In brief: banking regulatory framework in

South Africa
!"#$%&'(%!)!*

Facebook
Twitter
LinkedIn
Email
Share

Joz Coetzer and Marianna Naicker

Regulatory framework

Key policies

What are the principal

governmental and regulatory
policies that govern the banking
sector?

In 2011, the National Treasury published a policy document titled ‘A safer

financial sector to serve South Africa better’ (2011 Policy Document). The 2011
Policy document identified the following policy priorities for the financial services
sector.Stability and soundness of financial institutions

The primary objective of the central bank of South Africa, the South African
Reserve Bank (SARB), is to protect the value of South Africa’s currency in the
interest of balanced and sustainable economic growth in South Africa. The SARB
assesses the stability and efficiency of South Africa’s financial system.

The Financial Sector Regulation Act 2017 (FSR Act) commenced on 29 March
2018.

The FSR Act requires the SARB and other organs of state to coordinate their
functions and the implementation of financial stability, and seeks to establish a

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2:25 AM

Page 1 of 23
 regulatory and supervisory framework that promotes the following principles:

financial stability;
the safety and soundness of financial institutions;
the fair treatment and protection of financial customers;
the efficiency and integrity of the financial system;
the prevention of financial crime;
financial inclusion;
transformation of the financial sector; and
confidence in the financial system.

Consumer protection and market conduct

The 2011 Policy Document contemplates improving market conduct regulation,

including ramping up consumer education and introducing a retail banking
services market conduct regulator. The FSR Act establishes the Financial Sector
Conduct Authority, which is mandated to, among others, protect financial
customers by promoting fair treatment of financial customers by financial
institutions, including banks, and providing financial customers and potential
financial customers with financial education programmes and otherwise promoting
financial literacy and the ability of financial customers and potential financial
customers to make sound financial decisions.Expanding access to financial
services through financial inclusion

In terms of the National Treasury’s Budget Review 2018 (2018 Budget review),
financial inclusion refers to the provision of regulated financial services to the
segments of society that are exposed to unavailable or inadequate financial
services in order to enable social and economic development, particularly for low-
income people, women, the youth and small, medium and micro enterprises
(SMMEs). This document contemplates that financial products and services should
be available to, and used by, most South Africans and should be convenient,
affordable, fair and trusted.

The Amended Financial Services Sector Code (Code) was published on 1

December 2017 in terms of the Broad-Based Black Economic Empowerment Act

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2:25 AM

Page 2 of 23
 2003. The Code applies to any person conducting, among others, the business of
banking in the South African financial sector. The Code aims to broaden and
hasten the transformation process by making financial services accessible to the
previously unbanked and underserved. The Code targets empowerment financing
and access to financial services in sectors such as affordable housing, black-
owned or controlled SMMEs, agriculture and transformational infrastructure.

Among the initiatives planned pursuant to this policy objective is for government
to provide further support to cooperative banks (member-owned financial
institutions) and ‘dedicated banks’ (savings and loan financial institutions whose
activities are limited to the funding of risk-free or lower-risk retail assets in order
to reduce the bank-default risk of depositors), including Postbank. The 2011
Policy Document identified Postbank as among the financial institutions best
suited to take the lead in satisfying the financial services needs of rural and
lower-income communities in South Africa, and seeks to expand Postbank’s
products and services to communities that have little or no access to commercial
banking services. In terms of the 2018 Budget Review, Postbank has a temporary
banking licence and an application for a full banking licence has been submitted
to the SARB. Further, the Banks Amendment Bill, 2018, seeks to amend the
Banks Act to allow state-owned companies such as Postbank to register and
conduct the business of a bank.Financial integrity and combating financial crime

The 2011 Policy Document contemplates measures being taken to promote

transparency to the financial sector by requiring financial institutions to conduct
due diligence on their customers and maintain customer and transaction records
that are accessible by supervisory and investigating authorities.Regulated
institutions

What are the defining characteristics of a bank to be caught by the

banking laws and regulations? Is non-bank fintech regulated differently?

The Banks Act regulates banking activities in South Africa, in summary, it states
that no person shall conduct ‘the business of a bank’ unless such a person is a
public company and is registered as a bank in terms of the Banks Act, or has
been authorised by the Prudential Authority to conduct the business of a bank by

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 3 of 23
:
 means of a branch of a foreign bank.

The Bank Act defines ‘the business of a bank’ as:

1. the acceptance of deposits from the general public as a regular feature of the
business in question;
2. the soliciting of or advertising for deposits;
3. the utilisation of money, or of the interest or other income earned on money
accepted by way of a deposit:
for the granting by any person, acting as lender in such person’s own name
or through the medium of a trust or a nominee, of loans to other persons;
for investment by any person, acting as investor in such person’s own name
or through the medium of a trust or a nominee; or
for the financing, wholly or to any material extent, by any person of any
other business activity conducted by such person in his or own name
through the medium of a trust or a nominee;

4. the obtaining, as a regular feature of the business in question, of money

through the sale of an asset, to any person other than a bank, subject to an
agreement in terms of which the seller undertakes to purchase from the buyer
at a future date the asset so sold or any other asset; or
5. any other activity which the Prudential Authority has, after consultation with
the governor of the South African Reserve Bank, by notice in the Gazette
declared to be the business of a bank.

The Banks Act defines ‘deposit’ to mean an amount of money paid by one person
to another person subject to an agreement in terms of which:

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 4 of 23
:
 1. an equal amount or any part thereof will be conditionally or unconditionally
repaid, either by the person to whom the money has been so paid or by
another person, with or without a premium, on demand or at a specified or
unspecified dates or in circumstances agreed to by or on behalf of the person
making the payment and the person receiving it; and
2. no interest will be payable on the amount so paid or interest will be payable
thereon at specified intervals or otherwise, notwithstanding that such payment
is limited to a fixed amount or that a transferable or non-transferable
certificate or other instrument providing for the payment of interest on such
amount mutatis mutandis as contemplated in this paragraph 2) is issued in
respect of such amount.

For one’s activity to trigger any of paragraphs (1) – (2) of ‘the business of a bank’
above, the activity must involve the acceptance, advertising or utilisation of
‘deposit’ as defined above.

Other financial services and fintech services and products fall within the ambit of
the FSR Act, which governs the rendering of financial services and financial
institutions other than banks.

In terms of the Financial Advisory and Intermediary Services Act 2002 (the FAIS
Act), a financial services provider means any person who furnishes advice, or
furnishes advice and renders services, or renders an intermediary service.

The Financial Intelligence Centre (FIC) and the National Payments System
Department of the SARB issued a draft Directive 1 of 2019 and a draft FIC
Guidance Note 102 as part of a joint consultation process on the administration of
electronic funds transfers in accordance with recommendation 16 of the Financial
Action Task Force (FATF) regarding ‘wire transfers’. The aim of the directive is to
regulate domestic and cross-border electronic transfers in relation to accountable
institutions (including banks) that facilitate or enable the source or receipts of
these transfers or when they act as a broker in this regard. It further aims to
permit the SARB to review certain transfers and determine if they threaten the
National Payment System and it places an obligation on accountable institutions
to disclose certain information regarding the origin of electronic fund transfers.

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 5 of 23
:
 Fintech is not fully regulated in South Africa. The current regulations in the
financial sector only provide guidance, the uniqueness of fintech requires further
and specific regulation.

The Intergovernmental Fintech Working Group (IFWG) published its first Fintech
Landscaping Report on 22 January 2020. The aim of the report was to make
clearer the fintech market so that the regulator can understand and be able to
manage the risk in the fintech space. The effect of the report is that there will be
a fintech innovation hub and fintech database. This will be made up of a
Regulatory Guidance that will provide information and clarity regarding financial
services regulation; a Regulatory Sandbox that will offer regulatory relief within
the existing legislative framework, to test innovative products and services; and
an Innovation Accelerator that will explore innovation that can improve the
regulatory environment or improve customer experience and access.

Due to South Africa’s membership of the G20 Group of countries and to adhere to
global over-the-counter (OTC) derivatives reform, new OTC derivatives
regulations were enacted in February 2018 under the Financial Markets Act 19 of
2012 (FMA). The regulations have defined OTC derivatives as an unlisted
derivative instrument that is executed, whether confirmed or not confirmed,
excluding foreign exchange, spot contracts and physically settled commodity
derivatives. The regulations also specifically aim to regulate the conduct of OTC
derivative providers, which have been defined as a person who, as a regular
feature of their business and transacting as principal (1) originates, issues or sells
OTC derivatives or (2) makes a market in OTC derivatives. Most South African and
some foreign banks in South Africa will qualify as OTC derivative providers.

Do the rules vary depending on the size or complexity of the banking

institution?

No. If the institution has any of certain characteristics it will be subject to

regulation. Mutual banks and cooperative banks, however, have less stringent
requirements compared to commercial banks.Mutual banks

Mutual banks report to the SARB, and have similar obligations as commercial

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 6 of 23
:
 banks under the FIC Act, FAIS Act, FSR Act and NCA legislation. However, the
Mutual Banks Act, 1993 is a specific statute addressing the particular qualities
and characteristics of mutual banks and their trading.

In terms of section 9 of the Mutual Banks Act, no person shall hold himself out to
be a mutual bank unless the person is registered as a mutual bank in terms of the
Act. Mutual banks are required to have accumulated share capital and unimpaired
reserve funds as prescribed. Moreover, liquid assets to a value not less than its
aggregate liabilities must be held at all times, and such assets cannot be pledged
or encumbered. All Mutual banks must annually apply for a licence from the
Registrar.Co-operative banks

The Cooperative Banks Act, 2007 is the main legislation regulating cooperative
institutions (CFIs) that are willing to register Cooperative Banks under the Act.

The Cooperative Banks Act applies to Cooperative Banks registered under the Act
and to any cooperative registered under the Cooperatives Act that takes deposits
and has 200 or more members, and hold deposits to the value of one million rand
or more.Primary and secondary legislation

Summarise the primary statutes and regulations that govern the banking
industry.Regulation and supervision of the South African banking sector

The legal framework for the regulation and supervision of the banking sector in
South Africa consists of:

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 7 of 23
:
 the Banks Act 1990 (Banks Act);
the Co-operative Banks Act 2007 (CBA); and
the Mutual Banks Act 1993 (MBA) together with the regulations, directives,
circulars and guidance notes relating to each of the Banks Act, CBA and MBA:
the Banks Act regulates the business of public companies taking deposits
from the public and related matters;
the CBA regulates deposit-taking financial services cooperatives that are
capitalised by their members and qualify as cooperative banks;
the MBA regulates the operations of informal financial structures such as
credit unions, building societies and stokvels (general savings, burial or
investment societies) that qualify as mutual banks;
the National Payment Systems Act 1998 regulates the management,
administration, operation, regulation and supervision of payment, clearing
and settlement systems in South Africa; and
the Companies Act 2008 (Companies Act) regulates the organisation and
management of companies generally.

Legislation concerning the oversight of the banking industry includes the

following:

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 8 of 23
:
 The South African Reserve Bank Act 1989 regulates the SARB and the
monetary system in general.
The FSR Act regulates financial sector laws and regulators and provides for
prudential standards applicable to, and the supervision of, financial institutions,
including banks.
The Currency and Exchanges Act 1933 regulates legal tender, currency,
exchanges and banking. The Regulations made under the Currency and
Exchanges Act 1933 and published on 1 December 1961 limit the extent to
which South African residents and companies may transfer funds abroad. The
exchange control rules are also set out in the Currency and Exchange Manuals
and related client guideline documents implemented with effect from 1 August
2016.
The Financial Institutions (Protection of Funds) Act 2001 sets out the laws
relating to, the investment, safe custody and administration of funds and trust
property by financial institutions.
The Promotion of Administrative Justice Act 2000 gives effect to the right to
administrative action that is lawful, reasonable and procedurally fair and
applies to any administrative action taken by a financial sector regulator in
terms of the FSR Act or any specific financial sector law.

Stability and soundness of financial institutions

The FSR Act has the objective of achieving a stable financial system that works
in the interests of financial customers and that supports balanced and
sustainable economic growth in South Africa.
The Financial Markets Act 2012 regulates financial markets, prohibits insider
trading and other market abuses and regulates and controls securities trading.

Consumer protection and market conduct

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 9 of 23
:
 The National Credit Act 2005 (NCA) aims to promote a fair and non-
discriminatory marketplace for access to consumer credit and to prohibit
certain unfair credit and credit-marketing practices as well as reckless credit
granting.
The Consumer Protection Act 2008 (CPA) promotes a fair, accessible and
sustainable marketplace for consumer products and services (including banking
services) and seeks, among others, to establish national norms and standards
relating to consumer protection and to prohibit certain unfair marketing and
business practices.
The Financial Advisory and Intermediary Services Act 2002 (FAIS Act)
regulates the provision of financial advisory and intermediary services to
clients.
The Competition Act 1998 (Competition Act) applies to the investigation,
control and evaluation of restrictive practices, abuse of dominant position, and
mergers.
The Promotion of Access to Information Act 2000 gives effect to the
constitutional right of access to any information held by another person and
required for the exercise or protection of any rights.
The Protection of Personal Information Act 2013, among others, establishes
minimum requirements for the processing of personal information by public
and private bodies, provides for the rights of persons regarding unsolicited
electronic communications and automated decision-making and regulates the
flow of personal information across the borders of South Africa.
The Electronic Communications and Transactions Act 25 of 2002, which
facilitates and regulates electronic communications and transactions.
The Home Loan and Mortgage Disclosure Act 63 of 2000, promoting fair
lending practices, which requires disclosure by financial institutions of
information regarding the provision of home loans.
The Inspection of Financial Institutions Act 80 1998, providing for the
inspection of the affairs of financial institutions such as banks and of
unregistered entities conducting the business of financial institutions.

Expanding access to financial services through financial inclusion

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 10 of 23
:
 The Broad-Based Black Economic Empowerment Act 2003 establishes a
legislative framework for the promotion of black economic empowerment. The
Code published in terms of this legislation commits financial institutions to
promoting transformation in the financial services sector.
The South African Postbank Limited Act 2010 establishes the Postbank Division
of the Post Office to, among others, conduct the business of a bank that will
encourage and attract savings among South Africans.

Financial integrity and combatting financial crime

The Financial Intelligence Centre Act 2001 (FICA) seeks to combat money
laundering activities and the financing of terrorist and related activities by,
among others, imposing certain duties on institutions to identify and conduct
due diligence in respect of, the clients with whom they have business
relationships.
The Prevention of Organised Crime Act 1998 criminalises money laundering.
The Protection of Constitutional Democracy Against Terrorism and Related
Activities Act 2004 criminalises terror financing.

Regulatory authorities

Which regulatory authorities are primarily responsible for overseeing

banks?

Banks are regulated by the following entities:

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 11 of 23
:
 The SARB is responsible for, among others, supervising the banking sector and
ensuring the effective functioning of the national payment system. The
oversight of the soundness of the domestic banking system and financial
stability has been delegated to the Bank Supervision Department (BSD) within
the SARB. The BSD is accountable to the Minister of Finance and is required to
submit an annual report on its activities.
FICA establishes the Financial Intelligence Centre, which is required to
supervise and enforce compliance with this legislation or any directive made in
terms of this Act by accountable institutions, including banks, for purposes of
its objective. The Financial Intelligence Centre is accountable to the Minister of
Finance.
The National Credit Regulator is established in terms of the NCA to promote
and support the development, where the need exists, of a fair, transparent,
competitive, sustainable, responsible, efficient, effective and accessible credit
market and industry to serve the needs of:
historically disadvantaged persons;
low-income persons and communities; and
remote, isolated or low-density populations and communities.

The National Credit Regulator is responsible for regulating the consumer credit
industry by, among others, registering and suspending or cancelling the
registration of credit providers, including banks. The National Credit Regulator is
accountable to the Minister of Trade and Industry as the Minister currently
responsible for consumer credit matters.

The FSR Act establishes the following new entities to regulate all financial
institutions, including banks:

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 12 of 23
:
 The Prudential Authority is established within the administration of the SARB to
promote and enhance the safety and soundness of financial institutions and
market infrastructures and to protect financial customers against the risk of
financial institutions failing to meet their obligations.
Provisions regulating the Ombud Council were scheduled to take effect on 1
April 2019, pursuant to which the Ombud Council will be empowered to
recognise ombud schemes and oversee alternative dispute resolution processes
for complaints about financial institutions in relation to financial products,
financial services and services provided by market infrastructures. In terms of
Government Notice No. 142 of 18 March 2019, the Commencement date of the
provisions relating to the Ombud Council were postponed to take effect on 1
September 2019. Another Government Notice No. 1130 of 30 August 2019
postponed these provisions to take effect on 1 April 2020, and the effect of this
notice was that the Financial Services Ombud Schemes Act that was due to be
repealed on 1 September 2019 remained in full force and effect until 1 October
2020. A further Government Notice 356 of 24 March 2020 was published in
terms of which the commencement of the provisions relating to the Ombud
Council are scheduled to take place on 1 April 2021 and the repeal of the
Financial Services Ombud Schemes Act is effective 31 December 2020.
The FSCA is replacing the Financial Services Board (FSB). The FSB was
established in terms of the Financial Services Board Act 1990 to supervise
compliance with laws regulating the following (without affecting the operation
of a bank’s business as a bank):
financial institutions, including banks, that deal with trust property as a
regular feature of their business; and
the provision of financial services.

Accordingly, the FSB Act regulates South Africa’s non-banking financial services
industry.

The Financial Sector Conduct Authority is, subject to the concurrence of the
SARB, responsible for making standards:

that impose requirements on providers of payment services; or

aimed at assisting in maintaining financial stability.

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 13 of 23
:
 The Financial Services Board Act will be entirely repealed once the FSR Act is fully
implemented. The Financial Sector Conduct Authority is responsible for enforcing
the provisions of the FAIS Act.

Upon implementation of the FSR Act, the Prudential Authority, the Financial
Sector Conduct Authority, the National Credit Regulator and the Financial
Intelligence Centre will be subject to the directives of the Governor of the SARB in
the event that the governor determines that a specified event or circumstance is
a systemic event (an event that may reasonably be expected to have a
substantial adverse effect on the financial system or on economic activity in South
Africa).

The National Consumer Commission, established in terms of the Consumer

Protection Act 68 of 2008 (CPA), whose responsibilities include enforcement of the
CPA.

The Information Regulator established in terms of the POPI Act, whose

responsibilities include monitoring and enforcing compliance with the provisions of
the POPI Act by public and private bodies pertaining to data protection in South
Africa and ensure the protection of personal information that is being processed
by such bodies.

Banks and controlling companies are only allowed to appoint auditors approved
by the PA. Where a bank or controlling company is unable to appoint an auditor
that has been approved by the PA, the PA will appoint an auditor for the bank or
controlling company (sections 61 and 62, Banks Act).Government deposit
insurance

Describe the extent to which deposits are insured by the government.

Describe the extent to which the government has taken an ownership
interest in the banking sector and intends to maintain, increase or
decrease that interest.

The CBA requires the establishment of the Cooperative Banks Deposit Insurance
Fund for purposes of compensating members of cooperative banks (that paid

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 14 of 23
:
 contributions to the fund) for deposits lost as a result of a cooperative bank
having been unable to repay the deposits from its members, up to a percentage
or amount determined by the Minister of Finance. The Minister of Finance must
also prescribe the deposit insurance contributions that are payable by cooperative
banks. At the time of writing, the Minister of Finance has not prescribed the
applicable amounts of contributions payable to, and compensation payable from,
the Cooperative Banks Deposit Insurance Fund.

The SARB published a discussion paper in May 2017 entitled ‘Designing a deposit
insurance scheme for South Africa’, which motivates the need for an explicit,
privately funded deposit insurance scheme for South Africa and presents for
public discussion proposals on the key design features of such a deposit insurance
scheme. There is currently no deposit insurance mechanism employed in the
banking sector in South Africa.

The government of South Africa does not own any interest in the banking sector
other than in relation to the state-owned Postbank that is being established.

On 11 June 2020, the cabinet approved the tabling of the Financial Sector Laws
Amendment Bill 2020 in Parliament. The Bill is an element of the Twin Peaks
reform of the financial regulatory system applicable to the financial sector. It
introduces a crucial part to the regulatory system on how to deal with a failing
bank or other systematically important financial institution, to protect financial
stability in a way that reduces reliance on the fiscus. The Bill will reinforce and
strengthen financial stability in South Africa.

The Bill enables South Africa to meet the essential international standards
following the 2008 Global Financial Crisis, as supported by G-20 countries and
outlines in the FSB document Key Attributes of Effective Resolution Regimes for
Financial Institutions (Key Attributes), which sets out the international standard
for resolution regimes to deal with the problem of banks that are thought of as
‘too big to fail’.

The first part of the Bill introduces a comprehensive framework for resolving all
banks as well as non-bank systematically vital financial institutions that may be

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 15 of 23
:
 ‘too big to fail’. The second part sets out the provisions to introduce, for the first
time, a precise industry-funded deposit insurance scheme to protect qualifying
depositors’ funds up to a specific limit once a bank fails. The ‘resolution and
deposit insurance framework’ contained within the Bill encompasses a variety of
fundamental policy objectives that include:

public funds will no longer be the default origin of funding used to bail out
failing banks and other large financial institutions;
a deposit insurance scheme will be established and managed by the SARB
through a newly established Corporation for Deposit Insurance;
losses incurred as a result of the failure of a financial institution will in the first
instance be borne (through the bail-in) by shareholders and creditors who are
able to assess their investment risks and who had benefited from profits
gained by the institution as a going concern;
the SARB will get additional legal tools to make sure that crucial services
continue and that stability is maintained in the event of a material failure;
following international best practice, a modified creditor hierarchy for financial
institutions falling within the scope of the envisaged framework is introduced,
in terms of which covered depositors will rank as preferred creditors; and
the protection of vulnerable depositors is an essential element of the financial
safety net in any country, and also contributes to financial stability. Qualifying
depositors will be guaranteed up to an amount of 100,000 rand per depositor.

Transactions between affiliates

Which legal and regulatory limitations apply to transactions between a

bank and its affiliates? What constitutes an ‘affiliate’ for this purpose?
Briefly describe the range of permissible and prohibited activities for
financial institutions and whether there have been any changes to how
those activities are classified.

In terms of the Banks Act, a bank must manage its business so that the
aggregate of the following amounts less the excess amount of qualifying primary
and secondary capital and reserve funds, does not at any time exceed 10 per cent
of the bank’s aggregate amount of deposits, current accounts and other creditors:

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 16 of 23
:
 its investments in debentures or preference shares of any of its associates
(other than subsidiaries of which the main object is the acquisition and holding
or development of immovable property), a bank or mutual bank, which
debentures or preference shares are not convertible into ordinary shares;
its advances to any such associates; and
its guarantees or other instrument relating to the liabilities or contingent
liabilities of such associates.

For the purposes of this provision an ‘associate’ in relation to a bank refers to:

any subsidiary or holding company of that bank, any other subsidiary of that
holding company and any other company of which that holding company is a
subsidiary; or
any juristic person to whom the board of directors is accustomed to act in
accordance with the directions or instructions of that bank, including any trust
controlled or administered by that bank.

The terms ‘holding company’, ‘subsidiary’ and ‘control’ have the meanings given
to them in the Companies Act.

The Prudential Authority must approve any transaction by a bank or its associate
to:

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 17 of 23
:
 establish or acquire a subsidiary within or outside South Africa or enter into an
agreement having the effect that any company becomes its subsidiary within
or outside South Africa;
invest in a joint venture within or outside South Africa if the investment (alone
or together with one or more investments already made by the bank in that
joint venture) results in the bank being exposed to an amount representing
more than 5 per cent of its capital and reserves and to make any further
investment for so long as the bank is exposed. A joint venture means a
contractual arrangement between two or more persons, one or more of whom
is a bank or a controlling company, in terms whereof the parties undertake an
economic activity that is subject to their joint control;
open or acquire a branch office outside South Africa;
acquire an interest in any undertaking having its registered office or principal
place of business outside South Africa;
create or acquire a trust of which the bank is a major beneficiary outside South
Africa;
establish or acquire any financial or other business undertaking under its direct
or indirect control outside South Africa;
establish or acquire a representative office outside South Africa; or
create or acquire a division within or outside South Africa by means of an
arrangement or agreement with any person having the effect that such person
conducts his or her business through or by means of the division.

A bank or its controlling company must disclose to the Prudential Authority details
of:

any subsidiary it has established or acquired;

any joint venture it has invested in;
an undertaking it has acquired an interest in; or
any trust or financial or other business undertaking it has established or
acquired.

The Banks Act prohibits a bank from:

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 18 of 23
:
 holding shares in any company of which such bank is a subsidiary;
lending money to any person against security of its own shares or of shares of
that bank’s controlling company;
before provision has been made out of profits for any amount representing the
cost of organisation or extension or the purchase of a business or a loss
(including a loss originating from the sale of an asset) or bad debts:
opening any branch or agency or any further branch or agency; or
paying out dividends on its shares; and
concluding a repurchase agreement in respect of a fictitious asset or an
asset created by means of a simulated transaction;
purporting to have concluded a repurchase agreement without:
such agreement being substantiated by a written document signed by the
other party thereto; and
the details of such agreement being recorded in the accounts of the bank as
well as in the accounts, if any, kept by the bank in the name of such other
party; or
paying out dividends from its share capital without the prior written
approval of the Prudential Authority.

A bank must hold all its assets in its own name, excluding any asset that:

is held pursuant to a bona fide hypothec to secure an actual or potential

liability;
is held in the name of another person with the written approval of the
Prudential Authority; or
falls within a category of assets designated by the Prudential Authority as
assets that may be held in the name of another person.

Regulatory challenges

What are the principal regulatory challenges facing the banking industry?

The FSR Act requires the SARB, in collaboration with other organs of state, to
ensure financial stability. Differences in interpretation of the new regulatory
requirements pursuant to the FSR Act and related legislation may cause disputes.

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 19 of 23
:
 For instance, the FSR Act grants the Prudential Authority broad powers to require
a bank to take action to avoid risks arising from, among others, conducting its
business in an improper or financially unsound way or the likelihood of the bank
contravening a financial sector law, being involved in a financial crime or causing
or contributing to instability in the financial system. The implementation of such
provisions of the FSR Act may require banks to implement new internal processes
and procedures or otherwise restrict their powers and actions, and banks may
wish to challenge such restrictions.

Notwithstanding the above, the SARB continues to hold the view that due to the
inherent risk of crypto assets, and the unregulated nature of crypto assets, crypto
assets cannot be classified as legal tender and as a result thereof crypto assets
are not, and until the SARB decides otherwise will not be guaranteed by the
SARB; crypto assets operate independently from the central bank and users. A
merchant may refuse to accept crypto assets as a payment instrument without
being in breach of the law. Currently the SARB does not oversee, supervise or
regulate crypto assets. The IFWG aims to direct and develop a regulatory
framework regarding crypto assets in South Africa. Amendments to the current
regulatory framework are however still in the infancy stages.Consumer protection

Are banks subject to consumer protection rules?

Other than the provisions of the NCA, the CPA and the FAIS Act, banks are
subject to scrutiny by competition authorities of their compliance with the
provisions of the Competition Act regulating restrictive market practices. The
Competition Act prohibits, among others, an agreement between, or concerted
practice by, firms directly or indirectly fixing a purchase or selling price or any
other trading condition. On 15 February 2017, the Competition Commission filed a
complaint referral initiating proceedings against certain banks at the Competition
Tribunal alleging that the banks had entered into an agreement or engaged in a
concerted practice to fix bids, offers and bid-offer spreads and to allocate
customers and suppliers in respect of trade in the US dollar-rand currency pair. At
the time of writing, the Competition Commission has indicted 23 banks (some
local and some foreign) for fixing the rand-dollar exchange rate.

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 20 of 23
:
 On 3 July 2020, the FSCA introduced the Conduct Standard for Banks (the
Standard). This regulatory framework allows the FSCA to critically and promptly
supervise the market conduct of the banking sector ins South Africa, in
accordance with its mandate as set out in the FSR Act. The Standard establishes
high-level requirements to be adhered to by the banking sector aimed at ensuring
the fair treatment of financial customers.

Section 5(1)(d) of the Standard required a bank to make sure that the terms,
conditions and requirements in a contract between the bank and its retail financial
customer are not unfair. Section 5(2) clarifies that, while not limiting the
prohibition in section 5(1)(d), a term, condition or requirement in a contract will
be unfair if it:

would cause a material and unreasonable imbalance in the parties’ rights and
obligations under the contract;
is not reasonably necessary to safeguard the legitimate interests of the
financial institution, that would be unjustly advantaged by the term, condition
or requirement;
would result in an unfair outcome (financial or otherwise) to a retail financial
customer if it was applied or relied on;
unreasonably require a retail financial customer, whether as a condition to
enter into a transaction or otherwise to waive any right or release the bank of
any obligation or liability.

Future changes

In what ways do you anticipate the legal and regulatory policy changing
over the next few years?

Notices recently published by the National Treasury schedule the remainder of the
FSR Act to come into force by April 2021. Provisions regulating, among others,
‘significant owners’ came into effect on 1 January 2019, in terms of which certain
arrangements involving persons having the ‘ability to control or influence
materially the business strategy of the financial Institution’, require the prior
written approval of the Prudential Authority, which must be satisfied:

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 21 of 23
:
 that the arrangement will not prejudicially affect the prudent management and
financial soundness of the bank; and
that the significant owner meets the applicable fit and proper person
requirements to be issued by the Prudential Authority.

‘Financial conglomerates’ are also being regulated, with effect from 1 March 2019,
pursuant to which the Prudential Authority may designate members of a group of
companies as financial conglomerates and impose additional prudential
obligations on the holding company of a designated financial conglomerate,
including:

requiring the holding company to be a non-operating company and

determining its governance and management arrangements;
restricting the financial and other exposures of the financial conglomerate; and
setting reporting requirements.

A study on South Africa’s bank practices was recently prepared by the World Bank
and published for public comment by the National Treasury. The report is titled
‘South Africa Retail Banking Diagnostic: Treating Customers Fairly in relation to
Transactional Accounts and Fixed Deposits’. The report assesses the conduct of
retail banks and makes recommendations that are intended to inform the FSCA’s
approach to regulating the way that banks treat their customers in emerging
market conduct regulations. The report identifies potential shortcomings in bank
conduct and recommends, among others, ensuring that banks:

focus on suitability for customers when developing account and deposit

products;
create transactional accounts that respond to the needs of low-income
customers; and
improve the disclosure of timely, clear and comparable information to account
and deposit product customers.

The National Treasury also published the Conduct of Financial Institutions Bill for
public comment by 1 April 2019. The Bill aims to improve market conduct in
South Africa by streamlining the financial sector laws that regulate the conduct of

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 22 of 23
:
 financial institutions, and to implement policy, including in relation to the fair
treatment of financial customers.

The Prudential Authority and the Financial Sector Conduct Authority, as the
responsible authorities for certain financial sector laws in terms of the FSR Act,
are expected in future to issue:

prudential and conduct standards;

guidance notices on the application of the applicable financial sector laws; and
interpretation rulings confirming the interpretation or application of specified
legal provisions.

Law stated date

Correct on

Give the date on which the information above is accurate.

February 2021.

Facebook
Twitter
LinkedIn
Email
Share

https://financialregulationjournal.co.za/2021/05/26/in-brief-banking-regulatory-framework-in-south-africa/ 2022/10/17, 2 25 AM
Page 23 of 23
: