Risk governance & control: financial markets & institutions / Volume 6, Issue 4, Fall 2016 Special issue "Macroeconomic Risks and State Governance" 510 RISK FOR BANKER’S CONNECTED TO CLOSING A CUSTOMER’S ACCOUNT Thibedi Majake* * Department of Mercantile Law, University of Venda, South Africa Abstract Financial institutions (banks and building societies) from time to time request customers to close their accounts and make alternative arrangements. This occurs most often if the financial institution is unhappy with the way in which the customer is using the account or it feels that its relationship with the customer has broken down irretrievably. Banks sometimes close a customer’s account without the customer’s agreement. Most other commercial organisations, banks and building societies included, are under no obligation to continue doing business with someone if they do not consider it appropriate to do so. However when financial institutions decide to close accounts of customers, this should not be on based on an improper reason – for instance, because of unfair bias or unlawful discrimination. And it is an implied term of the contract between the bank and its customer that the bank will not normal ly close the customer’s account without giving reasonable notice. This article seeks to analyse instances where banks have closed their customers’ accounts and factors that were considered, if any, for such a decision. Keywords: Financial Institutions, Banks, Customer, Banking Confidentiality 1. INTRODUCTION The relationship between a banker and its customers is contractual even though the nature of contract varies from customer to customer, depending on the type of agreement between the customer and the bank. A critical component of this relationship is the principle of confidentiality, which is often implied. Whether or when this principle can be relied upon by the bank in taking a decision to close the customer’s account is often problematic. This is well evident in the recent decision by major financial services companies in the Republic of South Africa to end their business ties with Oakbay Investments (Pty) Ltd 1 and its listed entity Oakbay Resources, which have made national headlines on the print and electronic media. While notice was given to Oakbay Investments of the intention to close its account by the banks, Oakbay Investments were not informed of reasons for termination. The decision has sparked a national debate on whether a banker has the right to close a customer’s account without reasons. This debate itself is not new as it has been a subject of judicial consideration. For instance, in a very illuminating judgment on the matter, the Supreme Court of Appeal in the case of Bredenkamp v Standard Bank 23 considered the grounds given on behalf of the Standard Bank that it had the right in terms of an express term of its contracts to close the accounts with reasonable notice and the implied term 1 A company co-owned by Ajay Gupta and Atul Gupta who are also its chairpersons. This company is a shareholder in a number of private equity investments and joint ventures, such as Sahara Computers, JIC Mining Services, Shiva Uranium, The New Age newspaper, ANN7 TV and Clifftop Lodge. 2 (599/09) [2010] ZASCA 75 (27 May 2010). 3 Par 56 Bredenkamp v Standard Bank. with the same effect, namely that an indefinite contractual relationship may be terminated with reasonable notice. It weighed those arguments against the contention of the applicant challenging the validity of the implied term and by implication the express term of the contract. The Court then came to the conclusion that in terms of the valid agreement between the Bank and the customer, the Bank was entitled to terminate the account without any cause. However, the fact that not every banker-customer relationship is the same suggests the need to critically examine the reasons which may inform the decision by a bank to close accounts of customers without reasons. Hence, this article seeks to analyse instances where banks have closed their customers’ accounts and factors that were considered, if any, for such a decision. Following this introduction, section two of the article discusses the nature of the relationship between a banker and its customers. Considering its centrality to the banker–customer relationship, section three considers the principle of confidentiality, highlighting its relevance in the determination of whether or not an account should be closed. With a focus on Oakbay Investments (pty) Ltd, a shareholder in a number of private equity investments and joint ventures, such as Sahara Computers, JIC Mining Services, Shiva Uranium, The New Age newspaper, ANN7 TV and Clifftop Lodge section four examines reasons that may inform closure of an account. Section five is the conclusion. 2. THE NATURE OF THE RELATIONSHIP BETWEEN A BANKER AND ITS CUSTOMERS The relationship between a bank and its customer is based on contract. In its most basic form, the contract is that of a loan. When the customer deposits money into