Simply citing reputational risk not enough for banks to justify closing accounts, warns FSCA

Banks in South Africa have reached a point where they simply refuse to deal with clients where they pick up on dodgy transactions going through their books.

But simply closing accounts like these could be more difficult going into the future.

The Financial Sector Conduct Authority (FSCA) has now told banks that just because reputations might be tarnished through association, this is not enough reason to 'fire' clients.

FSCA Commissioner Unathi Kamlana urged institutions to do some reflection during his keynote address at an ethics conference hosted by the Banking Association of South Africa.

"Banks should not simply cite reputational risk; reasons must be concrete and consistently applied to prevent what might appear as arbitrary account closures."

Unathi Kamlana, Commissioner - FSCA

Customers must also have the right to appeal or seek redress to ensure the process remains just and equitable, the Commissioner said.

Tough road ahead as SA tries to meet FATF requirements to get off grey list - Treasury

Shutting down accounts is not something that banks here do lightly, agrees Kokkie Kooyman in conversation with Bruce Whitfield.

The executive director and portfolio manager at Denker Capital notes that the issue was in the spotlight again internationally after NatWest's decision to close former UK politician Nigel Farage's accounts at its private Coutts bank.

"The fear on the bank's side is the legal risk they're running, and that of fines. Banks in Scandinavia for instance have had huge fines from the US for facilitating money laundering transactions which happened ten years ago when systems were different..."

"The bottom line is, if it becomes apparent that you facilitated criminal activity, as in the case now of Sasfin where SARS is actually attacking them, you have a risk."

Kokkie Kooyman, Executive Director - Denker Capital