensure their fair treatment on an ongoing and consistent basis.
National Treasury said the requirement of reasonable prior notice in the Conduct Standard was introduced for the protection and fair treatment of financial customers to ensure that they have sufficient time to make other arrangements regarding their banking needs or otherwise exercise their legal rights (eg request an opportunity to be heard or query the decision to close their account).
“While the Standard does not explicitly require that customers must be provided with an opportunity to ‘defend themselves’ prior to their accounts being closed, it does set out clear requirements that the processes and procedures to be followed by banks should be fair.
“This includes that banks must provide reasonable prior notice of the intention to close a bank account and provide reasons for the proposed closure,” National Treasury said.
It said that to ensure that a fair balance was struck with the need for “know your client” and other regulations aimed at preventing money laundering and other related crimes, the Conduct Standard did not require a bank to provide reasons where it is compelled to close an account by another law (eg the Financial Intelligence Centre Act) or if the bank has a reasonable suspicion that the account is being used for criminal purposes.
BUSINESS REPORT