Navigating Reputational Risks: Cautionary Considerations for South African Banks in the Unilateral Termination of Bank-Customer Relationships

Bredenkamp v Standard Bank of South Africa Ltd 2010 4 SA 468 (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.


Introduction
South African courts consider reputational risks as grounds for the unilateral termination of the bank-customer relationship. 1This is justified when customers conducts themselves in a manner that presents possible risks to a bank's good name or business.Guided by statutory obligations, 2 commonlaw principles 3 and contractual rules, as will be unpacked below, banks have a right to terminate the relationship with a customer based on reputational risks, and case law suggests that courts should be reluctant to secondguess the decision. 4This is particularly so because the bank-customer relationship is contractual in nature, and parties can establish or terminate their relationship at will.Generally, the customer may terminate the contract summarily. 5However, the bank must give reasonable notice of termination in line with the In this context, where a bank opts to terminate the relationship unilaterally, case law suggests that it is within a bank's discretion to decide to what extent it will tolerate its reputation to be tarnished by allegations of illicit activities levelled against its customers, 9 whether or not the allegations have been proven truthful, and reasonableness does not play a role in exercising this discretion, except regarding the notice of termination.
The Supreme Court of Appeal (SCA) in Bredenkamp v Standard Bank of South Africa Ltd 10 (hereinafter Bredenkamp) set the standard for the unilateral termination of the bank-customer relationship on the grounds of reputational risks.The judgement sets out several principles South African banks have relied on when terminating relationships with their customers. 11ver the years these principles have been challenged in courts, where customers have instituted legal proceedings to prohibit banks from closing their accounts, requiring banks to keep accounts open against the banks' wishes, much of this happening against the backdrop of extensive media coverage and political turmoil. 12cently Dr Mohammed Iqbal Survé and members of the Sekunjalo Group of companies (hereinafter collectively referred to as the Sekunjalo Group) have been subject to litigation in the Equality Court, 13 the Competition Tribunal, 14 and the High Court 15 against several banks in South Africa to prevent them from closing their accounts and further to require the banks to instructions to close the relevant bank accounts, it has breached its obligations towards the customer (para 57 reinstate accounts that had already been closed at the time of the applications. 16Whereas the banks build their argument on reputational risks, Sekunjalo Group alleges that they are victims of racial discrimination as white-owned companies who are customers of the banks have been subject to extensive media coverage, posing reputational and business risks to the banks, and yet their contracts have not been terminated. 17 The paper intends to deliberate whether banks, relying on Bredenkamp, correctly enforce the right to terminate the bank-customer relationship unilaterally based on reputational risks.The paper establishes that for any bank, terminating the bank-customer relationship based on reputational risks is a right that falls squarely within the bank's discretion and is a regulatory obligation.The author intends to refrain from determining or arguing the merits of the case regarding the ongoing applications between the Sekunjalo Group and the relevant banking institutions.However, the author uses the issues in the applications to evaluate the principle of reputational risk as pronounced in Bredenkamp and further to demonstrate the extent to which banks apply the principle within the relevant legislative parameters.

The nature of the bank-customer relationship
The relationship between a bank and its customer, specifically the holder of a current account, must be viewed in terms of the general principles of the law of contract. 18However, due to the complex nature of the relationship, it is difficult to identify the type of contract under which the relationship may be classified.As a result the bank-customer relationship is often classified as a contract sui generis. 19The various descriptions that assume this characterisation are outlined in judicial authorities and literature.Fundamentally, the nature of the relationship is described as a "multifaceted" relationship founded in various contracts. 20De Jager states that it invariably involves various types of contracts such as mandate, loan for 16 Survé HC para 1; Survé EC paras 1-2; Survé CT para 3; Africa Community Media para 1.For ease of reference, Iqbal Survé and members of the Sekunjalo Group of companies are hereinafter collectively referred to as the "Sekunjalo Group".17 Survé EC para 21.One could relate this allegation to the fact that Bredenkamp is a white male.However, Sekunjalo Group base their argument on comparison with specific customers who are white-owned entities.The allegation implies that the principle of reputational risks and Bredenkamp are not enforced similarly across customers of different racial groups.consumption, depositum and deposit-taking, all of which include aspects of private law. 21 the one hand the nature of the contract has been pronounced by courts as a paradigm of a debtor-and-creditor relationship. 22The bank becomes the debtor as soon as the customer opens a bank account and deposits money into the bank account, and remains a debtor to the extent that the customer's bank account reflects a credit balance. 23However, where the account reflects a debit balance, the roles are reversed.An overdraft facility is but one example where the roles are reversed. 24The customer then becomes the debtor and the bank assumes the role of a creditor.
On the other hand the bank-customer relationship is based on a mandate in which the bank agrees to conduct one or more banking services on behalf of the customer. 25A correlative description is espoused by Schoeman et al, who opine that in as much as the customer instructs the bank to render certain banking services when required and the bank agrees to carry out such instructions, their ensuing consensus emanates from a contract of mandate. 26The SCA in Absa Bank Limited v Hanley equally held that whether the relationship relates to one or more of the services a bank performs for its customer, the agreement giving rise to these services is an agreement of mandate, since a bank undertaking to transfer funds on its customer's instructions acts as a mandatary. 27e nature of this relationship creates rights and duties for both parties.For instance, where a bank is mandated to effect a credit transfer, it must perform its mandate timeously, in good faith and without negligence.Under a contract of mandate the bank undertakes to execute all orders by the customer to effect a payment on condition that there are sufficient funds (or overdraft facilities) at the customer's disposal. 28A reciprocal duty is imposed on a customer not to draw more than the amount standing to his or her credit balance or, where available, an overdraft facility limit.further places a duty on the customer to draw his payment instructions with reasonable care to prevent forgery or alteration and to warn the bank of known or suspected fraud arising from this relationship. 29wever, other salient features of the bank-customer relationship have been subject to concentrated discussions.The one description that has not been accepted is that the contract in the present day resembles that of a depositum, or agency.Authors such as Schulze, 30 De Jager 31 and Mthembu 32 distinguish and depict the possible relations between a contract of depositum, mutuum (a loan for consumption) and deposit-taking.A contract of depositum shares similar features to that of mutuum in that a depositor deposits money with a depository in exchange for an undertaking on the part of the depository that the same sum of money will be returned. 33owever, these contracts differ in that with depositum, the contract is gratuitous in nature and entails the safe custody of an object in the interest of the depositor. 34th mutuum, the parties agree that when money is deposited with the bank, it is deposited in the bank's interest, and the bank can utilise it.The client exchanges the ownership of the money for a personal right. 35lthough Schulze opines that banks occasionally conclude contracts of depositum with their customers, as of 2019 it appears that prominent South African banks have ceased to offer safe deposit boxes (as a feature of depositum). 36It seems therefore that the nature of the bank-customer relationship is predominantly accepted to be that of mutuum and not depositum.

The unilateral termination of the bank-customer relationship
The ordinary rules relating to the termination of a contract often relate to termination on agreement or consent, by notice of termination, the death or dissolution of the customer, the sequestration of the customer, the insanity of the customer, the dissolution of the bank, and the effluxion of time (in the case of a fixed deposit). 37The focus of this paper is on termination by notice.party to the contract.The duration and termination of an agreement are primarily determined by establishing whether there are any explicit contractual grounds, including voluntary termination, on which the parties can depend. 38Their grounds typically lie in the lex commissoria, 39 or in an implied term of the agreement.
An implied term is one implied by law in a contract of a particular nature, 40 unless expressly excluded by the parties.It has the effect that where the parties have not included a cancellation clause in their agreement, the contract can be interpreted to include an implied term.Plaaskem (Pty) Ltd v Nippon Africa Chemicals (Pty) Ltd 41 identifies four notable factors to consider to determine whether the parties wish for either party to terminate the relationship on notice.These include the wording of the contract, 42 the intention of the parties, 43 the nature of the contract, 44 and the surrounding circumstances of the contract. 45Notably, in the absence of a cancellation clause the party who wishes to cancel the agreement obtains a right to cancel the contract if the breach of contract is profound in that it goes to the root of the contract or relates to an essential term of the contract. 46e prerogative is rooted in the essence of a contract of mandate, which incorporates the duty not to cause damage to the other party. 47Therefore, where a customer conducts his or her business in a way that poses operational and business risks to the bank, the latter can validly argue that the customer has breached this duty, which conduct would possibly satisfy the test of seriousness and allow the bank to cancel the contract unilaterally, in the absence of a lex commissoria. 48An implied term can be read into the contract because it cannot be concluded that the parties intend to be bound in perpetuity, especially against the will of either of the parties.Therefore, where the parties have not inserted an express cancellation clause in the contractual agreement, the parties are not precluded from unilaterally terminating the agreement.The contractual nature of the agreement between a bank and its customer allows the bank to do so and requires the customer to be served with reasonable notice of termination.
On the contrary, a customer may terminate the relationship summarily, 50 without serving the bank with notice prior to the termination. 51Whereas several reasons can inform the unilateral termination of the relationship, the author draws explicit attention to reputational risk as grounds for termination.

The influence of Bredenkamp on the closure of bank accounts
Bredenkamp confirmed the common-law position on the unilateral termination of the bank-customer relationship.Bredenkamp was listed as a "specially designated national" by the United States Department of Treasury's Office of Foreign Asset Control on 25 November 2008. 52The listing was based on Bredenkamp's relation with the then President of Zimbabwe, President Robert Mugabe, and allegations that he had provided financial and logistical support to the regime that has enabled the former President to pursue policies that undermined democratic processes and institutions in Zimbabwe. 53 addition Bredenkamp was allegedly involved in various illicit business activities, including tobacco trading, grey-market arms trading and trafficking, equity investments, oil distribution and diamond extraction. 54The bank's concern was that if it were to retain Bredenkamp as a customer, domestic and foreign onlookers might reasonably believe that the accounts Bredenkamp held at Standard Bank could be used to facilitate the unlawful activities, and its association might well undermine a bank's hard-won and fragile national and international reputation. 55Upon receiving the notice of termination Bredenkamp lodged an application for an interim interdict to prevent Standard Bank from closing his bank accounts.The court a quo granted an interim interdict in favour of Bredenkamp despite a lex commissoria regulating the termination of the relationship. 57According to the court Standard Bank's decision to terminate its relationship with Bredenkamp was unreasonable, unfair, not in line with constitutional values and guidelines, and based squarely on perceptions and not on facts, which perceptions might be wrong. 58 the main application the bank held that the lex commissoria was not contrary to any constitutional values and that a bank has the right to terminate the bank-customer relationship unilaterally. 59This was because a bank has obligations to comply with national and international regulations, failing which there are serious legal consequences for a bank. 60 appeal the question before the SCA was whether the Bank had good cause to close Bredenkamp's accounts. 61In dismissing the application, the SCA held that the bank had a valid contract that gave it the right to cancel, which right had been exercised in a bona fide manner. 62The court held that the termination did not offend any identifiable constitutional value and was not contrary to any other public policy consideration. 63Bredenkamp's cancellation was based purely on the fact of the listing and the possible reputational and commercial consequences of the listing for the Bank. 64edenkamp has been applied in the following selected cases wherein customers were allegedly party to illicit activities with potential impact on the reputation of banks.

Annex Distribution v Bank of Baroda 65
Annex Distribution v Bank of Baroda (hereinafter Annex Distribution) consists of three judgements.In the first application for an interim interdict, the court highlighted the dictum from Bredenkamp that the relationship between a bank and its customer is contractual, and therefore a bank is at liberty to terminate its relationship with its customer 66 amid adverse media publicity if the bank believed it to be a risk to and detrimental to its business. 67However, the second judgement took a different stance.The court was not convinced that the potential harm to the bank's reputation had been substantiated, and as a result interdicted the bank from closing the account and terminating the bank-customer relationship. 68 the final decision 69 the court held that since the bank had terminated its operations in South Africa, the bank could not be expected to service the customer's account. 70The court found the bank to have every right to terminate any business contract, including that of Annex Distribution. 71The court concluded that the bank's right to trade or not to trade supersedes whatever right, if any, the customer might have, and as a result dismissed the application. 72

Minister of Finance v Oakbay Investments (Pty) Ltd
The Gauteng High Court in Minister of Finance v Oakbay Investments (Pty) Ltd and Others (hereinafter Oakbay Investments) with reference to Bredenkamp confirmed that the bank may terminate its relationship with a customer at its discretion on reasonable notice to the customer, provided that the reasons for terminating the account do not violate public policy or constitutional values. 73Except for such acknowledgement by the court, the decision does not provide development in this area.The application was based on the Financial Intelligence Centre Act 74 (FIC Act) and not on the Constitution and sought to enforce a constitutional right to access to information, in respect of which Oakbay Investments 75 sought to access information that formed the basis of the reports submitted by their banks to the Financial Intelligence Centre (FIC) in order to allow Oakbay Investments to rebut the allegations in the reports or to repel the cloud of impropriety the reports cast on them. 76

Hlongwane v Absa Bank Limited
Hlongwane v Absa Bank Limited brought an application to access records relating to ABSA's decision to close Hlongwane's accounts. 77The court dismissed the application and held that the bank's bona fides in closing accounts could not be questioned. 78The Court recognised that the bank had no obligation to retain a client whose monitoring in terms of money laundering measures would be more onerous than the benefit the bank would receive from banking the client. 79

Survé v Nedbank
This heading encompasses a discussion of the seven applications that have been adjudicated in different courts.At the time of writing, the main applications before the Equality Court and the High Court are still pending.
The matter between the Sekunjalo Group and various South African banks involves the application of the Constitution, particularly section 9, due to the nature of the allegations levelled against the banks by the Sekunjalo Group, which alleges that its banks racially discriminated against it since the principle of reputational risk was not being enforced on the Group in the same manner as it had previously been enforced in respect of white-owned customers of the same banks.
The banks used Bredenkamp as authority when terminating their relationship with members of the Sekunjalo Group.Like Bredenkamp, the Sekunjalo Group's reputation has been tarnished by allegations of impropriety in several controversial media reports.Although these allegations have not been proven truthful, the case law discussed herein exhibits that it is insignificant. 80r the sake of brevity, a reflection on the decisions in these applications is provided herein.In Survé v Nedbank an application for an interim interdict was lodged by forty-three members of the Sekunjalo Group of companies. 81he court dismissed the application based on its lack of jurisdiction.However, the court made an obiter dictum that the SCA's decision in Bredenkamp loomed large in most matters involving the termination of a bank-customer relationship and, as such, should not be used uncritically or applied mechanically to any bank-client relationship. 82As opined by Schulze and Eiselen, these comments should not be interpreted to mean that the correctness of Bredenkamp is being questioned. 83 However, the SCA recently set aside this order in Nedbank v Survé.The SCA held that Sekunjalo Group had not established a prima facie case of racial discrimination, so the Equality Court should not have granted an interim interdict in the first place. 86The court remarked that if Sekunjalo Group were to breach the terms of the banker-customer contract, the Equality Court order would prohibit Nedbank from exercising its contractual right to terminate the relationship. 87 16 September 2022 the Competition Tribunal granted an interdict in favour of Sekunjalo Group in Survé v Nedbank Ltd, preventing eight banks from closing the accounts of Sekunjalo Group and requiring the banks to reopen accounts already closed.The application before the Tribunal was based on allegations of collusion between the banks. 88The Tribunal found the banks to have acted in coordination with one another and acted unilaterally as dominant firms to abuse their dominant position. 89The decision by the Tribunal was set aside by the Competition Appeal Court (CAC) with respect to three of the eight banks in Mercantile Bank, a Division of Capitec Bank Limited v Survé.
The CAC found that the Tribunal had drawn an inference of anticompetitive practice and rejected the banks' regulatory compliance justification. 90On 7 August 2023 Sekunjalo Group applied for leave to appeal the CAC order in the Constitutional Court, which proceedings are still pending. 91 19 July 2022 the court in Talhado Fishing Enterprises (Pty) Ltd v Firstrand Bank Ltd t/a First National Bank 92 held that it is unfair to impose upon a bank the obligation to retain a customer simply because other banks are not likely to accept that entity as a customer. 93In justifying the finding that the bank had good cause to close the accounts, the court held that it had a valid contract that gave it the right to cancel. 94Considering that Sekunjalo Group posed reputational and business risks, the bank had exercised this right in a bona fide manner. 95For this reason the court dismissed the application for an interdict. 96stly interdict to prevent the bank from closing their accounts pending the finalisation of the main applications in the High Court and the Equality Court.
The court held that the interests of justice instead call for an interim interdict of a more limited duration, in respect of which the parties could approach the court again for an extension or discharge upon good cause shown. 97 3 Reputational risk as a ground for termination of the bankcustomer relationship Definitions of reputational risk focus primarily on social cognition such as beliefs, impressions, knowledge and perceptions. 98Eckert describes the most commonly accepted definition of corporate reputation as: The perceptual representation of a company's past actions and future prospects that describes the firm's overall appeal to all of its key constituents when compared with other leading rivals. 99e Basel Committee on Banking Supervision (BCBS) 100 also defines reputational risk as: The risk arising from negative perceptions on the part of customers, counterparties, shareholders, investors, debt-holders, market analysts, and other relevant parties or regulators that can adversely affect a bank's ability to maintain existing or establish new business relationships and continued access to sources of funding (e.g. through the interbank or securitisation markets). 101cording to these definitions, two types of reputational risk can be deduced in the context of this discussion.One attaches to the customer's name and one attaches to the bank.In this context the reputation of the customer, especially one who is engaged or alleged to be engaged in illicit financial activities, can impact on the bank's reputation if it can easily be alleged or proved that the bank was used as a vehicle to conduct such transgressions.Furthermore, failure by the bank to minimise this risk can impact on the bank's reputation if it keeps such a customer and fails to comply with its legislative and regulatory obligations to combat such transgressions.
Likewise Zaby and Pohl 102 observe that reputation pertains to the bank's competence, integrity and trustworthiness, and that a reputation results from the perception of the group of stakeholders of a bank (i.shareholders, external creditors, employees, business partners, competitors; members of the financial community such as rating agencies, analysts, and fund managers; government and regulatory authorities; interest groups, e.g., consumer associations; and the social environment). 103The reputation of banks is significant because it influences the relationships that banks maintain with their customers and the costs that banks are willing to incur to maintain those relationships. 104e unilateral termination of the bank-customer relationship based on reputational risks is both a right 105 and an obligation. 106On the one hand it affords the contracting parties the right to terminate the agreement where the contractual relationship with either may negatively influence the other party's reputation.This affords a bank the right to choose its customers, to identify the risks the customer exposes it to, and to determine whether these risks justify refusing to offer banking products and services to a potential customer or terminating a relationship with that customer.On the other hand, against the backdrop of exercising the right to terminate the relationship based on reputational risk lies the obligation imposed on banks to implement and apply risk management measures.
Swanepoel et al argue that managing a company's reputation and reputational risk should be part of an effective risk management strategy and process. 107In terms of international banking standards and domestic laws, banks are ethically and legally bound to prevent financial crimes, which include inter alia illicit transactions, money laundering, terrorism financing and corruption. 108Disassociation with a customer whose conduct could harm a bank's reputation is an appropriate tool to comply with these regulatory obligations to the extent set out in paragraph five below.This was observed in Bredenkamp and subsequent cases discussed herein.Reliance on Bredenkamp does not imply that banks cannot be held accountable when they act against the relevant rules and constitutional values.This paper does not focus on such values, but the author briefly considers these in the next section of the paper.The obligation is informed by the fact that assessing a bank's reputation is part of the risk management strategies that individual banks have adopted, as outlined in para 5 below.

The consideration of constitutional values and obligations
South African courts have over the years pronounced on the application of the Constitution of the Republic of South Africa to the law of contracts, 109 which influence scholars have also explored. 110All laws in South Africa, including the law of contract, are subject to the Constitution, and any law that is found inconsistent with it is invalid. 111Mupangavanhu states that exercising private power in a banking relationship may lead to a clash between private law and the Constitution. 112These are instances such as the dispute between the Sekunjalo Group and its various banks.
As stated above, 113 in the case of the Sekunjalo Group section 9 of the Constitution comes into play because the banks are accused of discrimination on racial grounds.As pointed out, the Sekunjalo Group alleges that their banks have been selective in the action taken against companies that are "white-dominant businesses", such as the Steinhoff Group, EOH Limited and the Tongaat-Hulett Group, whose accounts have not been terminated despite having been found guilty of fraud and various other offences. 114The inference drawn from these allegations is that the banks are infringing on the Group's constitutional right to equality.
In Bredenkamp the SCA held that the Constitution did not introduce an overarching requirement of fairness into the law of contracts, but fairness and reasonableness play a role when public policy considerations are implicated in the Constitution. 115This means that banks' practices when terminating relationships ought to be measured against constitutional values, especially where constitutional values are implicated.The Constitution prescribes standards such as human dignity, equality and freedom as fundamental values against which the conduct of banks must be measured, including at the termination of a relationship. 116 aptly argued by Mupangavanhu, in instances where the power to terminate the banking relationship infringes on constitutional rights such as the right to equality, public policy considerations will not favour the The legal ground for termination is evidenced in Bredenkamp, and the termination must be justified from a factual point of view.The factual analysis determines reputational risk as a lawful ground for termination.Equally, it is necessary to note that banks' contractual autonomy is informed by freedom of association 119 in that banks are free to associate or disassociate with a customer.It would be difficult to force a bank to retain a customer against its will.It is difficult to imagine how the Equality Court would rule in favour of the Sekunjalo Group without impeding a bank's freedom to contract and freedom of association.Proving discrimination in this context will be challenging for the Sekunjalo group, considering that the legislative requirements as outlined below impose on banks the obligation to enforce risk assessment measures and ultimately to terminate the relationship with the customer where necessary.

International standards
South Africa has adopted international standards issued by international bodies such as the BCBS, the Financial Action Task Force (FATF), 120  The FATF is primarily responsible for issuing anti-money laundering and counter-terrorism financing standards aimed at promoting the effective implementation of legal, regulatory and operational measures for combatting money laundering, terrorist financing, the financing of proliferation and other related threats to the integrity of the international financial system. 126The FATF works closely with the IMF, the United Nations and the World Bank Group to assess countries' compliance with international anti-money laundering and counter-terrorism financing standards. 127Non-compliance with these standards has consequences such as greylisting, with implications such as a loss of investments, international relations and increased costs in international transactions.128

Banks Act
Section 60B of the Banks Act obliges banks to establish and maintain an adequate and effective corporate governance process consistent with the nature, complexity and risks inherent in the activities and the business of the bank.Banks do this to ensure compliance with all applicable laws and 121 The International Monetary Fund (IMF) is an intergovernmental institutional body that fosters international monetary cooperation, encouraging the expansion of trade and economic growth across member countries.See IMF date unknown https://www.imf.org/en/About/Factsheets/IMF-at-a-Glance.regulations. 129Risk management and compliance are among the essential elements of corporate governance.Empowered by section 90 of the Banks Act, the Minister has promulgated Regulations Relating to Banks that oblige banks to consider reputational risk in their risk management strategies. 130egulation 39(3) provides explicitly that the conduct of the business of a bank entails the ongoing management of risks, which may arise from the bank's on-balance sheet or off-balance sheet activities and which may include, among other things, risks such as the detection and prevention of criminal activities, 131 reputational risk, 132 risk arising from exposure to a related person, 133 and any other risk regarded as material by the bank. 134gulation 50 of the Regulations Relating to Banks further requires that every bank must have in place robust structures, policies, processes and procedures to guard against the bank's being used for the purposes of market abuse such as insider trading, market manipulation, and financial crimes such as fraud, the financing of terrorist activities and money laundering.135 These structures, policies, processes, and procedures must ensure continued compliance with all relevant legislation, must be capable of recognising suspicious customers and transactions, and must lead to reporting such suspicions.136

Financial Intelligence Centre Act
The cases discussed herein show that banks consider their obligations under the FIC Act when terminating relationships with customers based on reputational risks.The FIC Act obliges banks as "accountable institutions" to employ measures to detect and combat financial crimes, specifically money laundering, and to report suspicious and unusual transactions. 137hese measures are employed through various means, including continuous vigilance through the "customer due diligence" programme, which extends to the protection of the financial sector. 138Through this programme, banks are obliged to establish and verify the identities of their customers, 139 to obtain additional information to establish the nature of the customer's business, the intended purpose of the business and the ownership structure of the business, to verify the source of the funds deposited in the customer's account, and to identify the risks associated with the customer. 140nks do this to prevent or minimise the risks of being used as a vehicle for financial crimes.Upon determining that the customer's misconduct poses a reputational risk to the bank, amongst other measures such as reporting the conduct to the FIC, banks are obliged in certain circumstances to terminate the bank-customer relationship. 141Where a financial institution fails to comply with the provisions of the FIC Act or the risk management and compliance programme, the FIC may impose administrative sanctions on the institution or in some instances may find the relevant person guilty of an offence 142 and liable to imprisonment for a period not exceeding 15 years or a fine not exceeding R100 million. 143

Financial Sector Regulation Act
With the Twin Peaks model of regulation in place since the enactment of the Financial Sector Regulation Act (FSR Act), 144 the Financial Sector Conduct Authority (FSCA) 145 has been given the explicit mandate under the FSR Act to regulate and supervise the conduct of financial institutions such as banks and cooperate with other entities such as the Prudential Authority and the FIC. 146The powers and functions of the FSCA extend beyond those regulated under the FSR Act.The FIC Act establishes the FSCA as a supervisory body in terms of item 1 of Schedule 2 to the FIC Act. 147The FSCA supervises accountable institutions listed in items 4, 5 and 12 of Schedule 1 to the FIC Act for FIC Act compliance. 148The FSCA performs onsite and offsite inspections and engages in supervisory activities at accountable institutions to test compliance with the obligations of the FIC Act, and takes enforcement measures against accountable institutions that fail to comply with the FIC Act.The other objective of the FSCA is to promote the fair treatment of financial customers by financial institutions, 150 and to issue conduct standards that are aimed at ensuring that this objective is achieved. 151The Conduct Standard issued by the FSCA in 2020 152 prescribes how banks must conduct their business.It provides in the relevant part that a bank must conduct its business in a manner that prioritises the fair treatment of financial customers. 153Fair treatment should be apparent in other areas of the bank-customer relationship, such as the bank's refusal, withdrawal, or closure of financial products or services.
Section 9 of the Conduct Standard requires banks to, subject to applicable requirements, document, adapt and implement processes and procedures relating to the withdrawal, termination or closure of a financial product or service, amongst other things, in respect of one or more financial customers. 154This induces a bank to issue a policy document outlining the circumstances in which it will refuse to deal with a customer or terminate its relationship with the customer and the process it will follow in deciding to refuse to deal with a customer or to terminate its relationship with the customer. 155ainst this backdrop, the contract would contain a lex commissoria establishing the circumstances in which the contract would be terminated.This subjects banks to regulatory oversight to ensure that when they terminate the bank-customer relationship, they do so in a manner that conforms to the contractual terms and its regulatory obligations.

Conduct of Financial Institutions Bill
The National Treasury has also tabled the second draft of the Conduct of Financial Institutions Bill 156 (CoFI Bill), which is set to enhance market conduct regulation and ensure that consumers are treated fairly in the financial sector. 157The Bill states that banks should, "after" the point of contracting a customer, continue to promote the fair treatment of the customer, including when the contract is terminated and after the contract has been terminated. 158Furthermore, a financial institution may terminate the contractual relationship between the financial institution and a financial customer only in a fair manner and in accordance with any procedures and requirements that may be prescribed. 159

Code of Banking Practice
The Code of Banking Practice also influences the bank-customer relationship for those banks that have adopted the Code in their business practices.Although the Code is voluntary and not applicable to all banks in South Africa or enforced in a court of law, it was issued due to the perception that banks in South Africa have taken advantage of smaller customers.This is not to suggest that members of the Bredenkamp, Annex Distribution, Oakbay Investments, Hlongwane and Sekunjalo Group are small customers.Of significance is the fact that the Code requires that banks who have agreed to be bound by the Code undertake to act fairly, reasonably and ethically towards customers. 160ir, reasonable and ethical conduct could be demonstrated even when banks terminate the bank-customer relationship.Under the Code, banks undertake to provide customers with reasonable notice of the termination. 161dditionally, banks reserve the right to unilaterally terminate the relationship where they are compelled to do so by law (or by international best practice), if customers have not used their accounts for a significant period of time, or if the bank has reasons to believe that the account is being used for any illegal purposes. 162

Analysis
It is evident from this discussion that the bank-customer relationship is not only informed by the private contract between the bank and its customer but is also subject to the international standards and domestic laws discussed above.These regulatory instruments impose the obligation on banks to prevent inter alia financial crimes, including fraud, theft, money laundering and corruption. 163These instruments exhibit that banks are under an obligation not to engage in or permit unlawful transactions under their watch. 164This means that banks must take steps to monitor and report on the conduct of their customers, failing which there are sanctions to be imposed.
Banks do indeed have the freedom to contract, which allows them to choose with whom to contract, under which terms and when to end the relationship.
Legislative measures and other measures, including the common law and soft law, determine the extent to which this freedom may be exercised.Furthermore case law as discussed above clearly depicts the circumstances under which banks are justified in exercising their freedom to contract, specifically when terminating the relationship with customers based on reputational risks.Economic reasons (including regulatory obligations) generally influence the closure of bank accounts based on reputational risks.The circumstances in Bredenkamp and subsequent cases are typical of such reasons, as banks cannot be seen as tools enabling money laundering or as financing terrorism.
Mechanisms to assess reputational risk include, amongst others, assessing who the customers are, their source of funds, and the possible risks they pose to a bank's business.The likelihood that a client's misconduct can be detrimental to a bank's business, particularly where the customer is alleged to be engaged in a publicly known financial misconduct in which the bank may be suspected to be implicit, is enough to give rise to the assumption that the bank's reputation is at risk.It is also enough to lead to the conclusion that the customer has breached the contract.AGAIN Bredenkamp, Annex Distributions, Oakbay Investments, Hlongwane and the Sekunjalo Group were not convicted of any financial crimes.Their accounts were closed on the basis of their banks' assessment of their reputation.
Furthermore, a customer's conduct is not the only factor to consider during risk assessments, although the literature and case law have focussed on customers' conduct as the main risk to a bank's reputation in combatting financial crimes.The BCBS correctly defined reputational risk as encompassing negative perception not only on the part of customers but also on the part of shareholders and other relevant parties or regulators. 165anks should also assess the practices of their clients and their possible influence and impact on their business, particularly in regard to compliance with the banking laws.There are regulatory sanctions for non-compliance.However, non-compliance with regulatory requirements can also pose a risk to a bank's good name and business.
Nonetheless, there should be constitutional considerations.a contract, and public policy, which are also central to the Constitution. 166If a constitutional right is infringed, a bank would be wrong to terminate the relationship irrespective of its freedom to contract.
A good reputation is central to a bank's business.Reputation helps customers to decide in situations where they cannot assess the quality of what they are buying before buying it. 167Eckert identifies reputational risk (from an insurance perspective) as the risk that adverse that will most readily cause a loss of confidence in an institution's integrity. 168Therefore, banks should be cautious not to be associated with allegations of racial discrimination or the infringement of any other constitutional rights; otherwise, efforts to protect their reputation will be futile.The termination of a banking relationship must be on reasonable notice, not contrary to public policy, and must not offend constitutional values.

Conclusion
To sum up, the terms of a contract establishing the bank-customer relationship usually determine how the relationship can be terminated.However, where a contract does not contain a termination clause, common law provides that the relationship can be terminated on reasonable notice.
Bredenkamp developed an important rule regarding the termination of the bank-customer relationship.Subsequent cases that have relied on Bredenkamp upheld a bank's right to close accounts on the basis that the agreement that establishes the relationship constitutes a contract like any other and that the general rules of contractual interpretation apply. 169This means that banks have a right to choose with whom to contract, and a contract cannot continue against the will of either of the contracting parties.
Although the contract between a bank and its customer is private, the conduct of banks is publicly monitored locally and internationally.Protecting banks' reputations entails severing ties with customers whose reputations pose a risk to the business of the banks, and ensuring that the conduct of banks conforms to legislative and regulatory instruments, as highlighted above.
Whereas it is accepted that the ordinary rules of contract govern the relationship between a bank and its customer, the relationship is also governed by constitutional law in that compliance with the Constitution is a prerequisite.The court in Oakbay Investments expressed an opinion on the influence of the Constitution on the termination of a bank-customer relationship, stating that the termination should not infringe on public policy or constitutional values.However, one can only wait in anticipation of the development once the main applications involving the Sekunjalo Group that are pending before the Equality Court and the High Court are adjudicated.
Whereas Bredenkamp states that banks have a right to terminate their relationship with customers, emerging legal disputes argue that banks apply these principles loosely.Therefore, guidance must be provided, not just in the decisions in the pending cases but also with the introduction of the CoFI Bill, to ensure that the rights and obligations of banks are promoted and that consumers' rights are protected at all stages of the bank-customer relationship.
To achieve this end, "reputational risks" should be clearly defined in contracts between banks and their customers, and the procedures relating to the termination on these grounds should be clearly outlined.This could induce banks to enforce this right equally against their customers and curb "unintended" infringements of constitutional rights.Therefore, banks must be cautious in their practices.
).Also see Bredenkamp v Standard Bank of South Africa Ltd 2009 6 SA 277 (GSJ) (hereinafter Bredenkamp main application) para 29.Bredenkamp SCA para 32; Ngidi 2020 De Jure 58; Ellinger, Lomnicka and Hare Ellinger's Modern Banking Law 207; the Code of Banking Practice para 7.3.2(for banks that have adopted the Code of Banking Practice).Code of Banking Practice para 7.3.2.Survé SCA.The main applications are still pending in the High Court and the Equality Court.
They aptly argue that the correctness of the decision in Bredenkamp is beyond reproach.84On17 June 2022 the Western Cape High Court, sitting in Survé v Nedbank Limited 85 as the Equality Court, granted an interdict in favour of Sekunjalo Group, prohibiting Nedbank from closing Sekunjalo Group's accounts pending the finalisation of the main application in the Equality Court.
, in Africa Community Media (Pty) Ltd v Standard Bank of SA Ltd, members of the Sekunjalo Group lodged an application for an interim 87 Survé SCA para 13. 88 Survé CT para 10. 89 Survé CT para 4. 90 Survé CAC para 41. 91 Africa Community Media para 10. 92 Talhado Fishing Enterprises is a member of the Sekunjalo Group.93 Talhado Fishing Enterprises para 24.5.94 Talhado Fishing Enterprises para 24.7.95 Talhado Fishing Enterprises para 24.7.96 Talhado Fishing Enterprises para 29.
bank-customer relationship.117Needlessto say, such consideration is also warranted in respect of other constitutional rights.Without predetermining the merits of the looming Equality Court proceedings, it is argued that constitutional values and principles influence the nature of the bank-customer relationship to the extent that parties have rights afforded to them.Specific attention is drawn to the right to equality (a right for consideration in the Sekunjalo Group's Equality Court application) and the bank's freedom of association.Section 9 of the Constitution 118 plays a critical role in affording everybody, including financial consumers, the right to equality.The Sekunjalo Group's application to the Equality Court is expected to present a development in this area.I wait in anticipation of the outcome of the Equality Court case and the academic deliberations that may follow.It has been established that banks have the right to unilaterally terminate the bank-customer relationship on reputational risks, a principle based on law and fact.
International Monetary Fund (IMF),121whose standards play an integral part in combatting financial crimes globally.The BCBS provides that adequate banking supervision entails the employment of controls and systems aimed at preventing, identifying and reporting potential abuses of financial services, including money laundering and terrorism financing.122Thisprincipleisalignedwith the bank's obligation to employ sound risk management processes.In line with this principle, the BCBS issued Guidelines on Sound Management of Risks Related to Money Laundering and Terrorism Financing, 123 which incorporates money laundering and terrorism as risks within banks' overall risk management purview.124Theseguidelinesshould be read and adopted with the International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation issued by the FATF.125 120The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog responsible for setting international standards to prevent money laundering and terrorism financing.See FATF date unknown https://www.fatfgafi.org/en/home.html.the The law of contract is concerned with individual autonomy, the freedom and sanctity of 164 Kgethile para 41. 165 BCBS 2017 https://www.bis.org/bcbs/publ/d423.pdf 4.