Thu, Jun 13, 2024

The official Financial Regulation Journal of SAIFM

A step closer to meeting South Africa’s G20 Commitments

Anthony Colegrave, Ewa Orpen and Elaine Langa

On 28 January 2022, the government of the Republic of South Africa promulgated the Financial Sector Laws Amendment Act, No. 23 of 2021 (the “FSLAA“). However, not all of its provisions have come into force. To date, sections 2, 3, 12 and 58 of the FSLAA have come into effect. The FSLAA aims to, amongst other things, introduce South Africa‘s first comprehensive deposit insurance scheme that will ensure that depositors are paid their funds when a bank fails. It also amends a number of pieces of legislation including the Insolvency Act, 1936 of South Africa (the “Insolvency Act“), the Banks Act, 1990, the Companies Act, 2008 and the Financial Sector Regulation Act, 2017 (the “FSRA“). Some of the amendments that we can expect regarding the Insolvency Act relate to the creditor hierarchy by including preferring deposits covered by the proposed deposit insurance scheme to unsecured creditors. The FSLAA also intends to create a new subordinated class of loss-absorbing instruments (referred to as “FLAC” instruments) to facilitate the application of the statutory bail-in power so as to assist with the implementation of the resolution framework for “designated institutions” and the creation of a privately funded deposit insurance scheme.

Note that other than the above changes, the creditor hierarchy remains unaltered from the Insolvency Act. The aim of the amendments proposed to the Insolvency Act also clarify that the provisions of the FSRA will apply to the liquidation or sequestration of an estate of a designated institution and exclude dispositions made in the event of resolution from the application of the Insolvency Act.

The amendments to the FSRA made by the FSLAA, on the other hand, aim to provide for the establishment of a framework for the resolution of designated institutions in order to ensure that the impact (or potential impact) of a failure of a designated institution on financial stability is managed appropriately. The South African Reserve Bank is established as the resolution authority; and the Corporation for Deposit Insurance and a Deposit Insurance Fund is established to assist with the stability of the financial system in the event of the resolution of a designated institution.

The provisions of the FSLAA which have come into effect as at 29 April 2022 are not substantive and include:

(a) tidy ups to align the Insolvency Act with the terminological amendments introduced by the FSLAA, for example replacing “Registrar” with “Authority”;

(b) amending section 83 of the Insolvency Act to include transactions on a market infrastructure as referred to in in section 35A of the Insolvency Act in the provisions of section 83 of the Insolvency Act which allows for the realisation of the property and security by creditors without the need to pay realisation process over to the liquidator; and

(c) adding new subsections into section 12 of the Mutual Banks Act, 1993 (to regulate the procedure of the Prudential Authority issuing guidance notes and directives and furnishing mutual banks or auditors of mutual banks with information in respect of market practice or market and industry developments within and outside the Republic of South Africa.

It is not possible at this stage accurately to determine when the different remaining provisions of the FSLAA will come into effect. The remaining provisions will only come into effect on a date determined by the Minister of Finance by notice in the Government Gazette.

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