Navigating Reputational Risks: Cautionary Considerations for South African Banks in the Unilateral Termination of Bank-Customer Relationships
DOI:
https://doi.org/10.17159/1727-3781/2024/v27i0a16012Keywords:
Bank and customer relationship, reputation, reputational risk, constitutional values, equalityAbstract
Bredenkamp v Standard Bank of South Africa Ltd (SCA) and subsequent cases that followed this precedent exhibit that banks have the right to terminate the bank-customer relationship unilaterally. This right is usually entrenched in the contract between the bank and its customer and may also have its origin in an implied term of the contract. Some major banks in the Republic of South Africa have recently been under the spotlight for unilaterally terminating the bank-customer relationship with their customers (the Sekunjalo Group) based on reputational risks. It is alleged that in terminating the relationship, these banks unfairly discriminated against Sekunjalo Group, therefore asserting that the principle of reputational risk is not attributed similarly across customers of different racial groups. Whereas the paper does not intend to decide on such allegations of racial discrimination, the paper asserts that the unilateral termination of a bank-customer relationship is both a right and an obligation. The paper adopts a qualitative research approach in analysing the contractual nature of a bank-customer relationship, the common-law principles regarding the termination of the bank-customer relationship, and the developments in the application of the principle of reputational risk by South African banks and courts in the wake of the applications lodged by members of the Sekunjalo Group.
Downloads
References
Bibliography
Literature
Babiu-Hodoviu V, Mehiu E and Arslanagiu M "Influence of Banks' Corporate Reputation on Organisational Buyers Perceived Value" 2011 Procedia Social and Behavioral Sciences 351-360 DOI: https://doi.org/10.1016/j.sbspro.2011.09.063
Bissett B, Steenkamp P and Aslett D "An Analysis of the 2021 South African FATF Mutual Evaluation Report: Terrorist Financing and NPOs" 2023 JFC 1534-1548 DOI: https://doi.org/10.1108/JFC-11-2022-0265
Buckley RP and Nixon J "The Role of Reputation in Banking" 2009 JBFLP 37-50
Coleman TE "Reflecting on the Role and Impact of the Constitutional Value of uBuntu on the Concept of Contractual Freedom and Autonomy in South Africa" 2021 PELJ 1-68 DOI: https://doi.org/10.17159/1727-3781/2021/v24i0a8727
De Jager J "Much Ado about Nothing? Legal Principles on Money, Banks and their Clients after Joint Stock Company Varvarinskoye v ABSA Bank Ltd" 2010 SA Merc LJ 127-140
Du Toit S "Closing Bank Accounts: Recent Developments" 2018 Annual Banking Law Update 65-85
Eckert C "Corporate Reputation and Reputation Risk: Definition and Measurement from a (Risk) Management Perspective" 2017 Journal of Risk Finance 145-158 DOI: https://doi.org/10.1108/JRF-06-2016-0075
Ellinger EP, Lomnicka E and Hare C Ellinger's Modern Banking Law (Oxford University Press Oxford 2011)
Lubbe G "Taking Fundamental Rights Seriously: The Bill of Rights and its Implications for the Development of Contract Law" 2004 SALJ 395-423
Mthembu MA "Marriage of Convenience: Bank-Customer Relationship in the Age of the Internet: A South African Perspective" 2014 JICLT 14-23
Mupangavanhu Y "The Constitutionalisation of Contract Law in Light of the Public and Private Dichotomy in South Africa: An Analysis of Selected Cases" 2023 Speculum Juris 22-35
Nagel CJ and Pretorius JT "The Bank and Customer Relationship, Combination of Accounts and Set-off" 2016 THRHR 660-670
Nagel CJ et al Commercial Law (LexisNexis Durban 2019)
Naidoo A Termination of the Bank-Customer Relationship: Lessons from Minister of Finance v Oakbay Investments (LLM-dissertation University of Pretoria 2019)
Ngidi M "The Termination of the Bank-Client Relationship in South African Banking Law" 2020 De Jure 54-69 DOI: https://doi.org/10.17159/2225-7160/2020/v53a4
Rautenbach IM "Constitution and Contract: The Application of the Bill of Rights to Contractual Clauses and their Enforcement: Bredenkamp v Standard Bank of SA Ltd 2010 9 BCLR 892 (SCA)" 2011 THRHR 510-524
Schoeman HC et al (eds) An Introduction to South African Banking and Credit Law (LexisNexis Durban 2013)
Schulze WG "Depositum, Deposit and Deposit-Taking Institutions: Birds of a Feather? Not Quite" 2001 SA Merc LJ 78-95
Schulze WG "The Sources of South African Banking Law: A Twenty-First Century Perspective (Part I)" 2002 SA Merc LJ 438-461
Schulze WG "Financial Institutions" 2010 Annual Survey of South African Law 497-542
Schulze WG "The Bank's Right to Cancel the Contract Between It and Its Customer Unilaterally: Bredenkamp v Standard Bank of South Africa Ltd 2010 4 SA 468 (SCA)" 2011 Obiter 211-223
Schulze WG and Eiselen S "The Unilateral Termination by a Bank of the Bank–Client Agreement between It and Its Client" 2022 TSAR 828-838 DOI: https://doi.org/10.47348/TSAR/2022/i4a12
Schulze WG et al General Principles of Commercial Law (Juta Cape Town 2020)
Sharrock R et al The Law of Banking and Payment in South Africa (Juta Cape Town 2016)
Swanepoel E et al "Assessing Reputational Risk: A Four Point Matrix" 2017 Journal of Economic and Financial Sciences 313-337 DOI: https://doi.org/10.4102/jef.v10i2.19
Zaby S and Pohl M "The Management of Reputational Risks in Banks: Findings from Germany and Switzerland" 2019 SAGE Open 1-15 DOI: https://doi.org/10.1177/2158244019861479
Case law
AB v Pridwin Preparatory School 2020 5 SA 327 (CC)
Absa Bank Limited v Hanley 2014 2 SA 448 (SCA)
Africa Community Media (Pty) Ltd v Standard Bank of SA Ltd (EC08/2023) [2023] ZAWCHC 243 (14 September 2023)
Annex Distribution (Pty) Limited v Bank of Baroda (52590/2017) [2017] ZAGPPHC 639 (9 October 2017)
Annex Distribution (Pty) Limited v Bank of Baroda (52590/2017) [2018] ZAGPPHC 6 (12 March 2018)
Annex Distribution (Pty) Limited v Bank of Baroda 2018 1 SA 562 (GP) (21 September 2017)
Beadica 231 CC v Trustees for the time being of the Oregon Trust 2020 5 SA 247 (CC)
Bredenkamp v Standard Bank of South Africa Ltd 2010 4 SA 468 (SCA)
Bredenkamp v Standard Bank of South Africa Ltd 2009 6 SA 277 (GSJ)
Bredenkamp v Standard Bank of South Africa Ltd 2009 3 All SA 339 (GSJ)
DA Ungaro & Sons (Pty) Limited v Absa Bank Limited 2015 4 All SA 783 (GJ)
Di Giulio v First National Bank of South Africa Limited (A1080/2001) [2002] ZAWCHC 33 (19 June 2002)
FirstRand Bank Limited v The Spar Group Limited 2021 5 SA 511 (SCA)
Firstrand Bank Ltd v Kgethile (M370/2018) [2021] ZANWHC 63 (31 August 2021)
GPC Developments CC v Uys 2017 4 All SA 14 (WCC)
Hlongwane v Absa Bank Limited (75782/13) [2016] ZAGPPHC 938 (10 November 2016)
Mercantile Bank, A Division of Capitec Bank Limited v Survé 2023 3 CPLR 33 (CAC)
Minister of Finance v Oakbay Investments (Pty) Ltd; Oakbay Investments (Pty) Ltd v Director of the Financial Intelligence Centre 2018 3 SA 515 (GP)
Nedbank Limited v Survé 2024 1 All SA 615 (SCA)
Nedbank Limited v Houtbosplaas (Pty) Ltd 2022 6 SA 140 (SCA)
Plaaskem (Pty) Ltd v Nippon Africa Chemicals (Pty) Ltd 2014 5 SA 287 (SCA)
Spar Group Ltd v Firstrand Bank Ltd 2017 1 SA 449 (GP)
Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 4 All SA 128 (C)
Strydom v Nederduitse Gereformeerde Gemeente Moreleta Park 2009 30 ILJ 868 (EqC)
Survé v Nedbank Limited (698/2022) [2022] ZAWCHC 19 (14 February 2022) DOI: https://doi.org/10.17147/asu-1-233039
Survé v Nedbank Limited [2022] ZAWCHC 164 (17 June 2022)
Survé v Nedbank Ltd 2022 2 CPLR 38 (CT)
Talhado Fishing Enterprises (Pty) Ltd v Firstrand Bank Ltd t/a First National Bank (1104/2022) [2022] ZAECQBHC 15 (19 July 2022)
Legislation
Banks Act 94 of 1990 DOI: https://doi.org/10.1093/ajcp/94.4.445
Constitution of the Republic of South Africa, 1996
Financial Intelligence Centre Act 38 of 2001
Financial Sector Regulation Act 9 of 2017
Prevention and Combatting of Corrupt Activities Act 2 of 2004
Prevention of Organised Crime Act 121 of 1998
Promotion of Access to Information Act 2 of 2000
Government publications
GN 519 in GG 43741 of 29 September 2020 (Draft Conduct of Financial Institutions Bill, 2020)
GN R1029 in GG 35950 of 12 December 2012 (Regulations Relating to Banks)
Internet sources
Banking Association of South Africa 2012 The Code of Banking Practice https://www.banking.org.za/wp-content/uploads/2019/04/Code-of-Banking-Practice-2012.pdf accessed 28 March 2023
Basel Committee on Banking Supervision 2001 Customer Due Diligence for Banks https://www.bis.org/publ/bcbs85.pdf accessed 31 March 2024
Basel Committee on Banking Supervision 2012 Core Principles for Effective Banking Supervision https://www.bis.org/publ/bcbs230.pdf accessed 31 March 2024
Basel Committee on Banking Supervision 2016 Guidelines on Sound Management of Risks Related to Money Laundering and Terrorism Financing https://www.bis.org/bcbs/publ/d353.pdf accessed 31 March 2024
Basel Committee on Banking Supervision 2017 Guidelines: Identification and Management of Step-in Risk https://www.bis.org/bcbs/publ/d423.pdf accessed 31 March 2024
Bank for International Settlements 2018 Basel Committee Charter (Updated 2018) https://www.bis.org/bcbs/charter.htm accessed 31 March 2024
Financial Action Task Force date unknown Home https://www.fatf-gafi.org/en/home.html accessed 12 April 2023
FATF%20Recommendations%202012.pdf.coredownload.inline.pdf?ref=the-wave.net
Financial Action Task Force 2023 International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation: The FATF Recommendations (updated February 2023) https://www.fatf-gafi.org/content/dam/fatf-gafi/recommendations/FATF%20Recommendations%202012.pdf.coredownload.inline.pdf?ref=the-wave.net accessed 31 March 2024
Financial Sector Conduct Authority 2020 Conduct Standard 3 of 2020 (Banks) https://www.banking.org.za/wp-content/uploads/2020/07/Conduct-Standard-3-of-2020-BANKS-Annexure-A.pdf accessed 10 March 2023
Financial Sector Conduct Authority 2022 2023 FSCA 3-Year Regulation Plan https://www.fsca.co.za/Regulatory%20Frameworks/Regulatory%20Frameworks%20Documents/2023%20fsca%203-year%20regulation%20plan[v2].pdf accessed 2 February 2024
Financial Sector Conduct Authority 2022 Financial Sector Conduct Authority Anti-Money Laundering/Counter Financing of Terrorism Body of Knowledge https://www.fsca.co.za/Regulatory%20Frameworks/Temp/FSCA%20AML%20CFT%20Body%20of%20Knowledge%20-%20April%202022.pdf accessed 2 February 2024
IMF date unknown https://www.imf.org/en/About/Factsheets/IMF-at-a-Glance
International Monetary Fund date unknown IMF at a Glance https://www.imf.org/en/About/Factsheets/
International Monetary Fund date unknown The IMF and the Fight against Money Laundering and Terrorism Financing https://www.imf.org/
en/About/Factsheets/Sheets/2023/Fight-against-money-laundering-and-terrorism-financing accessed 13 April 2023
Ombudsman for Banking Services South Africa 2018 Bulletin 3: Closure of Bank Accounts https://www.obssa.co.za/wp-content/uploads/2018/02/
Ombudsman for Banking Services South Africa 2018 Consumer Note 14: Closure of Bank Accounts – Circumstances under which Banks Close Customers' Account https://www.obssa.co.za/wp-content/uploads/2018/02/CIN-14-Closure-of-Bank-Accounts-Final-February-2018.pdf accessed 28 March 2023
Planting S 2019 Out with the Secure Solution: Banks Phasing out Safety Deposit Boxes https://www.dailymaverick.co.za/article/2019-05-21-out-with-the-secure-solution-banks-phasing-out-safety-deposit-boxes/ accessed 24 January 2024
Published
Issue
Section
License
Copyright (c) 2024 Lisbeth Letsoalo
This work is licensed under a Creative Commons Attribution 4.0 International License.
.png){kind=spacer}