By Edmond Phiri

Following Chief Justice Zondo’s report on arbitrary bank account closures, the National Treasury responded with plans to amend financial sector legislation in line with his recommendations. Two years have passed since that announcement, yet there’s still no update on these amendments or clarity on how the legislation will treat previously closed accounts. Given this delay, one would expect banks to halt any further account closures until the legislative amendment by Treasury is finalised.

The unchecked weaponisation of "reputational risk" is gradually eroding economic participation and basic financial rights, and cannot continue to be ignored. Originally dismissed as isolated incidents, the arbitrary closure of bank accounts has grown into a disturbing trend, jeopardising the livelihoods of citizens and businesses alike. Sekunjalo Group, which contributes billions in taxes and employs thousands, stands as a prime example. Arbitrary bank account closures threaten to destabilise these jobs, affecting tens of thousands reliant on those companies for livelihood and income.

Currently, South Africa’s regulatory framework is caught in a grey area, leaving individuals and businesses exposed to financial and economic exclusion. This issue, long ignored by both the government and financial institutions, gained widespread attention in 2021 with the closure of Sekunjalo’s bank accounts. Almost 200 companies under the group were affected. Driven by an opaque “reputational risk” reason and reportedly influenced by negative media reports from rival media outlets, this decision highlighted the arbitrary power banks wield.

The Public Investment Corporation (PIC) inquiry, cited as justification, was later challenged by Judge Heath, who found flaws in the PIC/Mpati Commission’s report on Sekunjalo. The report is also under legal review in court. Yet banks have continued to close bank accounts, disregarding Judge Heath report, and the current court review.

Subsequent media reports surfaced of other leaders and businesspeople whose accounts were abruptly shut down without adequate explanation. Economic Freedom Fighters’ leader Julius Malema even revealed that his own son had been denied a bank account, further highlighting the indiscriminate nature of the bank account closures, and denial to open accounts.

The concept of "reputational risk" is at the heart of this crisis. The term’s vagueness allows it to be used as a catch-all for banks to evade transparency and accountability. Former Chief Justice Zondo was clear on the issue, calling for an overhaul of banking laws to ensure clients are given a chance to be heard before their accounts are unilaterally terminated. The Financial Sector Conduct Authority (FSCA) commissioner Unathi Kamlana backed this call, advocating for more defined criteria to prevent abuse. Recognising the issue, Treasury proposed new rules to curb arbitrary account closures.

National Treasury committed to strengthening regulatory and legal requirements to protect against arbitrary account terminations. Yet two years on, South Africa remains in limbo, waiting for the commitment to be fulfilled. The longer the delay, the more businesses and individuals are left in financial uncertainty, with livelihoods hanging by a thread.

The impact of these arbitrary closures goes far beyond individual accounts. Independent Media and Sekunjalo Group, for instance, faced significant operational disruptions, including the blemish of being called a “reputational risk”. Critics argued that negative media reports were driven by competitor media interests—a conflict that calls into question the fairness of the decisions by the banks. Treasury’s promise to engage with regulators and implement appropriate protections and guidance on bank account closures was meant to prevent such abuses. However, the lack of urgency to finalise legislation has allowed this loophole to grow, impacting businesses and individuals daily.

The UK provides a striking example of a speedy response. When Nigel Farage’s account was closed under similar pretences, a public outcry forced UK authorities to enact immediate protections against arbitrary closure of bank accounts. The contrast draws a spotlight on why has South Africa taken so long to act on what is, at its core, an issue of financial and economic inclusion, fairness and accountability?

The urgency to finalise the legislation cannot be overstated. Every day of legislative inertia compounds the risk of the economic impact—businesses paralysed, jobs obliterated, and investor confidence eroded. The failure to provide clear, enforceable rules and legislation has allowed banks to act as judge, jury, and executioner over the financial lives of citizens and businesses. These arbitrary closures don’t just affect bank accounts—they destabilise entire supply chains, force layoffs, and heighten unemployment, directly impacting the broader economy.

With economic stability closely tied to national security, South Africa cannot afford such self-inflicted wounds. The arbitrary closure of bank accounts is more than a domestic inconvenience or issue; it's a signal to the global community about the stability and fairness of our financial systems. It affects the perception of our investment climate.

Parliament must now act urgently. Protecting the economic participation rights of individuals and businesses is critical. It is part of fostering an inclusive financial ecosystem. The former Chief Justice acknowledged the problem, the National Treasury has acknowledged the problem, and Parliament must now deliver on its promise to ensure fairness and transparency in South Africa’s banking sector.

* Edmond Phiri is an independent writer, commentator and political analyst.

** The views expressed do not necessarily reflect the views of Independent Media or IOL.