Editor's Note: Cabinet must reform the COFI Bill to protect the right to bank

The Conduct of Financial Institutions (COFI) Bill, soon to be submitted to Cabinet, is a critical opportunity to address arbitrary bank account closures in South Africa. These closures threaten economic stability, undermine fairness, and grant banks unchecked power to act as de facto regulators of public and private life.

However, the Bill in its current form fails to adequately protect the right to bank. I urge parliamentarians to scrutinise this legislation and demand reforms that enshrine procedural fairness, as recommended by the Zondo Commission and grounded in the audi alteram partem principle.

Cabinet must address these shortcomings by ensuring the COFI Bill incorporates robust protections, including the right to a fair hearing, as recommended by the Zondo Commission and supported by the audi alteram partem principle.

The audi alteram partem rule, a cornerstone of natural justice, mandates that individuals be given an opportunity to respond to allegations before decisions are made against them. In the context of bank account closures, this principle is critical. Banks currently rely on the Code of Banking Practice, which only requires "sufficient notice" before termination. This vague standard fails to ensure procedural fairness, particularly for public figures, large-scale employers, or influential stakeholders whose account closures can have far-reaching consequences

The Problem: Arbitrary Account Closures

South Africa’s banking regulatory framework, including the Code of Banking Practice, allows banks to terminate accounts with minimal oversight. Banks often cite vague reasons like "reputational risk," a term so broad it invites abuse. This practice has far-reaching consequences, particularly for public figures, employers, or influential stakeholders whose closures can disrupt businesses and livelihoods.

For example, Independent Media recently faced account closure threats based on flimsy reputational risk claims, while Nedbank, implicated in corruption by the Zondo Commission, faced no similar scrutiny. Such inconsistencies highlight the need for reform. As I’ve previously written, public outcry over these closures reflects growing frustration with banks’ disproportionate power.

I have written extensively on the subject:

Public outcry over bank account closures due to unfounded 'reputational risk'

Reputational risk is a red herring and violates my rights - Dr Survé

Dr Survé welcomes FSCA's taking banks to task over bank account closures on basis of reputational risk

Legal Context: A Flawed

The case of Bredenkamp v Standard Bank (2010) illustrates the dangers of the current framework. The Supreme Court of Appeal upheld Standard Bank’s right to unilaterally terminate John Bredenkamp’s accounts based on reputational risk, setting a precedent that allows banks to act with minimal accountability. While Bredenkamp’s alleged illicit activities raised legitimate concerns, the ruling failed to establish a clear process for customers to contest closures.

This precedent empowers banks to target parliamentarians, ministers, lawyers, businesspeople, and academics without due process, effectively allowing financial institutions to influence governance and economic activity. Such power is antithetical to a democratic society and risks undermining public trust in both the banking sector and the state.

The Zondo Commission said there was a need for stronger protections against arbitrary closures, warning that banks should not wield unchecked power. Internationally, jurisdictions like the UK have taken steps to curb such practices, prohibiting banks from closing accounts based on customers’ political views. The US Senate Banking Committee is also moving to eliminate reputational risk as a basis for banking decisions. South Africa must follow suit.

The COFI Bill, designed to shift South Africa’s financial regulatory framework toward a principles-based, outcome-driven model, is an opportunity to address these issues. However, in its current form, the Bill falls short.

The Financial Sector Conduct Authority (FSCA) and National Treasury, through Commissioner Unathi Kamlana and Ismail Momoniat respectively, have acknowledged the need for legislative reform to curb arbitrary closures.

The COFI Bill: An Opportunity for Reform

The COFI Bill does not mandate a fair hearing for customers, nor does it impose stricter guidelines on banks beyond the existing Conduct Standard for Banks (2020). This standard vaguely requires a "fair process" for account terminations but explicitly avoids prescribing a hearing in cases involving suspected money laundering or terror financing, citing potential conflicts with other laws. While these exceptions are valid, they should not justify blanket exemptions that allow banks to bypass fairness in other cases.

Customers, especially those whose closures impact public interest - such as employers or influential figures - must have the right to challenge terminations in court. Without this safeguard, banks can arbitrarily disrupt businesses, livelihoods, and even political processes by targeting accounts without transparent justification.

Recommendations for Cabinet

To protect the right to bank, Cabinet must demand the following amendments to the COFI Bill:

1. Enshrine the audi alteram partem principle: Require banks to provide customers with a fair hearing before closing accounts, ensuring procedural fairness.
2. Limit vague justifications: Prohibit banks from using "reputational risk" as a catch-all excuse for terminations, mandating specific, evidence-based reasons.
3. Ensure judicial recourse: Grant customers, especially those whose closures impact public interest, the right to challenge terminations in court.
4. Align with Zondo Commission recommendations: Incorporate the Commission’s call for stronger protections to prevent banks from wielding unchecked power.

It is important that Cabinet demand amendments that align the Bill with the Zondo Commission’s recommendations and the principles of fairness. By failing to act, Cabinet risks allowing banks to continue wielding unchecked power, undermining South Africa’s economic and democratic fabric.

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