Financial Crime World

Banking Regulation in South Africa: Key Points

Regulatory Framework

The banking sector in South Africa is governed by various regulatory bodies, including the Financial Sector Conduct Authority (FSCA), Prudential Authority, National Credit Regulator, and Financial Intelligence Centre. These entities are subject to the directives of the Governor of the South African Reserve Bank (SARB) during a systemic event.

Deposit Insurance

  • There is no explicit deposit insurance scheme for the banking sector in South Africa.
  • The Cooperative Banks Deposit Insurance Fund compensates members of cooperative banks for deposits lost due to bank failure up to a percentage or amount determined by the Minister of Finance.

Regulatory Limitations on Transactions between Affiliates

Banking institutions are subject to regulatory limitations on transactions with their affiliates, including:

  • Aggregate value of investments in debentures or preference shares of associates (excluding subsidiaries focused on property development) must not exceed 10% of deposits, current accounts, and other creditors.
  • Advances to such associates must also not exceed 10% of deposits, current accounts, and other creditors.
  • Guarantees for liabilities or contingent liabilities must not exceed 10% of deposits, current accounts, and other creditors.

Resolution and Deposit Insurance Framework

The Financial Sector Laws Amendment Bill 2020 introduces a comprehensive framework for resolving banks and non-bank systematically vital financial institutions considered “too big to fail.” This includes:

  • Establishing an industry-funded deposit insurance scheme managed by the SARB through the Corporation for Deposit Insurance.
  • Protecting qualifying depositors’ funds up to R100,000.

Protection of Vulnerable Depositors

The Bill ensures that public funds are no longer the default origin of funding used to bail out failing banks and large financial institutions. Losses will be borne first by:

  1. Shareholders
  2. Creditors who had benefited from profits as a going concern
  3. Depositors whose deposits exceed R100,000

Meeting International Standards

South Africa aims to meet international standards following the 2008 Global Financial Crisis as supported by G-20 countries. The Bill introduces a modified creditor hierarchy for financial institutions, where:

  • Covered depositors rank as preferred creditors
  • Vulnerable depositors are protected up to R100,000