The Financial Sector Conduct Authority (FSCA) has told Parliament the lack of appropriate information and transparency on banking fees and customer ethics were areas of concern subject to an imminent report the regulator would release shortly on the banking sector as Parliamentarians went for the jugular with lack of transformation and apparent favouritism.
Before Parliament on Tuesday were leading banks, FNB, Nedbank, Standard Bank, Investec, and Capitec, as well as regulatory bodies including the SA Reserve Bank, Prudential Authority, the FSCA, and the Banking Association South Africa (Basa).
These banking participants said that while transformation was happening in the sector, significant gaps were identified in the evolution of the industry.
Parliament members sought clarity on several issues, including legislation regarding consumer protection that appeared to be inadequate, greylisting and what was being done about it as well as why the banks refused to give comprehensive reasons when they shut customer accounts.
Parliamentary standing committee on finance chairperson Joe Maswanganyi, said transformation within the financial sector is not merely an option but a constitutional and economic imperative.
“South Africa cannot afford a financial sector that excludes the majority outside the mainstream,” Maswanganyi said.
He also said findings presented to the committee by the BBBEE Commission in 2022 revealed concerning statistics regarding on-going racial disparities within the sector, specifically black ownership in the financial sector.
MK Party MP Brian Molefe said urgent intervention is required to prevent banks from arbitrarily closing the accounts of clients without providing any reasons, and that he is concerned over the lack of a formal adjudication body to oversee such closures, warning that the practice is irrational and arbitrary.
“Banks cite laws that aren’t even South African laws to justify their actions, yet no formal body exists to hold them accountable,” he said.
He further questioned the role of the Basa, arguing that the organisation has failed to ensure fairness and transparency within the sector.
Basa managing director Bongi Kunene told Parliament, “In 2023, the banking industry exceeded targets for voting rights and economic interests by black, black women and designated groups,” she said.
Kunene also said in terms of management, there was a strong pipeline of black senior and middle managers that had been developed by the banks.
Kunene also stated that, in terms of supplier development, the banks spent R1.8 billion, including R216 million on enterprise development and support for micro and small businesses.
Kunene said no member of Basa was found guilty in a court of law of systemic or institutionalised racism.
She indicated that BASA did not resolve customer complaints involving their members.
On the closure of bank accounts, Kunene said banks give reasonable prior notice before closing an account.
“That is done to provide customers with an opportunity to engage the bank and be heard.”
Kunene stated that banks have a right to close accounts to prevent accounts being used to commit criminal activities.
“They have to do so in a manner that complies with the law and respects the rights of customers.”
She also said banks have to comply with contract law, which was clear what they have to do if they refuse to establish or terminate an account.
FSCA Deputy Commissioners Katherine Gibson and Sindiswa Makhubalo said in the current economic landscape, societal norms indicated that there were a lot of vulnerable and disadvantaged customers and that inconsistencies around banking fees and the the lack of transparency on the levelling of charges were not understood by a large part of the market.
Gibson said there are inconsistencies in practices identified in the report which sets out a number of good practices and shortcomings that need to be implemented in the sector.
"From an FSCA perspective, irrespective of that right banks have to exercise in closing bank accounts, no right is absolute. It is the reason we have standard conduct for banks and it is the reason we are introducing stronger requirements in the conduct of financial institutions. Even if a bank was to exercise its contractual right to terminate an account, understanding the economic circumstances of vulnerable communities, the issues around challenges to banking accounts, it must be done in a fair and transparent manner,“ Gibson said.
She said the current regulations on banks were sufficient and that further engagement with the Parliamentary committee would address the issues raised without necessarily changing the regulations because the regulations are currently sufficient.
The FSCA said bank customers raising complaints with MPs in the constituencies were an indicator that the awareness of the Ombud institutions and the banks own internal processes for conflict resolution were not understood by the clientele. – With reporting by IOL
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