Latest news with #ConductofFinancialInstitutions
IOL News
26-05-2025
- Business
- IOL News
Editor's Note: Cabinet must reform the COFI Bill to protect the right to bank
According to the current regulatory frameworks, banks are obliged to notify customers and provide them with the opportunity to make representations before terminating their accounts. 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: Enshrine the audi alteram partem principle: Require banks to provide customers with a fair hearing before closing accounts, ensuring procedural fairness. Limit vague justifications: Prohibit banks from using "reputational risk" as a catch-all excuse for terminations, mandating specific, evidence-based reasons. Ensure judicial recourse: Grant customers, especially those whose closures impact public interest, the right to challenge terminations in court. 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. BUSINESS REPORT
IOL News
23-05-2025
- Business
- IOL News
A 'glimmer of hope' towards transforming financial services landscape
Scores of protesters marched to the banking precinct in Sandton City, South Africa on April 29, 2021 demanding transformation of the financial services sector. Financial transformation has been undermined by discriminatory practices, insufficient regulatory oversight, and a lack of transparency and accountability, says the writer. Kim Heller It cannot be business as usual. Especially not in South Africa, the most unequal country in the world. If steered on the helm of transformation, fairness and transparency, South Africa's financial services sector could be a vital vessel of democracy helping to navigate the nation away from the deep-set patterns of economic marginalisation and financial inequality. On the horizon is the Conduct of Financial Institutions (COFI) Bill. With its sharp developmental thrust and strong accountability propellers, COFI provides a glimmer of hope for a fairer and more equitable financial services landscape. The Bill sets out a streamlined path to transformation as well as greater regulatory cohesion and accountability. It brings better alignment between the BBEE Act and the Financial Sector Code while enhancing the powers of the Financial Sector Conduct Authority (FSCA) to overturn discriminatory decisions and seek court orders. With a spanking new developmental deck that makes entry and participation easier, COFI could be an effective springboard for greater inclusion and participation. However, the history of failed financial legislation in South Africa serves as a stark reminder of how even the most solid policies can sink without rigorous implementation and oversight. For now, racial gulfs in financial participation and financial prosperity continue to shipwreck financial parity and sully forecasts for a more inclusive and equitable society. An oar of discrimination keeps marginalised South Africans economically stranded. Personal and business lending and investment remain unequal, with Black South Africans being less likely to be granted home loans or business financing than White South Africans. The lack of historical disadvantage and an empty pot of intergenerational wealth prejudices black South Africans in the banking and investment stakes. Disparities in access to capital, credit, and favourable bank rates perpetuate discrimination in democratic South Africa. Often labelled as more risky investments, black South Africans are prejudiced by the sector's policies and practices. The demon of de-banking continues to haunt politically exposed individuals. This is under the cloak of reputational management, and in the grim pall of poor transparency and impaired judicial oversight. The harmful practice of de-banking is a calculated financial attack on targeted individuals, in the ugly gambit of power and prejudice. The closure of accounts is seldom based on fiscal responsibility; instead, it often serves as a political weapon to suppress dissent and challenge power and patronage. De-banking has severely affected several prominent political figures and opinion makers who have opposed South Africa's elite transition. Black-owned businesses such as the Sekunjalo Group have become easy targets, while white-owned groups implicated in scandals, such as Steinhoff, have been treated with kid veil of "reputational risk" must be lifted to show the ugly silk of conspiracy that lies beneath. In the words of Dali Mpofu SC, "If banks can close your account without evidence, based on perception, then they are not just financial intermediaries—they are political actors." COFI will need to create transparency and full disclosure on why certain bank accounts are closed, while others are left to thrive. These freedoms are present in many countries worldwide. In the United Kingdom, banks are now mandated to give 3 months' notice and provide reasons for debanking. This followed massive civil society outrage after UK politician Nigel Farage's bank accounts were abruptly closed. In South Africa, the slate of prejudicial bank practices and the general lack of transparency and accountability has seen trust and credibility of the sector at an all-time low. Despite its potential, COFI must move beyond bureaucratic or technical compliance to become a genuinely transformative tool that fosters financial access, participation, and empowerment for marginalised individuals, organisations, and communities. COFI needs to be more than a seductive, refashioned compliance mechanism. If it fails to deal with the thorny issues of systemic exclusion, discrimination and debanking, it will lose its legitimacy and effectiveness and find itself relegated to the large body of legislation that has failed to see the light of day. Financial transformation has been undermined by discriminatory practices, insufficient regulatory oversight, and a lack of transparency and accountability. Successful implementation of COFI is dependent on vigilant monitoring and strong regulatory oversight. This is understood and addressed in the Bill. Previous legislation has struggled due to poor execution and insufficient regulatory authority. Until the industry regulators have the necessary authority to revoke discriminatory and politically motivated decisions and actions, they will remain toothless. A bow of regulation without the arrow of robust civil society support will fail to hit the transformation target. Without a supportive shield for those discriminated against, COFI will lack real potency. There is a real role to be played by civil society and financial activists. Civil society must act as a watchdog for financial consumers. The true measure of success for COFI will be its ability to make a meaningful difference in the lives of ordinary South Africans, particularly those who were financially marginalised during apartheid. This includes addressing the harmful effects of discriminatory financial practices that have led to the loss of assets and economic opportunities for these individuals. The Bill has yet to be enacted into law but is being prepared for Parliamentary review. It will herald in a new regulatory regime. It is time for the financial services sector to show a genuine commitment to transformation and transparency. Without a watermark of ethical acuity and social responsibility, the financial services sector will remain a palace of elite interests. And South Africa will continue to be a rich man's world. * Kim Heller is a political analyst and author of No White Lies: Black Politics and White Power in South Africa. ** The views expressed do not necessarily reflect the views of IOL, Independent Media or The African.
IOL News
22-05-2025
- Business
- IOL News
FSCA to publish findings on racial profiling allegations against banks
FSCA is set to publish the outcomes of an investigation into allegations of racial profiling and discriminatory practices by banks The Financial Sector Conduct Authority (FSCA) is set to publish the outcomes of an investigation into allegations of racial profiling and discriminatory practices by banks 'shortly'. This follows media coverage of the apparent issue as well as findings by the Zondo Commission that banks were participating in this practice. The FSCA indicated, in response to written questions on the progress being made with the Conduct of Financial Institutions (COFI) Bill, that it had investigated the issue. The FSCA said it has 'identified several areas for improvement in banks' processes, procedures and decision-making arrangements'. It noted that its review took place between 2022 and 2024. Its areas of improvement were identified even though it found no 'credible evidence supporting the allegations of intentional profiling and unlawfully discriminatory practices'.
IOL News
20-05-2025
- Business
- IOL News
Understanding the Conduct of Financial Institutions Bill: A new era for financial regulation
The long-awaited Conduct of Financial Institutions Bill – which is set to strengthen regulatory power over financial institutions – aims to bring digital money into its ambit. Image: IOL The long-awaited Conduct of Financial Institutions (COFI) Bill – which is set to strengthen regulatory power over financial institutions – aims to bring digital money into its ambit. The new law, which has been in the works for more than a decade, will finally be 'submitted to Cabinet shortly for approval for tabling in Parliament,' the Financial Conduct Authority (FSCA) said in response to written questions. However, over the past 10 years, FinTech has dramatically transformed financial services, moving from a disruptive force to a mainstream innovation. And it has advanced faster than the law – with technology set to always be at least one step ahead of regulations. FSCA Commissioner Unathi Kamlana is on record as saying that 'as the financial sector continues to evolve, so too must the regulatory framework that governs it. Improving industry practices is essential to ensuring that financial institutions consistently deliver fair customer outcomes, regardless of the models or channels used to provide financial products and services.' In stating this, Kamlana was speaking specifically about the COFI Bill. 'The COFI Bill represents a legislative response to these challenges, aiming to transform the regulatory landscape into one that is more outcome-focused and principles-based,' he said. Kamlana also said that the rise of FinTech, digital banking, artificial intelligence, digital assets, and decentralised finance are reshaping how financial services are delivered and accessed'. He noted that these advancements offer opportunities for growth and inclusion, but also pose challenges, such as cybersecurity threats, algorithmic biases, unethical AI-driven decisions, fraud and even financial exclusion, that regulators and industry leaders must address. In response to questions, the FSCA added that the Bill 'adopts a principle-based approach. In other words, it contains high-level principles that financial institutions must adhere to, to ensure the desired outcomes in the financial sector'. The story of the Bill is, in itself, a long and complex one. In 2013, the draft of the Financial Sector Regulation Bill was published for consultation, followed by the release of a discussion document outlining the draft market conduct framework used for stakeholder engagement. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ Ad Loading The Financial Sector Regulation Bill is closely related to COFI as they are both key components of South Africa's financial sector reform alongside the so-called 'Twin Peaks' legislation, which resulted in oversight of the financial sector being handled by two entities and not just one and was introduced in 2017. The FSCA was created in 2018 as a result of 'Twin Peaks'. As the FSCA explained on its website: 'The COFI Bill is a critical development that will shape the future conduct framework and many of the FSCA's current conduct regulatory framework projects have some dependency on the promulgation of the COFI Bill.' The Bill was approved by Cabinet for publication for public comment towards the end of December 2018 and published for public comment from a few days after that through to the start of April the following year. The FSCA explained that the next draft of the Bill was finalised and published on September 29, 2020, for a second round of public comments until the end of October that year. 'The Bill was revised to address comprehensive comments received from the public as well as from the State Law Advisers and resubmitted to the Office of the Chief State Law Advisers in December 2024. Once tabled in Parliament, the Bill will [be] published for public comment again by Parliament,' it said. The FSCA is not the only entity concerned with regulating the digital realm when it comes to financial services. In 2016, a FinTech Working Group was developed under the auspices of several regulators, including the South African Reserve Bank and FSCA, to 'work together as South African financial sector regulators to demystify the regulatory landscape, provide a space for safe experimentation and actively advance innovation'. It hasn't published any news since 2022 though, when it said its regulatory sandbox is open for applications. IOL
IOL News
19-05-2025
- Business
- IOL News
FSCA moves forward with COFI Bill as concerns mount over bank account terminations
According to the current regulatory frameworks, banks are obliged to notify customers and provide them with the opportunity to make representations before terminating their accounts. Image: Independent Media / Ron AI The Financial Sector Conduct Authority (FSCA) has confirmed that it is moving forward with the Conduct of Financial Institutions (COFI) Bill, which aims to provide a fair process for bank account closures. Following a series of delays that initially pushed the tabling of the Bill in Parliament to January, the FSCA announced on Monday that it is now set to submit the Bill to Cabinet for approval soon. In response to a list of questions from Business Report, the FSCA said the Bill adopts a principle-based approach, in other words, it contains high-level principles that financial institutions must adhere to, to ensure the desired outcomes in the financial sector. 'However, it reinforces and extends the principles of fairness for termination of financial products and services already contained in the Conduct Standard for Banks (2020). The Conduct Standard deals explicitly with bank account terminations, i.e. financial customers must have access to a fair process when products and services are terminated (this includes account closures),' said the FSCA. 'It falls short of explicitly prescribing a fair hearing, for various reasons, including that this would not be appropriate where there is suspicion of money laundering, terror financing and other criminal activity, and may actually conflict with other legislation that requires no notice.' Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ According to the current regulatory frameworks, banks are obliged to notify customers and provide them with the opportunity to make representations before terminating their accounts. In South Africa, the Supreme Court of Appeal in Bredenkamp v Standard Bank set the standard for the unilateral termination of the bank-customer relationship on the grounds of reputational risks. John Bredenkamp was a Zimbabwean-based business tycoon suspected of being involved in illicit business activities including tobacco trading, arms trafficking, oil distribution, and diamond extraction. The judgement sets out several principles South African banks have relied on when terminating relationships with their customers. According to the FSCA, the relevant provisions dealing with bank account closures in the Bill are contained in the Conduct Standard for Banks, published under the Financial Sector Regulation Act, 2017. The Conduct provides that banks must conduct their business in a manner that prioritises the fair treatment of their customers; adopt and implement processes and procedures relating to the withdrawal or termination of a financial product or financial service, including closure of a bank account. It also makes provision for reasonable notice of the intention to withdraw or terminate a financial product or financial service, including closure of a bank account by providing reasons for the proposed withdrawal, termination or closure, unless certain circumstances prevail. 'The Conduct Standard furthermore provides that contractual agreements with financial customers must make provisions for circumstances in which the contractual agreement may be terminated or withdrawn by the bank,' said the FSCA. 'This implies that the closure, termination or withdrawal of a financial product must be done as part of an agreed process enforcing contractual obligations and remediating breaches. The circumstances in which terminations may occur must be disclosed to the customer in the contract. 'Both the existing Conduct Standard and the proposed COFI Bill require a fair process for account closures. What constitutes 'fair' and whether this includes the right to be heard will depend on various circumstances that may not be best resolved through further regulatory amendments. 'Instead the FSCA is engaging with the sector to determine a more appropriate way of ensuring consistent understanding and application of 'fairness' based on various scenarios. This will be based on a review conducted by the FSCA of the sector's practices in this regard.' In 2022, lawmakers have hauled the FSCA over the coals about the lax manner in which they were treating the unilateral and arbitrary closure of bank accounts. In his final State Capture report, Chief Justice Raymond Zondo recommended that relevant existing legislation governing banks be amended to introduce a requirement of fairness or, if warranted, a new piece of legislation to be enacted to compel the banks to afford the client a proper opportunity to be heard before their accounts were closed. Visit:
