By Feroza Petersen
THE Financial Sector Conduct Authority (FSCA) in South Africa is currently scrutinizing the banking sector’s treatment of clients, with a focus on account closures, in response to concerns about transparency, fairness, and racism.
This examination underscores the importance of the Financial Ombudsman Service’s role in protecting consumer rights.
The FSCA, responsible for overseeing compliance with banking industry Conduct Standards is evaluating how fairness is applied when it comes to making decisions to close bank accounts.
The National Treasury is considering potential amendments to these standards and introducing additional regulations.
Recent incidents, such as threats to close the Sekunjalo group’s bank accounts, including those of Independent Media, have highlighted a lack of clear explanations given to clients, leading to the term “debanking”.
This issue extends beyond South Africa. In the UK, banks reportedly close more than 1 000 accounts daily without sufficient justification, citing concerns about financial crime.
Striking a balance between “know your client” regulations and consumer protection is crucial, and the Conduct Standard mandates reasonable prior notice and reasons for potential closures.
Independent analyst Corrie Kruger, asserts that bank regulations should not supersede fundamental rights, such as the right to associate, as outlined in the South African Constitution.
He questions the Prudential Authority's ability to efficiently monitor “suspicious” transactions, often resulting in account closures.
Banks generally have the authority to close accounts at their discretion, even without providing reasons, especially when legal or criminal activity is suspected.
Client trust in the South African banking sector has declined, despite the growing demand for ethical practices.
Complaints to the Ombudsman for Banking Services reveal a recurring issue: account closures without notice or reasons.
While banks should adhere to legal requirements for notice and reasons, exceptions exist in cases of suspected illegal activities.
As debates about bank closures persist, political figures like Julius Malema and government officials like Dr Nkosazana Dlamini Zuma advocate for increased regulation and public participation in banking institutions.
Calls for a State Bank as an alternative to major banks gain momentum.
The ongoing FSCA assessment sheds light on critical issues in the banking sector, including transparency, fairness, and potential racial disparities.
Striking a balance between regulations and customer rights is vital, with the financial ombudsman playing a more proactive role in safeguarding consumer interests.