South African Banks Face US Pressure over Reputational Risk Account Closures

A legal expert warns that the US FIRM Act could impact South African banks, potentially leading to sanctions if they close accounts over reputational risk concerns.

According to a legal expert with extensive knowledge of financial institution regulation, South African banks risk sanctions if they close accounts of companies in which US individuals or companies have invested because of US law that prohibits bank account closures due to reputational risk.

This comes after the approval of Senator Tim Scott's Financial Integrity and Regulation Management (FIRM) Act, which the US Banking Committee stated this week will remove reputational risk as a factor in bank supervision at the Federal Deposit Insurance Corporation (FDIC).

The goal of the FIRM Act is to eliminate reputational risk from federal financial regulation, which could help with problems like "debanking," which is the practice of financial institutions cutting off ties with companies or people because of worries about reputational risk.

The legal expert, who wished to remain anonymous, claimed in an interview with Business Report on Thursday that banks were a law unto themselves because of the way they were utilizing reputational risk indiscriminately.

The African banks accuse and conclude without subjecting them legally by converting them into facts or verifying them independently. They are hangman, judge, and accuser, all at once.

According to a legal expert, the financial institutions in South Africa must prepare themselves for sterner regulations. As said, because that FIRM Act eventually gets its tentacles into South Africa, much emphasis will be concentrated on the role of the Financial Intelligence Center.