Financial Crime World

South African Banking Regulation Overview

Primary Legislation

The Financial Sector Regulation Act (FSR Act) and the Banks Act are the primary legislation governing the banking sector in South Africa. The FSR Act establishes a new regulatory framework for financial institutions, including banks, with the goal of promoting financial stability and protecting consumers.

Key Regulatory Bodies

  • Financial Sector Conduct Authority (FSCA): Responsible for regulating non-banking financial services, including insurance, retirement funds, and collective investment schemes.
  • Prudential Authority: Regulates banking institutions, ensuring their solvency and liquidity.
  • National Credit Regulator: Oversees the credit industry to protect consumers from predatory lending practices.

Government Deposit Insurance

There is currently no deposit insurance mechanism in place for South African banks. However, a discussion paper published by the SARB in 2017 proposed the establishment of an explicit, privately funded deposit insurance scheme.

Transactions between Affiliates

Banks are required to manage their business to prevent excessive investments in affiliates, advances, and guarantees. The Prudential Authority must approve transactions that establish or acquire subsidiaries or agreements affecting control.

Recent Developments

The Financial Sector Laws Amendment Bill 2020 aims to introduce a comprehensive framework for resolving banks and non-bank systematically important financial institutions. The Bill also proposes the establishment of an industry-funded deposit insurance scheme, which will protect qualifying depositors’ funds up to R100,000 per depositor.

Key Attributes of Effective Resolution Regimes

The Bill adheres to international standards outlined in the FSB document “Key Attributes of Effective Resolution Regimes for Financial Institutions.” These attributes include:

  • Public Funds: No longer be the default source of funding for bailing out failing banks and other large financial institutions.
  • Deposit Insurance Scheme: To be established and managed by the SARB through a newly created Corporation for Deposit Insurance.
  • Bail-in: Shareholders and creditors who can assess their investment risks will bear losses incurred as a result of a financial institution’s failure.
  • Modified Creditor Hierarchy: Covered depositors will rank as preferred creditors, following international best practice.

The protection of vulnerable depositors is an essential element of the financial safety net in any country and contributes to financial stability. The Bill ensures that qualifying depositors are guaranteed up to R100,000 per depositor.