Parliament must probe the methodology behind ‘reputational risk’ in bank account closures in SA

South African bank clients rights are being eroded. File photo

South African bank clients rights are being eroded. File photo

Published Apr 29, 2024


Parliament must probe the methodology into bank account closures.

In the spotlight is the metric of ‘reputational risk’ and there are claims that South African’s rights are being violated.

Reputational risk modelling is not currently transparent or fair, nor does it have a just mechanism of recourse. It is also not standardised globally. Worst of all, the metrics are applied unfairly leading to discrimination.

The issue was highlighted this month after Nedbank’s 2023 Annual Report revealed it had unbanked nearly 200 people on this unquantified, undisclosed metric.

Nedbank’s Pillar 3 Risk and Capital Management Report for the year ended December 31, 2023 revealed it is now considered as one of the bank’s top ten risks and has subsequently been included on its risk scorecard.

Financial Sector Conduct Authority (FCSA) commissioner Unathi Kamlana, in a speech at the Banking Association of South Africa’s Banking on Ethics Conference last week, raised concerns on closing bank accounts on the metrics of reputational risk.

He said, “However, some of the actions of the banks which have been particularly contentious in this area of anti-money laundering and countering the financing of terrorism recently pertain to the closure of bank accounts for reputational risk reasons. This is an issue that relates directly to the principles of ethics, fairness, and inclusion.

It is vital that the government legislates clear, transparent guidelines. It cannot be left to bank’s to unilaterally apply this secret modelling, which is subjective, to targeted individuals. The modelling itself must apply to both bank license holders as well as their clients in the interest of fairness and transparency. It can’t be one rule for customers and one other rule for banks because that is not fair.

Thus within transparent reputation risk modelling in the public domain, banks should equally have the law applied to them, not just bank clients.

It is very surprising that political parties from the ANC, to the DA and EFF are not on the warpath on this issue.

The scant reading that I have done on the issue is giving me insomnia over how powerless people are against the banks on this issue. It is blatantly unfair, unconstitutional and violates South African consumer rights.

This is compounded by the very fact that banks have trillions of rands to spend on lawyers, whereas the average person is barely making ends meet so justice is out of their reach.

Why is this so unfair? The banks argue, that by contract law, that when a customer opens a bank account he or she is subject to fine print that clearly states they have the right to cancel an account under certain circumstances.

This was upheld in a landmark case Bredenkamp and Others v Standard Bank of SA, which ruled on the bank’s right to cancel the contract between it and its customer unilaterally.

However, South African banks are currently over-reaching their mandate after Africa’s most industrialised nation was grey listed for lack of proper controls against corruption, money laundering and terrorist funding.

Local banks are having a torrid time. The complexity and cost of this is hectic. Not only that. They have had to deal with South Africa’s sovereign rating being placed on junk, which affects lender’s ratings.

Being grey listed, compounded by a credit rating cut, makes it more expensive to borrow money and harder to transact internationally.

In response, banks have gone risk adverse. But they are taking this too far. The risk metric of reputational risk is hard to quantify, so banks are saying it is their right to terminate your account based on public perception.

This is why I reached out to Dr Iqbal Survé, the chairman of Independent Media and the Sekunjalo Group, to ask him about his experience with Nedbank trying to terminate the accounts of companies held by Sekunjalo on the basis of reputational risk.

Business Report is owned by Independent Media and for the sake of transparency my salary too is dependent on Independent Media’s bank accounts being open.

I asked Nedbank for information on the methodology of reputational risk, and if it was evenly applied across its active 7.3 million clients and they gave a blanket, rubbish answer.

“Nedbank is bound by client confidentiality and is unable to discuss clients with third parties,” it said.

However, I did not ask about their clients. I asked about a clearly quantifiable metric standard that can be audited, which should be publicly available so that it is not abused, arbitrarily levelled or used as a political tool to take down individuals banks one might have a beef with.

This is a glaring, abusive gap in regulation and it is absurd and outrageous.

I asked Dr Survé,“ Did the legal team ask how Nedbank qualified reputational risk/ methodology?

Survé said, “These are really good questions to all the banks. That is exactly what we have asked the banks and they have not been able to respond as to what is defined as reputational risk and how the bank is affected by reputational risk. We have no idea as to the methodology.”

On November 22, 2021, Dr Survé was sent a letter by Nedbank’s chief executive Mike Brown and Zanele Mngadi, the group legal council, to terminate a number of Sekunjalo Group accounts.

The bank said, “It is unfortunate that you appear to misconstrue the contents of the letters of termination that were sent by Nedbank and seem to have concluded that Nedbank is accusing you and/or the Sekunjalo Group of money laundering and corruption. We would like to reiterate that Nedbank has at no stage made any accusations of corruption or money laundering against yourself or any individual or entity in the Sekunjalo Group.

“While it is not up to Nedbank to prove the veracity (or lack thereof) of the allegations in the Mpati Commission Report and the media, as a bank, Nedbank is required and expected to have regard to information in the public domain in the course of its risk management processes. Nedbank remains of the view that continued association with the client relationships we have terminated as set out in 6 below, poses potential reputational and association risks to Nedbank for the reasons set out in the letters of termination that were issued to the respective clients,” the letter said.

On November 29, 2021, Survé was sent a letter by Janitha Moodlier , Nedbank Legal Head-Consumer. It said, “As indicated in our termination letter, the association risk that the bank is seeking to manage by terminating the accounts relates to allegation in the Mpati Commission report of involvement of the Sekunjalo group of companies in suspected corruption related to the Public Investment Commission (PIC) funds.”

However, in 2023 the court battle between the state-owned asset manager PIC and IT group AYO Technologies was settled and no corruption charges have ever been laid against the group.

Steinhoff, EOH and Tongaat Hulett's bank accounts were never terminated on the basis of corruption.

So it is clear, that considering bank's reputational risk metrics, it does not matter if you are innocent until proven guilty. The banks are the judge.

This is very concerning as South Africa has had hundreds of commissions that have made unproven allegations and they don’t count as legal precedent.

It is laughable if banks think they are using the metrics of reputational risk and material damage in a similar way to brand, such as Nike off-boarding collaboration with Kanye West.

It is an entirely different beast to what is at the heart of the matter, especially when South African businesses have a concentrated banking monopoly of bank participants versus their international counterparts.

The irony of this blatant overreach of banks is that the financial institutions reputations are also in question.

In the Nedbank annual report, Daniel Mminele, the chairperson of Nedbank, said “The board and management continue to manage and safeguard Nedbank’s reputation in a manner that prioritises accountability and transparency.

“In the ongoing alleged forex manipulation case against multiple banks, the Competition Appeal Court (CAC) dismissed the Competition Commission’s case against Nedbank, and while the Competition Commission has since applied to the Constitutional Court for leave to appeal the CAC decision, Nedbank maintains that the allegations levelled against us are baseless and we will continue to defend ourselves against claims brought by the Competition Commission.

“As publicly stated over the past few years, while the Zondo Commission itself made no findings against Nedbank, Nedbank continues to cooperate fully with the various additional investigations into certain transactions following recommendations by the Zondo Commission,” it said.

This was referring to the Zondo Commission recommending that some transactions involving Nedbank, Acsa and Transnet, where Regiments had acted as appointed financial advisers to Acsa and Transnet, be subject to further investigation.

“The board has previously requested and approved the terms of reference for comprehensive independent technical and legal reviews in respect of these transactions. Based on these reviews we remain of the view, as previously stated, that there has been no wrongdoing on the part of Nedbank in relation to transactions mentioned in the report of the Zondo Commission,” it said.

Thus Nedbank has decided to judge itself clean because it says so by people it paid for a report. Nice.

Furthermore, it had corruption in its own house.

Mike Brown, the CEO of Nedbank, said, “Nedbank was itself the victim of an internal fraud in 2023. While no client funds were impacted, the cost to Nedbank, net of insurance recoveries, amounted to R50 million. In line with our principle of zero tolerance we immediately investigated the matter fully and took the necessary disciplinary and criminal actions against the implicated employees, and strengthened processes and procedures to prevent this from reoccurring.”


So should Nedbank have its licences revoked? It’s reputation is not clean by the metrics it currently uses.

Currently Dr Survé is the only person that is publicly challenging the banks on the merits of what has been done to him and wants his day in Equality Court and the Constitutional Court, which has had a lot written about.

He is the only one standing by default between South Africans in the same situation and is tenacious enough to take them on.

I invite the nearly 200 Nedbank client, or other clients at other banks, who have had their bank accounts terminated on the basis of reputational risk (please no other bank account issues) to contact me at [email protected] as I want to understand what is happening to South Africans and how bad this has become.

South African bank account closures on the basis of reputational risk should not be secret. Citizens should not feel abused nor powerless to know where to turn nor the methods of recourse.

While Dr Survé has spent R400 million to defend his rights, the rest of us don’t have these kind of resources. Every bank client should know their rights and how they are protected with a fair, affordable, legislated mechanism of recourse.

Philippa Larkin, the content editor of Business Report.

Philippa Larkin in the Executive Editor of Business Report