US banking rules may affect South African banks over reputational risk closures

A LEGAL expert with deep knowledge of regulation of financial institutions has warned that the United States legislation against the closure of bank accounts due to reputational risk could see SA banks sanctioned if they close accounts of businesses in which US companies or individuals are invested.

- SIPHELELE DLUDLA

This comes as US Banking Committee announced this week that the Federal Deposit Insurance Corporation (FDIC) will scrutinise reputational risk factor to legally supervise following the passage of Senator Tim Scott’s Financial Integrity and Regulation Management, FIRM Act.

The FIRM Act aims to remove reputational risk as a component if federal financial regulation potentially addressing issues like situations in which refers to financial institutions terminating relationships with businesses or individuals due to concerns about reputational risks.

The legislation aims to scrap this concept across all federal banking regulators.

In an interview with Business Report on Thursday, the legal expert who preferred to keep his anonymity said banks were a few times themselves in the way they were arbitrarily using reputational risk. “Reputational risk is not one parameter, and has no level of calibration, like everything else that is legal, you’ve got to do something, which might trigger something to get to the corner, reason that something has happened,” explained the legal expert.