The recent development of the Conduct Standard for Banks by the Financial Sector Conduct Authority (“FSCA”) has introduced several new obligations on banks in the event that either the bank or the customer elect to terminate their relationship. This means that banks will need to make changes to their terms and conditions to remain compliant with the Conduct Standard.
Termination by a bank
Until now, banks have been able to terminate their relationship with a customer on reasonable notice and without providing reasons to the customer for the termination, provided that it is not unconstitutional or contrary to public policy.
However, the Conduct Standard requires a more stringent process before a bank can terminate its relationship with a customer:
- A bank is required to have a documented policy outlining the circumstances in which it will refuse to deal with a customer or terminate its relationship with the customer, as well as the process it will follow in deciding to refuse to deal with a customer or terminate its relationship with the customer.
- Where a bank terminates its relationship with a customer, it must give the customer reasonable notice of the intended cancellation, and it must provide the customer with reasons for the cancellation. In addition, where a bank decides that it will not enter into a relationship with a customer, it is, in most instances, obligated to provide the customer with reasons for this decision. This provides much-needed clarity, as the need for banks to provide reasoning behind these decisions was previously a point of debate in South African law.
- However, there are exceptions, and the bank is not under the obligation to provide reasonable notice and reasoning, if it is compelled by law to refuse to deal with a customer or terminate the customer's bank account or the bank has a reasonable suspicion that the financial product or financial service is being used for any illegal purpose and the bank has made the necessary reports to the appropriate authority.
- Banks are obligated to make provision for the types of circumstances in which a contractual agreement may be terminated. It may be argued that if, for example, a bank fails to expressly agree with a customer that it is entitled to terminate its relationship with the customer in circumstances where the customer poses a reputational risk to the bank, the bank is not entitled to terminate the agreement for such a reason. We therefore recommend that banks include a term in their agreements concluded with customers that entitles the bank to cancel if the bank believes that the customer poses reputational risk for the bank.
Termination by a customer
The Conduct Standard also imposes various obligations on banks where a customer elects to terminate their relationship with the bank:
- Banks must not impose unreasonable barriers where a customer requests to terminate their relationship with the bank, or to close or transfer a product or service to another bank.
- Banks must assist customers to close, terminate or transfer products or services to another bank when requested to do so.
- Contractual agreements with customers must make provision for the circumstances in which the contractual agreement can be terminated or closed by the customer.
- Banks must proactively disclose to customers the effects and implications of maintaining a dormant financial product, as opposed to closing or terminating the financial product.
- Banks must have processes and procedures in place to identify and notify customers of their dormant financial products, and what the customer's options are in relation to dormant products.
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