South Africa has a sophisticated banking system that aims to ensure economic stability, consumer protection and institutional safety. Numerous new laws are in the process of being implemented that will address how the financial system is regulated in future.
The new laws, once implemented, will allow the regulation of South Africa’s banking sector to be on par with the best in the world. The new legislation seeks to ensure the integrity, safety and soundness of the South African financial system. It is expected that 2019 will be the year that sees the defragmentation of various pieces of legislation governing the highly technical and complex banking sector in South Africa.
The Financial Service Board (FSB), until its repeal, supervised financial institutions other than banks, while banks and mutual banks fell under the supervision of the Registrar of Banks as part of the South African Reserve Bank (SARB). Additionally, the National Credit Act is responsible for regulating the provision of credit to individuals within South Africa.
Since the implementation of the Financial Sector Regulation Act (FSRA), which was signed into law on 21 August 2017, this framework has begun to change. Different sections of the FSRA will come into force on different dates, and will essentially commence the implementation of the so-called “Twin Peaks” model of financial sector regulation for South Africa, thus aiming to de-fragment and consolidate legislation in the sector.
The Twin Peaks model of financial regulation seeks to promote and maintain financial stability as its core objective. Two regulators have been established in terms of the FSRA namely, the Prudential Authority (housed within the SARB) and the Financial Sector Conduct Authority (FSCA), which replaced the FSB. The Prudential Authority is tasked with overseeing the system-wide safety and soundness of financial institutions and the FSCA is tasked with overseeing system-wide efficiency and integrity of financial markets, whilst affording greater financial consumer protection. Additionally, the FSRA empowers these new regulators to issue new standards under industry-specific legislation until the Conduct of Financial Institutions Act is enacted, which is expected to be during the course of 2019. The mandates of the Prudential Authority and the FSCA are much broader than those of their predecessors, which will benefit a sector that has recently been the subject of much attention, particularly after allegations of misappropriation in the VBS Mutual Bank saga.
Further, to demonstrate the extent of the fragmented nature of the banking sector, there are numerous other key pieces of legislation that are applicable to banks in South Africa, including but not limited to:
- the Banks Act 94 of 1990 and regulations published in terms thereof, providing for the regulation and supervision of the taking of deposits from the public;
- the Mutual Banks Act 124 of 1993, which provides for the regulation and supervision of the activities of mutual banks;
- the Co-operative Banks Act 40 of 2007, which provides for the regulation and supervision of cooperative banks and acknowledges member-based financial services cooperatives as a different tier of the official banking sector;
- the South African Reserve Bank Act 90 of 1989, which regulates the SARB and the monetary system;
- the National Payment Systems Act 78 of 1998, which provides for the regulation and supervision of payment, clearing and settlement systems in South Africa;
- the Inspection of Financial Institutions Act 80 of 1993, providing for the inspection of the affairs of financial institutions (such as banks) and for the inspection of the affairs of unregistered entities conducting the business of financial institutions;
- the Currency and Exchanges Act 9 of 1933, which regulates legal tender, currency exchanges and banking. Exchange Control Regulations issued in terms of that Act impose exchange controls that restrict the export of capital from South Africa;
- the Financial Intelligence Centre Act 38 of 2001, which regulates the combat of money-laundering activities and the financing of terrorist activities;
- the Financial Advisory and Intermediary Services Act 37 of 2002, which regulates the rendering of certain financial advisory and intermediary services to clients;
- the National Credit Act 34 of 2005 (NCA), which regulates consumer credit, prohibits certain unfair credit and credit-marketing practices as well as reckless credit-granting;
- the Consumer Protection Act 68 of 2008 (CPA), which regulates the provision of goods and services (including financial services} to consumers, unless exempted;
- the Financial Markets Act 19 of 2012, which provides, inter alia, the regulation of financial markets, the custody and administration of securities and insider trading; and
the Protection of Personal Information Act 4 of 2013 (POPS) which, once fully effective, will regulate the manner in which personal information may be processed by establishing the conditions, in harmony with international standards, that prescribe the minimum threshold requirements for its lawful processing.
There are also a number of amendments to industry-specific financial sector legislation, which have either been enacted or proposed to assist with the establishment and transition of the two new regulators. These include:
- the introduction of a new Insurance Act, the repeal of certain sections of the Short Term Insurance Act and Long Term Insurance Act and amendments to Insurance Regulations;
- proposed amendments to the Banks Act, Mutual Banks Act, Insolvency Act, Financial Markets Act and Financial Sector Regulation Act dealing with the resolution of certain designated financial institutions;
- proposed amendments to the Financial Sector Regulation Act introducing the concept of “Deposit Insurance” and a policy paper from the Treasury regarding the proposed deposit insurance scheme for South Africa;
- the restructuring of the Ombuds system for various financial subsectors; and
amendments to the Financial Markets Act dealing with, among other things, the regulation of trade in certain over the counter derivatives.
Although fintech is yet to be properly regulated in South Africa, the SARB has recently established the Fintech Programme, designed to assess the emergence of fintech in a structured and organized manner, in order to determine its regulatory implications. The main focus of the program is to analyze fintech developments to assist policymakers in creating the necessary framework in response to emerging innovations. Currently, however, there remains a lacuna on the treatment of fintech before the law in South Africa.