A general introduction to the banking regulatory regime in South Africa

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Introduction

South Africa has an advanced banking system, backed by a sound legal and regulatory framework that aims to secure systemic stability in the economy, to ensure institutional safety and soundness, and to promote consumer protection.

Notwithstanding the turmoil experienced in international financial markets and increasing global systemic risk, the South African banking sector has remained sound and adequately capitalised, and new legislation is constantly being promulgated to ensure the continuing stability of the financial sector. The South African Reserve Bank (SARB), which is the central bank in South Africa, is closely involved in international forums, particularly the G20. In addition, the SARB continues to focus on domestic financial stability² by ensuring the orderly functioning of financial markets with a view to mitigating systemic vulnerabilities.³

The five largest banks in South Africa by total assets are Absa Bank Limited, FirstRand Bank Limited, Investec Bank Limited, Nedbank Limited and The Standard Bank of South Africa Limited.

The regulatory regime applicable to banks

The following primary statutes and regulations govern the banking sector:

1. the Banks Act 94 of 1990 (the Banks Act) and regulations published in terms thereof, that provide for the regulation and supervision of the deposit-taking activities;
2. the South African Reserve Bank Act 90 of 1989 (the SARB Act), that regulates the SARB and the monetary system;
3. the Financial Sector Regulation Act 9 of 2017 (the FSR Act), which establishes a system of financial regulation by the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA) and confers certain powers on these entities and the SARB to:
   • preserve and enhance financial stability in South Africa;
   • regulate and supervise financial product providers and financial services providers to improve market conduct for the benefit of financial customers; and
   • provide for coordination, cooperation, collaboration and consultation among the SARB, the PA, the FSCA, the National Credit Regulator (NCR), the Financial Intelligence Centre (FIC) and other organs of state in relation to financial stability and the functions of these entities;
4. the National Payment Systems Act 78 of 1998 (the NPS Act), which provides for the management, administration, operation, regulation and supervision of payment, clearing and settlement systems in South Africa;
5. the Currency and Exchanges Act 9 of 1933 (the Currency Act), which regulates legal tender, currency, exchanges and banking;
6. the Financial Intelligence Centre Act 38 of 2001 (the FIC Act), which establishes the FIC and a Money Laundering Advisory Council to combat money laundering activities and the financing of terrorist and related activities, and imposes certain duties on institutions and other persons who might be used for such activities;
7. the Financial Advisory and Intermediary Services Act 37 of 2002 (the FAIS Act), regulates the rendering of financial advisory and intermediary services to clients and potential clients;
8. the Electronic Communications and Transactions Act 25 of 2002, which provides for the facilitation and regulation of electronic communications and transactions;
9. the Prevention of Organised Crime Act 121 of 1998, which introduces measures to combat organised crime, money laundering and criminal gang activities, and prohibits certain activities relating to racketeering activities;
10. the Home Loan and Mortgage Disclosure Act 63 of 2000, which promotes fair lending practices and sets out the disclosure requirements for financial institutions who grant home loans;
11. the Mutual Banks Act 124 of 1993 (the Mutual Banks Act), which provides for the regulation and supervision of the activities of mutual banks;
12. the Co-operative Banks Act 40 of 2007 (the Co-op Banks Act), which provides for the regulation and supervision of cooperative banks. The legislation acknowledges member-based financial services cooperatives as a separate tier of the official banking sector;
13. the National Credit Act 34 of 2005 (the NC Act), which regulates consumer credit and the standards of consumer information. It also:
    • prohibits certain unfair credit and credit marketing practices and reckless credit granting;
    • provides for debt reorganisation in cases of over-indebtedness;
    • regulates the disclosure of credit information; and
    • provides for the registration of credit bureaux, credit providers and debt counselling services;
14. the Consumer Protection Act 68 of 2008 (the CP Act), which protects certain fundamental consumer rights and applies to banking services provided to consumers, unless exempted, except to the extent that any such service constitutes advice or intermediary services regulated by the FAIS Act, or is regulated in terms of the Long-term Insurance Act of 1988 or the Short-term Insurance Act of 1988 (the provisions of which have been largely superseded by the Insurance Act 18 of 2017);
15. the Financial Markets Act 19 of 2012 (the FM Act), which provides for, inter alia, the regulation of financial markets, the custody and administration of securities and prohibits insider trading;
16. the Financial Institutions (Protection of Funds) Act 28 of 2001 (the FIPF Act), which provides for and consolidates the laws relating to the investment, safe custody and administration of funds and trust property by financial institutions;
17. the Protection of Personal Information Act 4 of 2013 (the POPI Act), which regulates the minimum threshold requirements for the lawful processing of personal information;
18. the Cybercrimes Act 19 of 2020 (the Cybercrimes Act), which:
    • creates offences that have a bearing on cybercrime;
    • criminalises the disclosure of data messages that are harmful and provides for interim protection orders;
    • regulates jurisdiction in respect of cybercrimes;
    • regulates the powers to investigate cybercrimes;
    • regulates aspects relating to mutual assistance in respect of the investigation of cybercrimes;
    • provides for the establishment of a designated point of contact;
    • provides for the proof of certain facts by affidavit;
    • imposes obligations to report cybercrimes;
    • provides for capacity building; and
    • provides that the executive may enter into agreements with foreign states to promote measures aimed at the detection, prevention, mitigation and investigation of cybercrimes; and
19. the Financial Sector Laws Amendment Act 23 of 2021 (the FSLA Act), which:
    • establishes a framework for the resolution of designated institutions on financial stability is managed appropriately;
    • designates the SARB as the resolution authority;
    • establishes a deposit insurance scheme, including a Corporation of Deposit Insurance and a Deposit Insurance Fund;
    • provides coordination, cooperation, collaboration and consultation between the Corporation for Deposit Insurance and other entities in relation to financial stability and the functions of these entities; and
    • makes provision for designated institutions in connection with resolution matters.

The following regulatory authorities are responsible for overseeing banks:

1. the SARB, as the central bank, and more particularly the Registrar of Banks (Registrar), who is an officer of the SARB, are primarily responsible for protecting and enhancing financial stability in South Africa.⁴ The primary objective of the SARB is to protect the value of the local currency in the interest of balanced and sustainable economic growth in South Africa. The SARB, in terms of the NPS Act, also recognises the Payment Association of South Africa as a payment system management body tasked with organising, managing and regulating the participation of its members (i.e., banks) in the payment system;⁵
2. the PA, whose objective is to:
   • promote and enhance the safety and soundness of financial institutions that provide financial products and securities services;
   • promote and enhance the safety and soundness of market infrastructures;
   • protect financial customers against the risk that those financial institutions may fail to meet their obligations; and
   • assist in maintaining financial stability;
3. the FSCA, established in terms of the FSR Act, whose objective is to:
   • enhance and support the efficiency and integrity of financial markets;
   • protect financial customers by promoting fair treatment of financial customers by financial institutions;
   • provide financial customers and potential financial customers with financial education programmes; promote financial literacy and the ability of financial customers and potential financial customers to make sound financial decisions; and
   • assist in maintaining financial stability;
4. the FIC, who monitors and provides banks with guidance as accountable institutions regarding the performance of their duties and their compliance with the FIC Act;
5. the NCR, established in terms of the NC Act, whose responsibilities include registering credit providers and monitoring the consumer credit market and industry to ensure prohibited conduct is prevented, detected and prosecuted;
6. the National Consumer Commission, established in terms of the CP Act, whose responsibilities include enforcing the CP Act; and
7. the Information Regulator, established under Section 39 of the POPI Act, whose responsibilities include monitoring and enforcing compliance with the provisions of the POPI Act.