Finance Minister Enoch Godongwana’s recent statement regarding the rights of banks to unilaterally close accounts has sparked significant debate, particularly in light of constitutional and economic implications.
His assertion that “it is not immediately clear… that changes to the country’s banking laws are immediately needed” is disheartening. It reflects a significant disconnect between the workings of our economy and the fundamental rights enshrined in our Constitution.
The Minister’s argument falters quite a bit when we consider real-world examples, such as the case of Sekunjalo. This black-owned conglomerate has spent an arduous five years battling against account closures, despite committing no wrongdoing, all while the livelihoods of thousands of employees hang precariously in the balance.
Key to our constitutional democracy is the principle of audi alteram partem—the right to be heard. Chief Justice Raymond Zondo, in his recommendations from the State Capture Commission report, highlighted the unacceptability of powerful institutions like banks acting without any obligation to consider their clients’ perspectives before closing accounts. This observation touches on the very essence of fairness and justice that our Constitution seeks to uphold.
Meanwhile, many others who have suffered account closures remain voiceless, wary of the potential reputational damage that these actions can bring under the cloud of perceived “wrongdoing”.
The current regulatory landscape for bank account closures is patchy at best. Although the Financial Sector Conduct Authority (FSCA) introduced Conduct Standard 3 of 2020, it falls short of providing robust, binding legislation.
This inadequacy was starkly illustrated during a Parliamentary Finance Committee hearing in September 2022, where Gardee Godrich Attorneys presented compelling evidence of how banks wield near-absolute power with minimal oversight.
Of particular concern is the banks’ dependence on legal precedent established by the Bredenkamp case. This ruling, which made its way to the Constitutional Court, erects daunting obstacles for clients attempting to challenge account closures, especially when matched against financial institutions backed by vast resources.
This legal immunity underscores an urgent need for legislative reform to ensure a fairer and more balanced playing field. The argument that banks can close accounts simply because “the contract says they can” is untenable.
In an increasingly banking-centric society, losing access to these services often equates to what can be described as an “economic death sentence”. Without a bank account, individuals and businesses become incapacitated, unable to manage payrolls, meet tax obligations, conduct legitimate business, service debts, or otherwise participate in economic life.
The plight of Sekunjalo starkly illustrates these dire outcomes, where a legitimate business employing thousands of people faces existential challenges not for wrongdoing but for unilateral banking decisions made in isolation.
The failure of self-regulation within our banking sector highlights the need for legislative intervention. Banking institutions cannot be trusted to mediate their own interests alongside the constitutional principles of fairness and equality; this conflict of interest is overlooked in Godongwana’s remarks.
Furthermore, banks often maintain significant stakes in companies competing with some of their clients, leading to a dangerous incentive structure that could result in the weaponisation of account closures. This concern was raised in the Competition Commission’s findings last November, which identified collusion among banks to exclude Sekunjalo from critical banking services.
Globally, various jurisdictions have recognised the necessity for robust legislative frameworks governing bank account closures. For instance, the European Union’s Payment Accounts Directive guarantees access to basic banking services as a fundamental right, while the US Community Reinvestment Act counteracts discriminatory banking practices. South Africa, however, is still mired in regulatory vagueness.
Beyond the individual account holders, the arbitrary closure of accounts generates severe ripple effects throughout the economy, causing supply chain disruptions, job losses, decreased tax revenue, increased reliance on the informal economy, reduced financial inclusion, and stifled entrepreneurial spirit. Investor confidence is inevitably diminished when such critical regulations lack clear guidelines, potentially deterring foreign investment precisely when it is most needed in the country.
The existing regulatory framework exhibits systemic deficiencies, including the lack of standardised procedures, insufficient oversight, and inadequate protections against discriminatory practices. It is crucial that comprehensive legislation is introduced, establishing mandatory notice periods, transparent appeals processes, independent oversight agencies, and stringent provisions to manage conflicts of interest.
Parliament needs to act swiftly to craft a robust legislative framework governing bank account closures. There should never be a situation where any institution can serve as judge, jury, and executor, especially with the potential to impose economic death sentences on individuals and businesses. An independent oversight mechanism, mandatory mediation processes, and clear conflict-of-interest guidelines are essential safeguards that our democracy demands.
Contrary to the Minister’s view that further research is required, compelling evidence already exists that underscores the urgent need for reform. Testimonies in Parliament, Zondo’s recommendations, and numerous illustrative cases provide clear pathways for legislative action.
The stakes could not be higher; the economic consequences of arbitrary account closures are too significant to be relegated to a fragmented regulatory environment. It is a matter of upholding South Africa’s commitment to economic justice and constitutional democracy. We urgently require a comprehensive legislative framework that guarantees fair treatment, transparency, and appropriate checks and balances.
While the Minister hesitates, more businesses are at risk of economic execution due to this regulatory void. It is time for Parliament to rise to this challenge and deliver the legislative framework that our constitutional democracy rightfully requires.