The Financial Sector Laws Amendment Act, which was passed in 2021, inserted a new chapter in the Financial Sector Regulation Act, 2017 (FSRA). It established a new framework to repeal the system of curatorship for distressed banks and replace it with a process of resolution for banks (Resolution Framework). The Resolution Framework was largely based on similar laws passed in other G20 jurisdictions, but with a critical difference that concerned the securities lending industry.
It is a known feature of international bank resolution that a when a bank goes into resolution, various types of contracts, including master agreements like the GMSLA, cannot be terminated and close-out netted merely because of the fact of resolution. (They can, however, be terminated and close-out if another ‘event of default’, such as non-payment, occurs.) However, while other types of contracts can ultimately be cancelled or bailed in (ie the amount payable by the bank in resolution reduced or zeroed) in international bank resolution, the long-standing position has been that most derivatives, securities lending and repo transactions cannot be cancelled or bailed in (or, in some instances, they can be cancelled or bailed in after close-out netting).
South Africa’s Resolution Framework, in contrast, protected derivatives but not securities lending and repo transactions, from cancellation or bail-in. The result of the introduction of bank resolution without protection for securities lending and repo transactions was the potential for South Africa to lose its clean netting status in respect of the GMSLA and GMRA because, on resolution of a bank, the GMSLA and GMRA could be cancelled or bailed before the other party had any opportunity to close-out and net outstanding transactions.
After significant industry lobbying by the South African Securities Lending Association (SASLA) and others, in early 2023, the South African Reserve Bank (SARB) heard securities lending industry participants and committed to amending the Resolution Framework to give securities lending and repo transactions the same protection from cancellation and bail-in that was already afforded to derivatives.
Although it was then too late to change the FSLAA or FSRA, the SARB issued the Interpretation Ruling Relating to Resolution Action on the same day that the Resolution Framework came into effect – 1 June 2023 (Interpretation Ruling). The Interpretation Ruling simply stated that, in interpreting its own powers as resolution authority under the Resolution Framework, the SARB did not consider that securities lending and repo transactions could be cancelled or bailed in. The SARB also pledged to amend the relevant section of the FSRA through an amendment (FSRA 166S Amendment) in the long-awaited Conduct of Financial Institutions Bill (CoFI). The FSRA 166S Amendment was approved by SASLA members and other industry participants.
It ultimately became clear that CoFI would take longer to pass than originally anticipated. Therefore, in December 2024 the FSRA 166S Amendment was proposed in the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill 2024 (Amendment Bill). Following a consultation period, the second draft of the Amendment Bill was published at the end of 2025 containing the same proposed FSRA 166S Amendment. Market participants were given until 13 February 2026 to comment on the Amendment Bill. The FSRA 166S Amendment has not been changed from the original proposal for inclusion in CoFI.
