Transactions Between Banks and Affiliates in South Africa: Regulations and Limitations
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Definition of Affiliate
For the purposes of banking regulations in South Africa, an “affiliate” refers to:
- Any subsidiary or holding company of the bank
- Any other subsidiary of the holding company
- Any other company of which the holding company is a subsidiary
- Any juristic person (a legal entity) to whom the board of directors is accustomed to act in accordance with the directions or instructions of the bank, including any trust controlled or administered by the bank
Regulatory Limitations
Banks are subject to regulatory limitations on their transactions with affiliates. These limitations include:
- Investments in Debentures or Preference Shares: A bank must not invest more than 10% of its aggregate deposits, current accounts, and other creditors in debentures or preference shares of its associates (other than subsidiaries that acquire and hold immovable property).
- Advances to Associates: Banks are restricted from making advances to their associates.
- Guarantees or Other Instruments: Banks must not provide guarantees or other instruments relating to the liabilities or contingent liabilities of their associates
Permissible Activities
The range of permissible activities for financial institutions in South Africa includes:
Investments in Debentures or Preference Shares
Banks can invest in debentures or preference shares of their associates, subject to regulatory limitations.
Advances to Associates
Banks can provide advances to their associates, subject to regulatory restrictions.
Guarantees or Other Instruments
Banks can provide guarantees or other instruments relating to the liabilities or contingent liabilities of their associates, subject to regulatory limitations.
Prohibited Activities
The prohibited activities for financial institutions in South Africa include:
- Exceeding Regulatory Limitations: Engaging in transactions with affiliates that exceed regulatory limitations.
- Providing Unsecured Loans: Providing unsecured loans to associates.
- Engaging in Unlicensed Activities: Engaging in activities that are not licensed or authorized by the Prudential Authority.
Changes to Regulations
The regulations governing transactions between banks and their affiliates in South Africa have undergone changes over time. These changes aim to enhance regulatory oversight, improve risk management, and promote financial stability.
In conclusion, the regulations applicable to transactions between banks and their affiliates in South Africa are designed to ensure that these transactions are conducted in a safe and sound manner. Banks must comply with regulatory limitations on investments, advances, and guarantees to maintain their safety and soundness and protect the interests of depositors.