Financial Crime World

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Financial Regulation Updates: South Africa Takes Steps Towards Improved Stability

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In a bid to strengthen its financial sector and ensure market integrity, the South African government has implemented key updates to its regulatory framework. The Financial Sector Laws Amendment Act (FSLAA) 2021, which came into effect on June 1, includes provisions for a new Bank Resolution Regime.

Key Updates

The regime is designed to facilitate orderly resolution of distressed institutions, reducing the risk of systemic instability and protecting financial stability. To ensure compliance with international best practices, the Prudential Authority (PA) has published two key prudential standards:

RA01 - Stays on Early-Termination Rights and Resolution Moratoria on Contracts of Designated Institutions in Resolution

  • Requires the adoption of contractual recognition provisions in certain types of contracts governed by foreign law
  • Sets out principles and requirements for stays on early termination rights and resolution moratoria

RA02 - Transfers of Assets and Liabilities of a Designated Institution in Resolution

  • Outlines principles and requirements for the transfer of assets and liabilities of designated institutions in resolution
  • Sets out minimum requirements for a separability analysis and a transfer playbook

Protected Arrangements

The Prudential Standards also make provision for protected arrangements, aiming to protect the integrity of financial arrangements such as netting arrangements and collateralization in partial transfer. This includes ensuring that there is no “cherry picking” or selective transferring of individual contracts with a particular counterparty.

Compliance Requirements

Both prudential standards require designated institutions to comply on an ongoing basis, failure to which will result in penalties including:

  • Increase in financial loss-absorbing capability instrument holdings
  • Increase in required regulatory capital
  • Acceleration in triggering resolution action

Certainty for the Market

The implementation of these key updates is intended to provide certainty and guidance for the market relating to how to prepare for and successfully effect orderly resolution. This will help retain and protect South Africa’s market integrity and financial stability.

Accessing the Prudential Standards

  • Prudential Communication 4 of 2023-RA01-Stays and resolution moratoria: resbank.co.za
  • Prudential Communication 5 of 2023-RA02-Transfers: resbank.co.za
  • Government Gazette notice announcing the coming into effect of the Resolution Regime provisions is available at www.gov.za

Contributors

Siphosetu Matebese, an associate with White & Case in Johannesburg contributed to the development of this publication.