National Treasury said it will update Parliament soon on plans to update banking regulations to bring them in line with the State Capture Inquiry's recommendations on the closure of bank accounts.
Treasury committed to Parliament's Standing Committee on Finance that it would work to update banking sector regulations and policy to prevent what MPs called the "arbitrary" and "unfair" closure of bank accounts from impacting low-risk clients.
The Judicial Commission of Inquiry into State Capture's chair Chief Justice Raymond Zondo recommended that existing legislation be changed, or that new laws be introduced, that would require banks to allow clients to defend themselves before their accounts were shut down.
Major banks have said they are not against allowing their customers to plead their case before closing their bank accounts and that this has been done in the past. But the closure of bank accounts made headlines when the bank accounts of businesses linked to the Gupta family were closed, with banks saying they could not be seen to facilitate criminal activity.
Iqbal Survé's Sekunjalo Group, which had had its accounts closed by Nedbank, among others, had a legal victory when it scored an interim interdict from the Equality Court ordering the green bank to reopen its businesses accounts in June. Nedbank and some other of its peers had started closing accounts of companies in the Sekunjalo stable in the wake of the 2020 publication of the findings of the Mpati Commission of Inquiry, which probed wrongdoing at the Public Investment Corporation.
Former EFF MP Godrich Gardee had filed a class action challenging the "arbitrary" closure of customer accounts by banks.
National Treasury financial sector policy director Vukile Davidson said while the matters related to the closure of accounts by banks were sub judice, it would still respond to the State Capture Commission's recommendations.
"Those specific [Zondo] recommendations will form part of a comprehensive response that will be provided to Parliament soon. It will include areas where legislative amendments will be required and that will be brought to Parliament in the coming weeks and months," said Davidson.
Advocate Tiny Seboko, who was working on the class action, told the committee that they were approaching the Equality Court to say the termination of the banking products was based solely on race and that the clients had done nothing wrong in terms of money laundering and related offences.
"The implication of that un-banking is that bonds and salaries cannot go off. You cannot prove your creditworthiness. The main case of Sekunjalo is pending, so without going too deep into the merits, we concluded an application to the Financial Intelligence Centre to see if there was any standing in the banks acting the way they did," said Seboko.
Davidson said with the closure of the Gupta bank accounts in 2016 and 2017 had placed so much pressure on companies associated with the family that Oakbay asked the government to intervene.
He also cited a Supreme Court of Appeal (SCA) battle between South African-born Zimbabwean businessman John Bredenkamp and Standard Bank in 2010, which set the precedent that either a bank or client could unilaterally terminate the relationship and the government could not intervene in that relationship.
In the case between Bredekamp and Standard Bank, Bredenkamp was suspected of having involvement in illegal activities including arms trading as well as illicit tobacco and diamond trading. National Treasury's Office of Foreign Asset Control added him to a list of suspected illicit businesses, after which Standard Bank closed his accounts.
Bredenkamp challenged this in court, but the SCA ruled that banks could terminate a relationship with a client unilaterally at its discretion.
Davidson said banks have a huge incentive to act when they believe that an account belonging to a business or client is facilitating illegal activities, and that regulators should ideally look at matters on a case-by-case basis and avoid "broad de-risking".
"Banks face risks when servicing these high-risk clients. If South African banks are not seen to be taking action against what is seen as the illegal activities of their clients, banks in other jurisdictions are obliged to cut off any relationship with those banks," he said.
Financial Sector Conduct Authority (FSCA) deputy commissioner Farzana Badat said legislation empowers the FSCA to ensure fair treatment of customers by banks at a broad level, but the authority does not get involved in individual matters.
"On the closure of accounts, the code says that before a bank closes an account, it must provide reasonable notice to the client. They need to give them adequate time and allow the client to make alternative arrangements.
"It says they must provide reasons, unless there is a duty to adhere to standards by closing the account or if there is reason to believe the account is being used for an illegal purpose," said Badat.
Badat said the FSCA does not have adequate data on the arbitrary closure of accounts, but is working on collecting such data by rolling out a statutory reporting process for banks that includes bank account closure numbers, reasons, dormant bank accounts, and complaints in these areas.
Greylisting
Meanwhile Treasury is in the process of amending legislation to improve financial regulation standards, in a bid to avoid SA being added to the Financial Action Task Force (FATF) greylist.
"There is a lot of scrutiny being paid to South Africa. When it comes to a risk-based approach, the expectation from FATF is that when there is a risk assessment process in place it must comply with FICA Act requirements. It boils down to the ability to protect clients and adhere to due diligence," said South African Reserve Bank (SARB) head of anti-money laundering and combatting financial terrorism, Sameera Dawood-Bhagwan.
Committee chair Joe Maswanganyi said there would be a follow-up meeting with all the institutions in attendance as well as the Banking Association of South Africa in the next term of Parliament.