Ownership restrictions and implications

Controlling interest

Describe the legal and regulatory limitations regarding the types of entities and individuals that may own a controlling interest in a bank. What constitutes ‘control’ for this purpose?

A bank may only be controlled by:

  • a public company and is registered as a controlling company in respect of a bank;
  • another bank; or
  • an institution that has been approved by the Prudential Authority and that conducts business similar to the business of a bank in a foreign country.

A person is deemed to exercise control over a bank if:

  • the bank is a subsidiary of the controlling company;
  • the controlling company alone or together with his or her associates holds shares in the bank of which the total nominal value represents more than 50 per cent of the nominal value of all the issued shares of the bank and entitles the controlling company to decisively influence the outcome of the voting at a general meeting of the bank;
  • the controlling company alone or together with his or her associates is entitled to exercise more than 50 per cent of the voting rights in respect of the issued shares of the bank; or
  • the controlling company alone or together with his or her associates is entitled or has the power to determine the appointment of the majority of the directors of the bank, including the power to appoint or remove, without the concurrence of any other person, all or the majority of the directors or to prevent the appointment of a director without his or her consent.
Foreign ownership

Are there any restrictions on foreign ownership of banks?

The acquisition of shares in a bank or its controlling company requires the written permission of the Prudential Authority if the acquisition results in the purchaser, alone or together with any associates:

  • holding shares amounting to more than 15 per cent of the total nominal value of the issued share capital of the bank or controlling company; or
  • being entitled to exercise more than 15 per cent of the total voting rights in respect of the issued shares of the bank or controlling company.

The Prudential Authority’s permission must be obtained for each subsequent acquisition of the relevant bank’s shares or voting rights exceeding 15 per cent and 24 per cent of the bank’s total shares or voting rights if the acquirer has held 15 per cent or 24 per cent, as the case may be, of such shares or voting rights for a period of 12 months (or a shorter period determined by the Prudential Authority).

The permission of the Minister of Finance, through the Prudential Authority, is required to hold more than 49 per cent of the shares or voting rights in a bank or controlling company. The Prudential Authority or Minister of Finance, as the case may be, may only grant permission for the acquisition of shares in a bank if satisfied that the acquisition will not be contrary to the public interest and the interests of the relevant bank or its depositors or of the relevant controlling company. The permission of the Minister of Finance must be obtained for each acquisition of a bank’s shares or voting rights exceeding 49 per cent and 74 per cent of that bank’s total shares or voting rights if the acquirer has held 49 per cent or 74 per cent, as the case may be, of such shares or voting rights for a period of 12 months (or a shorter period determined by the Minister).

While approval from the SARB pursuant to the Exchange Control Regulations, 1961 promulgated in terms of the Currency and Exchanges Act, 1933 (Exchange Control Regulations) will not be required for the purchase of shares in a resident by a non-resident, control measures require securities held by non-residents to be endorsed by authorised dealers as ‘non-resident’. The ‘Currency and Exchanges guidelines for business entities’ issued by the SARB on 21 February 2018 provide a general understanding of the exchange control system in South Africa and explain the requirement as follows:

The principal objective in controlling non-resident owned securities is to ensure that residents requiring funds outside [South Africa] do not obtain such funds by purchasing securities in [South Africa] and selling them abroad without accounting for the proceeds in foreign currency or Rand from a [n]on-resident Rand account. In addition, since all income due to non-residents on their securities is freely transferable, the aim is to ensure that non-residents do not purchase securities from residents other than through approved channels at a fair market price. Since exchange controls on non-residents have been abolished, the onus rests on the South African buyer or seller of securities to prove that the transaction was concluded on an arm’s length basis at a fair and market related price. . . . The control over the acquisition or disposal of non-resident securities is exercised by an Authorised Dealer placing the endorsement ‘non-resident’ on securities owned by non-residents or in which non-residents have an interest. The effect of this endorsement is to ensure that in the event of a disposal by the non-resident of its interest, the payment may be transferred abroad or credited to a Non-resident Rand account.

Implications and responsibilities

What are the legal and regulatory implications for entities that control banks?

The Banks Act establishes, among others, the following requirements in respect of controlling companies, in addition to those listed in question 24:

  • Controlling companies must be registered in terms of the Banks Act.
  • Controlling companies are subject to the supervisory review process and inspection required to be implemented and maintained by the Prudential Authority.
  • The Prudential Authority may issue a non-financial sanction or a directive requiring, among others, a controlling company to:
    • cease or refrain from engaging in any act, omission or course of conduct or to perform such acts necessary to remedy the situation;
    • perform such acts necessary to comply with the directive or to effect the changes required to give effect to the directive; or
    • provide the [Prudential Authority] with such information and documents relating to the matter specified in the directive.
  • The Prudential Authority may require controlling companies to furnish information or prepare a report at its own expense.
  • The Prudential Authority must approve a controlling company’s:
    • establishment or acquisition of a subsidiary or entry into an agreement having the effect that any company becomes its subsidiary within or outside South Africa;
    • acquisition of an interest in any undertaking having its registered office or principal place of business outside South Africa;
    • creation or acquisition of a trust outside South Africa of which the bank is a major beneficiary; or
    • establishment or acquisition of any financial or other business undertaking under its direct or indirect control outside South Africa.
  • The Prudential Authority must approve the acquisition of shares in a controlling company in certain instances.
  • The Prudential Authority must approve the reconstruction of companies within a group of which a controlling company is a member.
  • The Prudential Authority must approve the alteration of a controlling company’s constitutional documents.
  • The Prudential Authority must approve the conversion of a controlling company’s shares to, or its issue of, preference shares, hybrid debt instruments or debt instruments.
  • The Prudential Authority may impose a penalty on a controlling company that has contravened or failed to comply with the Banks Act.

The Banks Act also requires a bank to disclose the name of any individual shareholder who holds more than 25 per cent of that bank’s issued shares if the bank’s exposure to the shareholder (through loans or other advances) exceeds the nominal value of the shares.

In terms of the FSR Act, the Prudential Authority is entitled to regulate the conduct of holding companies of financial institutions. In particular, the Prudential Authority is entitled to make prudential standards that must be complied with by, and issue written directives requiring the holding company to take specified actions to, the holding company of a financial conglomerate.

The FSR Act allows prudential standards to regulate:

  • financial or other exposures of companies within financial conglomerates;
  • the governance and management arrangements for holding companies of financial conglomerates;
  • reporting of information about companies within financial conglomerates that are not financial institutions; and
  • reducing or managing risks to the safety and soundness of an eligible financial institution arising from the other members of the financial conglomerate.

The FSR Act prohibits a holding company from acquiring or disposing of a material asset (which is required to be identified in a prudential standard) without the approval of the Prudential Authority.

In terms of the FSR Act, a directive may be issued in circumstances where the holding company or another company in the financial conglomerate:

  • is conducting its business in an improper or financially unsound way and, as a result, there is a risk that an eligible financial institution in the conglomerate will not be able to comply with its obligations under a financial sector law or in relation to a financial product or financial service that it provides or offers to provide;
  • has not complied with an enforceable undertaking accepted by the Prudential Authority;
  • has contravened or is likely to contravene a financial sector law;
  • is involved or is likely to be involved in financial crime; or
  • is causing or contributing to instability in the financial system, or is likely to do so.

What are the legal and regulatory duties and responsibilities of an entity or individual that controls a bank?

The Banks Act imposes, among others, the following responsibilities on controlling companies:

  • A controlling company must disclose details of its interest in subsidiaries, joint ventures, certain undertakings and certain trusts.
  • The amount of investments made by a controlling company:
    • in undertakings other than banks or institutions that conduct business similar to the business of a bank outside South Africa, controlling companies or companies of which the main object is the holding or development of property for the purpose of conducting the business of a bank; or
    • in fixed property that is not used or intended to be used mainly for the purpose of conducting the business of a bank, may not exceed a prescribed percentage of a prescribed amount of the share capital and reserve funds of the controlling company.
  • The amount of loans and advances provided by a controlling company:
    • to undertakings other than banks or institutions that conduct business similar to the business of a bank outside South Africa, controlling companies or companies of which the main object is the holding or development of property for the purpose of conducting the business of a bank; or
    • in relation to fixed property that is not used or intended to be used mainly for the purpose of conducting the business of a bank, may not exceed a prescribed percentage of a prescribed amount of the share capital and reserve funds of the controlling company.
  • The Banks Act imposes certain duties and standards of conduct on the directors of controlling companies in addition to those required by the Companies Act.
  • Controlling companies must comply with the corporate governance requirements set out in the Banks Act.
  • Controlling companies must comply with prudential requirements to maintain certain minimum capital and reserve funds and are liable to receiving a fine for their failure or inability to comply.

In terms of the Banks Act, the chief executive officer of a bank (in the case of the appointment of the chief executive officer, a director designated by the board) must, at least 30 days prior to the proposed date of appointment, give the Prudential Authority written notice of the nomination of any person for appointment as chief executive officer, director or executive officer. The Prudential Authority may object (and must provide the grounds for the objection) to the proposed appointment within 20 working days of receipt of the notice. Each director, chief executive officer and executive officer of a bank owes towards the bank the duties set out in the Banks Act and the Companies Act. The Prudential Authority may object to the appointment or continued employment of a chief executive officer, director or executive officer of a bank if the Prudential Authority reasonably believes that such individual is not, or is no longer, a fit and proper person to hold that appointment or if it’s not in the public interest for that individual to hold or continue to hold the appointment.

The majority of directors of a bank must not be employees of that bank, its subsidiary or controlling company and the majority of the employees of a bank’s controlling company must not be employees of that company or of any bank in respect of which that company is registered as a controlling company. Those directors who are employees must not together be entitled to exercise a vote in excess of 49 per cent of the total vote on the board of the bank or controlling company, as the case may be.

What are the implications for a controlling entity or individual in the event that a bank becomes insolvent?

In the event that a bank is placed under curatorship, the curator may be empowered by the Minister of Finance to make and carry out any decision in respect of the bank that would have required an ordinary resolution or a special resolution of shareholders of the bank or its controlling company in terms of the Banks Act, the Companies Act, the bank’s memorandum of incorporation or the rules of any securities exchange on which any securities of the bank or its controlling company are listed.

While a bank is under curatorship, the Prudential Authority is entitled under the Banks Act to appoint a commissioner and assistants to the commissioner to investigate the business, trade, dealings, affairs or assets and liabilities of that bank or of any of its associates. The commissioner would have the powers and duties corresponding to the powers and duties conferred or imposed on a financial sector regulator, and each assistant to the commissioner would have the powers and duties corresponding to those of an investigator under Part 4 of Chapter 9 of the FSR Act, including the power to question or require the production of a document by any person who the investigator reasonably believes is able to provide information relevant to the investigation.

Changes in control

Required approvals

Describe the regulatory approvals needed to acquire control of a bank. How is ‘control’ defined for this purpose?

A person is deemed to exercise control over a bank if:

  • the bank is a subsidiary of the controlling company;
  • the controlling company alone or together with his or her associates holds shares in the bank of which the total nominal value represents more than 50 per cent of the nominal value of all the issued shares of the bank and entitles the controlling company to decisively influence the outcome of the voting at a general meeting of the bank;
  • the controlling company alone or together with his or her associates is entitled to exercise more than 50 per cent of the voting rights in respect of the issued shares of the bank; or
  • the controlling company alone or together with his or her associates is entitled or has the power to determine the appointment of the majority of the directors of the bank, including the power to appoint or remove, without the concurrence of any other person, all or the majority of the directors or to prevent the appointment of a director without its consent.

A public company may apply to the Prudential Authority as a controlling company if:

  • it intends to exercise control over the bank; or
  • it is a holding company in respect of the company that has applied for registration as a bank. Acquisition of control of a registered bank also requires the permission of the Minister of Finance, through the Prudential Authority. Such permission is required for a person to hold more than 49 per cent of the shares or voting rights in a bank or controlling company.
Foreign acquirers

Are the regulatory authorities receptive to foreign acquirers? How is the regulatory process different for a foreign acquirer?

Control of a South African bank may be acquired by an institution that has been approved by the Prudential Authority and that conducts business similar to the business of a bank in a foreign country.

Foreign acquirers of securities will require the same approval from the Prudential Authority or the Minister of Finance, as the case may be, as South African acquirers. Also see question 22 regarding the acquisition of securities by non-residents.

Factors considered by authorities

What factors are considered by the relevant regulatory authorities in an acquisition of control of a bank?

Pursuant to the Banks Act, the Prudential Authority must be satisfied of the following requirements before it may grant the application of the bank’s controlling company:

(a) that the registration of the applicant as a controlling company will not be contrary to the public interest;

(b) that, in the case of [a public company applying for registration where it that intends to exercise control over any bank], the applicant will be able to establish control . . . over the bank concerned;

(c) no provision of the memorandum of incorporation of the applicant is inconsistent with a provision of [the Banks Act] or is undesirable in so far as it concerns banks;

(d) that every director or executive officer of the applicant is, as far as can reasonably be ascertained, a fit and proper person to hold the office of such director or executive officer, and that every such executive officer has sufficient knowledge and experience to manage the affairs of the applicant in its capacity of a controlling company;

(e) that the applicant is in a financially sound condition;

(f) that no interest which any person has in the applicant is inconsistent with a provision of [the Banks Act]; and

(g) that the application complies with the requirements of [the Banks Act].

The Minister of Finance may only grant permission for the acquisition of shares in a registered bank if the Minister of Finance is satisfied that the acquisition will not be contrary to the public interest and the interests of the relevant bank or its depositors or of the relevant controlling company.

Filing requirements

Describe the required filings for an acquisition of control of a bank.

The Companies Act requires a compliance certificate to be obtained from the Takeover Regulation Panel in respect of amalgamations or mergers involving public companies. The Companies Act also requires a notice of amalgamation or merger to be filed with the Companies and Intellectual Property Commission, together with a prescribed fee and confirmation that, among others, the amalgamation or merger:

  • has been approved in terms of the Competition Act, to the extent required;
  • has been granted the consent of the Minister of Finance in terms of the Banks Act; and
  • is not subject to further approval by any regulatory authority or any unfulfilled conditions imposed by or in terms of any law administered by a regulatory authority.

Under the Competition Act, the South African competition authorities are required to approve a merger involving a bank unless the Minister of Finance has issued a notice to the Commissioner of the Competition Commission, specifying the names of the parties to the merger and certifying that:

  • the merger is a transaction in respect of which approval is required under the Banks Act; and
  • it is in the public interest that the merger is subject to the jurisdiction of the Banks Act.

In terms of the Banks Act Regulations, the application for registration as a controlling company is subject to a registration fee in the amount of 6,000 rand, excluding VAT, and must enclose the following documents:

  • the constitutional documents of the applicant;
  • the registered office and postal address in respect of the applicant; a statement containing the name and address and the curriculum vitae of the chairperson, every director and every executive officer of the applicant;
  • full particulars of the business that the applicant conducts or proposes to conduct, of the manner in which such business is or is to be conducted and of the extent of each type of business conducted or to be conducted;
  • the applicant’s latest audited group and company financial statements or, in the case of an applicant whose first financial year has not yet expired, of an audited balance sheet or a pro forma balance sheet of the applicant, as at a date not more than 30 days prior to the date of application; a return concerning shareholders of a bank or controlling company duly completed in respect of the applicant;
  • a statement furnishing, as at a date not more than 30 days prior to the date of the application:
    • the amount of the issued share capital and reserves of the applicant;
    • the amounts of the applicant’s investments in fixed property used mainly for the purpose of conducting the business of a bank and fixed property not used mainly for the purpose of conducting the business of a bank; and
    • the name of the undertaking concerned and the amount invested or proposed to be invested, set out separately under the headings Shares and Loans, in banks, controlling companies, property companies of which the property is used mainly for the purpose of conducting the business of a bank, property companies of which the property is not used mainly for the purpose of conducting the business of a bank and other undertakings (to be specified in the statement);
  • a diagrammatic representation of the structure of the group of companies consisting of associates of the applicant, showing also the percentage shareholding of members of that group in the other members; and
  • a return concerning shareholders of a bank or controlling company duly completed in respect of every bank in respect of which the applicant is, or is to be, registered as a controlling company.
Timeframe for approval

What is the typical time frame for regulatory approval for both a domestic and a foreign acquirer?

The time frame for such applications is not prescribed and may vary in practice.