The arbitrary closure of personal and corporate bank accounts by financial institutions, defined by the ugly euphemism “client de-banking”, is neither a new phenomenon nor rare.
The UK’s Financial Ombudsman Service received 1 389 complaints about closures of current accounts in 2022 and 2023 but could not provide information on the reasons behind the action. Bank account closures are a global phenomenon.
In 2021, for instance, Absa and FNB unilaterally terminated the bank accounts of all business enterprises linked to Sekunjalo Investment Holdings, a 100% broad-based BEE company, ostensibly to avoid reputational damage following allegations about Sekunjalo’s investments with the Public Investment Corporation, which the holding company robustly denied.
The arbitrariness belies the fact that it was made as a pre-emptive move without giving due process to any potential court proceedings, and the banks’ seeming moral inconsistency in their choice of corporate clients.
The Sekunjalo Group and its chairman, Dr Iqbal Survé, are embroiled in several legal cases against nine of South Africa’s largest transactional banks, whom he has accused of discriminatory practices against him and the companies in which he is involved.
In an interview with Business Report a few days ago, he lamented the “lack of transformation” in the country’s “monopolistic financial sector” and “lack of inclusivity” in the capital markets through appropriate financial instruments, especially those aimed at democratising access of black South African businessmen and entrepreneurs to finance and support.
The perception that banks are “a law unto themselves” is shared, in general, by several other key sectors of the economy, including government bureaucracies, financial services, airlines and other transport segments, and usually utilities – energy, water, telecoms, sewage, and so on.
Whether they are privatised or state-owned is immaterial.
Collectively, they exude a patriarchal sense of entitlement, often coupled with dysfunctional leadership in management, sometimes tempered by a breath-taking lapse of judgement, seeking refuge like scoundrels behind the law, rules of engagement, ineffective regulation and political expediency disguised as national interest, state security, corporate secrecy, undeclared protectionism, data protection under privacy laws, and even intellectual property considerations.
It makes a mockery of the adage that “the customer is always right”, because the odds are heavily stacked against them – the ecosystem, corporate architecture and culture is opaque and grossly inequitable.
When that customer is the supreme attention-seeker Nigel Farage, the apostle of Brexit, pushing back against Coutts Bank, the establishment private bank of the late Queen Elizabeth II, Russian oligarchs, Middle Eastern potentates and the global mega rich, where the minimum deposit to open an account is a measly £1 million (R23.6m), you are asking for it and in danger of being sucked into an unwinnable public spat over the unilateral closing of Farage’s bank account for reasons only Coutts were privy to.
The fact that Dame Allison Rose, the CEO of NatWest Bank, the owner of Coutts, was forced to resign after admitting that she breached client confidentiality, sacrosanct in banking secrecy, by leaking information to a BBC journalist that Farage’s account was closed because he is a politically exposed person and therefore a high risk customer, raises fundamental questions of how banks are regulated.
Ironically, Farage’s nemesis, anti-Brexit campaigner and businessperson Gina Miller also revealed a few days ago that her True and Fair Party account with Monzo, the digital bank, would be closed in September because it did not allow political party accounts and had made a mistake in allowing it to be opened, even though the account wasn’t originally categorised as a political party. In fact, several banks had turned down an application for her political party to open a bank account.
That banking is perceived as a “protected” pursuit partly because of the tax revenue it generates, the large number of people it employs, its large contribution to the gross domestic product and, let’s be frank, the political donations it makes to political parties, far outweigh the unacceptable shenanigans banks get up to.
From past and current evidence, these include money laundering; insider trading; profiteering, especially during times of high interest rates by failing or stalling to pass these on to savers; exorbitant profits, even during times of financial crisis and economic slowdowns; the massive bonuses and share handouts to senior executives; and even being rewarded for failure.
Of course, not all banks or bankers are unethical. Banks can be a force for good. Last year, for instance, according to UK Finance, bank and building society staff helped save customers millions of pounds by refusing to approve 11 643 transactions under the Banking Protocol whereby they are allowed, under specific circumstances, to go against customers’ wishes if they believe a transaction looks suspicious.
Transactions worth £55m were deemed fraudulent by police and staff, which led to the arrest of some 200 people.
But the irony and reality are that financial services (both banking and insurance – the so-called “invisibles”) is a highly political and potentially prejudicial profession. Throughout history, they have been empire builders, brutal colonialists, financiers of armies, land-grabbers and destroyers of the environment through massive exploitation of natural resources on the principle of “pollute and be damned”.
The reasons for arbitrary bank account closures differ from one jurisdiction to another but the underlying culture remains universal, given the nature of the beast.
In South Africa, banks get away with actions such as charging fees for a motley of services, including paying cash into accounts, which is taken for granted in the UK/EU, making it one of the most expensive in the world for a country emerging from apartheid and its associated financial exclusion.
Reforming banking and democratising access to capital markets cannot be achieved overnight. The metrics involved are huge and require all stakeholders to commit in unison.
This includes government policy, revised regulatory and supervisory frameworks, effective monitoring and enforcement, capacity building, human capital development, product innovation, active financial and social inclusion policies, market depth and competition, requisite capital and a management code of ethics. It has taken the conventional banking sector a few centuries to get to where it is today, warts and all.
Developing countries can ill-afford to wait that long.
Love him or hate him, Farage has forced the UK government to commit to legal reforms on the closure of customer accounts, which will include statutory requirements explaining why the account is being terminated, and customers given a 90-day termination notice to allow them time to challenge a decision through the Financial Ombudsman Service or to find a replacement bank – something which President Cyril Ramaphosa and Finance Minister Enoch Godongwana should try to emulate in South Africa.
Parker is an economist and writer in London
Cape Times