The World Federation of Exchanges (WFE), the global trade association for exchanges and clearing houses, has published a paper on 25 March 2025 calling for a global, evidence-based refresh of public policy on derivatives. The paper sets out a coherent approach to derivatives in order to nurture their use, especially in regulated, lit environments, to avoid the development of an off-exchange derivatives market that is opaque and less fair to investors.

It is essential that all types of users have access to derivatives to manage economic uncertainty. This means avoiding bureaucracy and blocks on their use, while monitoring all off-exchange and all uncleared derivatives more vigilantly and systematically. The role of exchanges in price discovery and clearing houses in neutralising counterparty risk should be nurtured, as without a thriving public derivatives market, participants will turn to less well-regulated trading venues to manage risk, jeopardising the health of the financial system.

Listed markets constitute the safe, reliable, and verifiable core of derivatives, as they do for other financial instruments, and regulators must ensure they can continue to do so. Public policy should rethink measures that push derivatives trading into under-regulated environments and develop a policy framework that encourages trading on lit public markets to benefit from their numerous public-good aspects.

Nandini Sukumar, CEO of the World Federation of Exchanges, said, “Public markets are the best place to trade derivatives. Any policy being considered that impedes the growth of exchange-traded derivatives misunderstands the vital role they play in managing risk. Fifteen years on from the collapse of Lehman Brothers, it is important not to let markets slip into the bad old ways and, if anything, bring more transactions into the scope of margining and clearing. The real risk is that regulatory, tax or other measures push customers into a less well-regulated place.”

Richard Metcalfe, Head of Regulatory Affairs at the World Federation of Exchanges, said, “Exchange-traded derivatives, with their integral central clearing arrangements, bring clarity as to what the price is and who holds risk positions. They provide the foundation for healthy, well-regulated derivatives markets, which bring huge benefits to savers and businesses, small and large. The balance of regulatory incentives, as between OTC and listed derivatives, should continue to reflect this reality. At the same time, any temptation to load costs onto CCPs, rather than charging the risk-taking market participants, should be resisted to maintain the correct incentives for those risk takers. Measures such as the current EU restrictions on CFDs are a good example of ensuring the highest standards apply across all parts of the derivatives world.”

Read the full paper here.

On 3 March 2025, the South African Reserve Bank (SARB) published a draft directive entitled ‘Directive in respect of specific payment activities within the national payment system’ (Draft Directive) simultaneously with a draft exemption notice entitled ‘Designation by the Prudential Authority of specific activities conducted in the national payment system which shall be deemed not to constitute ‘the business of a bank’ under paragraph (cc) in section 1(1) of the Banks Act, 1990’ (Exemption Notice).

While the purpose of the Draft Directive is to prescribe regulatory requirements for conducting prescribed payment activities, the purpose of the Exemption Notice is to exempt the payment activities that technically qualify as ‘the business of a bank’ from the requirements of the Banks Act, 1990 (Banks Act).

The Draft Directive prescribes, inter alia, authorisation, governance, prudential, fitness and propriety, client funds safeguarding, data protection, and reporting requirements for persons (both banks and non-banks) who conduct or seek to conduct any of the following payment activities:

• acquiring of payment transaction – contracting with a payee to accept and process payment transactions that result in a transfer of funds to the payee;
• card credit payment instruction – a payment instruction resulting in the credit of funds to a payment account linked to a card;
• electronic money – electronically stored monetary value issued on receipt of funds and represented by a claim on the issuer, which is generally accepted as a means of payment by persons other than the issuer and is redeemable for physical cash or a deposit into a payment account on demand (including mobile money where an electronic wallet service allows users to store, send and receive money using their mobile phone);
• execution of payment transactions – execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or another payment service provider (including execution of debit orders such as once-off direct debits and authenticated collections, execution of payment transactions through a payment card or similar device, and execution of credit transfers such as standing orders);
• faster payments – providing an electronic service in which both the transmission of the payment message and the availability of funds to the payee occur in real time or near-real time, on a basis that the service is available 24 hours a day and seven days a week;
• issuing of payment instruments – contracting with a payer to provide a payment instrument to initiate payment instructions;
• provision of payment account or store of value – providing an account or store of value held in the name of one or more payer or payee which is used for the execution of payment transactions;
• provision of third-party payment – payee service provider (accepting funds or the proceeds of payment instructions from multiple payers on behalf of a beneficiary), and payer service provider (accepting funds or the proceeds of payment instructions, from a payer to make payment on behalf of that payer to multiple beneficiaries) (TPPP Payment Activities);
• money remittance – a service for the transmission of funds (or any representation of monetary value), with or without any payment accounts being created in the name of the payer or the payee, where (a) funds are received from a payer for the sole purpose of transferring a corresponding amount to a payee or to another payment institution acting on behalf of the payee, or (b) funds are received on behalf of, and made available to, the payee;
• clearing – the exchange of payment instructions;
• settlement – the discharge of settlement obligations;
• provision of a scheme – providing a set of formal, standardised and common binding rules governing the relationship between payment institutions or members of a scheme to provide payment instruments for the transfer of funds, or making and receiving payments, between or by end-users; and
• participation in a scheme – Participation in a scheme as admitted by a scheme in terms of its entry and membership criteria.

It is noteworthy that the persons who conduct TPPP Payment Activities will be exempt from several significant requirements of the Draft Directive.

In addition, the Draft Directive prescribes that any person seeking to operate a closed-loop payment system or offer a closed-loop payment activity must be registered with the SARB (although such a person will not be considered as a payment institution and will not be required to comply with most of the requirements of the Draft Directive).

A ‘closed-loop payment system or payment activity’ is a payment system or payment activity that is not interoperable with other payment systems, and the payment service provider is the same entity or part of the same group as the payment service provider of the payee, with transactions limited to a specific network or ecosystem. This will be a significant change as the issuance of closed-loop payment instruments, which are currently unregulated save under the Consumer Protection Act, 2008 (such as gift cards), will become regulated and be subject to registration under the Draft Directive.

On a positive note, the Exemption Notice seeks to exempt the following payment activities that involve the pooling of funds into a store of value or payment account by a person other than a bank for the purpose of conducting payment activities, from the definition of ‘the business of a bank’ as outlined in the Banks Act, subject to the prescribed conditions:

• acquiring of payment transactions;
• card credit payment instructions;
• execution of payment transactions;
• electronic money;
• faster payments;
• issuing of payment instruments;
• money remittance; and
• provision of payment account or store of value.

The eight payment activities to be exempted under the Exemption Notice are currently considered by the SARB as the business of a bank and can only be offered by a bank or a non-bank in partnership with a bank. The Exemption Notice will enable non-banks that are authorised under the Draft Directive to offer these payment activities.

Both the Draft Directive and the Exemption Notice are in draft form and are available for public comments until 16 April 2025.

The Draft Directive and the Exemption Notice, together with their public comments templates, are available here under the tabs NPS regulation /Consultation. documents’.

The Board of IOSCO congratulates the International Ethics Standards Board for Accountants (IESBA) on achieving an important milestone of finalizing their International Ethics Standards for Sustainability Assurance (including International Independence Standards) (IESSA) and Other Revisions to the Code Relating to Sustainability Assurance and Reporting. IOSCO notes the extensive and thorough outreach program conducted by the IESBA throughout the lifecycle of the development of IESSA.

IOSCO reiterates its support for this work and commends the IESBA for its timely development of the standard in response to the public interest need for ethics (including independence) standards to cover all sustainability assurance providers.

The final standard is responsive to the key considerations and observations set out by IOSCO in its 2023 report and 2024 public statement. IOSCO believes the standard can support high-quality assurance over sustainability-related information and may enhance consistency, comparability and reliability of sustainability-related information provided to the market. The final standard together with the IESBA’s plan to develop implementation support materials and other capacity-building efforts, can contribute to enhancing trust in the sustainability-related information provided to investors.

Recognizing that individual jurisdictions have different domestic arrangements regarding the consideration of international ethics and independence standards, IOSCO calls on members to consider ways in which they might apply or otherwise be informed by the IESSA when considering ethics and independence requirements for assurance or permissions within the context of their jurisdictional arrangements.

Jean-Paul Servais, Chair of IOSCO, said: “History has shown us that assurance is necessary to deliver trust in disclosures, which is instrumental for the good functioning of financial markets. Today’s announcement from IESBA is a welcome development, providing a robust ethical framework for the assurance of sustainability reporting.

A strong assurance framework for sustainability related disclosures needs to be focused on the public interest and should be profession – and framework – agnostic. IESBA’s new international standard will foster trust and integrity for years to come.

“IOSCO will continue to play a key role in promoting global consistency in the assurance of sustainability-related information”, he added.

Please click here to read IOSCO’s full Statement of Support.

• The Basel Committee on Banking Supervision (BCBS), the BIS Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) today published Final Reports on initial and variation margin in centrally cleared and non-centrally cleared markets.
• The Reports address areas of further policy work identified in the 2022 BCBS-CPMI-IOSCO Review of margining practices as part of the policy responses coordinated by the Financial Stability Board (FSB) to the March 2020 “dash for cash” market turmoil.
• The Reports contain proposals and practices intended to improve transparency, streamline margin processes and increase the predictability of margin requirements across centrally and non-centrally cleared markets.

The BCBS, the CPMI and IOSCO on 15 January 2025 published three Reports containing proposals and practices to improve transparency and streamline margin processes and increase the predictability of margin requirements across centrally and non-centrally cleared markets.

The Reports are part of a holistic work program bringing together the BCBS, the CPMI, IOSCO and the FSB. They were developed following the 2022 publication of the BCBS-CPMI-IOSCO report Review of margining practices, which identified areas for further work.

Transparency and responsiveness of initial margin in centrally cleared markets – review and policy proposals, from the BCBS, CPMI and IOSCO, sets out 10 final policy proposals relevant to central counterparties and clearing members.

The proposals seek to aid market participants’ and regulators’ understanding of initial margin requirements and responsiveness through increased transparency. An accompanying cover note summarises consultation feedback. The relevant standard setting bodies will consider how best to implement the proposals.

In tandem, the CPMI and IOSCO have published the Final Report Streamlining Variation Margin in Centrally Cleared Markets – Examples of Effective Practices. The eight effective practices set out in the Report provide examples of how standards set out in the CPMI-IOSCO Principles for financial market infrastructures, as supplemented by the relevant guidance, can be met.

The practices aim to enhance market participants’ liquidity preparedness for above-average variation margin calls through increased transparency and the efficient collection and distribution of variation margin in centrally cleared markets.

In addition, the BCBS and IOSCO have published the Final Report Streamlining Variation Margin Processes and Initial Margin Responsiveness of Margin Models in Non-centrally Cleared Markets. The Report sets out eight recommendations to firms to encourage the widespread implementation of good market practices. These practices streamline variation margin processes and increase the responsiveness of initial margin models.

The FSB’s Final Report on Liquidity Preparedness for Margin and Collateral Calls, published in December 2024, forms part of this work program and complements the BCBS, CPMI and IOSCO reports.

These Reports should be read together as elements of a comprehensive approach to improving transparency, streamlining margin processes, increasing the predictability of margin requirements and improving the liquidity preparedness of non-bank market participants for margin calls.

South Africa’s OTC derivatives regulatory landscape is maturing, with key updates impacting both domestic and international market participants. These developments are part of South Africa’s implementation of global financial reforms aligned with the G20’s commitment to improving transparency and reducing systemic risk in the OTC derivatives market.

Some of the most important recent and upcoming changes to be aware of are as follows.

Strate granted trade data repository licence in December 2024

In a major step forward for South Africa’s financial market infrastructure, in December 2024 the Financial Sector Conduct Authority (FSCA) granted to Strate (Pty) Ltd, South Africa’s main central securities depository, a licence to operate as a Trade Data Repository (TDR).

As a TDR, Strate will be tasked with collecting, storing, and providing access to OTC derivatives trade data. Although the FSCA published a conduct standard outlining trade data reporting obligations in 2018, its commencement date has yet to be determined by the Prudential Authority (PA) of the South African Reserve Bank.

Now, with a licensed TDR in South Africa, market participants will be waiting to hear about the commencement date and will be eager to learn whether the reporting fields set out in the annexure to the conduct standard will be adjusted in line with the evolution of trade data reporting in other jurisdictions.

It is worth noting that with Joint Notice 2 of 2024, also released in December 2024, the PA announced it will require OTC derivative providers and financial institution counterparties to report certain margin information via its Umoja portal with effect from 1 April 2025, in line with the 2023 amendments to Joint Standard 1 of 2020 ‘Margin Requirements for Non-Centrally Cleared Over-The-Counter Derivative Transactions’. Trade data reporting to Strate will be in addition to reporting on the Umoja portal, so market participants will be looking to see some alignment in the two reporting streams.

Initial margin requirements – next phase-in September 2025

Another significant milestone on the horizon is the final phase of implementation of initial margin (IM) requirements for non-centrally cleared derivatives, scheduled for September 2025. This final phase will impose IM requirements on providers trading with counterparties, where both belong to groups that meet a threshold of the month-end average gross notional amount of OTC derivatives for March, April and May 2025 exceeding ZAR 100 billion.  The phase will significantly expand the pool of institutions required to exchange IM, and the market is accordingly working to deadline.

General Laws Amendment Bill published in December 2024

On a related regulatory note, the South African General Laws Amendment Bill, introduced in December 2024, proposes a change to the recently implemented chapter 16 of the Financial Sector Regulation Act, 2017 (Resolution Framework) applicable to banks and certain other designated institutions. 

In 2023, together with the announcement of the effective date of certain sections of the Resolution Framework, the PA released an Interpretation Note stating that it did not view section 166S (containing the write-down and cancellation powers of the Resolution Authority) as applying to master agreements as defined in section 35B of the Insolvency Act, 1936 (including ISDA Master Agreements, GMSLAs and GMRAs).

South African OTC derivative and securities finance market participants had expected an analogous amendment to the Resolution Framework to come through the long-awaited Conduct of Financial Institutions Bill (CoFI), but the amendment has instead appeared in the National Treasury’s General Laws Amendment Bill released in December 2024.  

The National Treasury Media Statement regarding the Bill, together with a link to the Bill and commenting instructions can be found here. Comments are due to National Treasury by close of business on 6 February 2025.

Conclusion

The South African derivatives regulatory environment continues to mature, with necessary enactments and changes occurring regularly. We expect to see increased activity relating to trade data reporting and margin in the coming year.

The South African Reserve Bank (SARB) has released the following important updates and recommendations impacting the financial markets:

JIBAR Fallback Methodology Recommendation

Guidance on the methodology for JIBAR fallback rates to support the transition to alternative reference rates.

Consultation on Market Conventions for ZARONIA-Based Non-Linear Derivative Instruments

A call for feedback on proposed conventions for derivatives linked to the ZARONIA reference rate.

Recommendations for a ZARONIA-First Initiative in the Derivatives Market

Proposals to prioritize ZARONIA in the South African derivatives market to promote market stability and transparency. For more details, visit the SARB website.

The recently introduced section 34A of the Prevention and Combating of Corrupt Activities Act 12 of 2004 (PRECCA), which came into effect on 3 April 2024, creates a new broadly framed offence where members of the private sector or incorporated state-owned entities (SOEs) can be held liable for corrupt activities perpetrated by others in certain circumstances.

Section 34A(1) provides that any member of, for example, a company within the private sector or an incorporated SOE is guilty of an offence, if a person associated with that member gives or agrees or offers to give any gratification prohibited in terms of Chapter 2 of PRECCA (prohibited gratification) to another person, with the intention of obtaining or retaining either business or an advantage in the conduct of business for that private sector company or incorporated SOE. Chapter 2 of PRECCA sets out various offences that are categorised as ‘corrupt activities’.

However, section 34A(1) is qualified, so that no offence is committed, where that company within the private sector or incorporated SOE had in place adequate procedures designed to prevent persons associated with that company or incorporated SOE from giving, agreeing, or offering to give any prohibited gratification. What constitutes ‘adequate procedures’ is not defined in PRECCA.

It is widely accepted that Section 34A is based on section 7 of the United Kingdom’s Bribery Act 2010 (UK Bribery Act), which creates an offence where commercial organisations fail to prevent bribery. The UK Bribery Act is considered a key piece of legislation that has influenced anti-bribery and corruption (ABC) law globally. Its ‘six principles’ for ‘bribery prevention’ will probably influence the interpretation of what ‘adequate procedures’ means, in the South African courts.

However, another powerful and influential piece of ABC legislation is the United States’ (US) Foreign Corrupt Practices Act of 1977 (FCPA), which whilst broad in scope applies primarily to instances of bribery and corruption of foreign (state) officials, in order to obtain an advantage. Importantly, subsidiaries of US-held companies are subject to the FCPA – including those subsidiaries that are based in South Africa.

The FCPA does not expressly make provision for an offence of ‘failing to prevent bribery’, as the entities responsible for enforcing the FCPA – the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) – recognise that ‘a company’s failure to prevent every single violation does not necessarily mean that a particular company’s compliance program was not generally effective […] and they do not hold companies to a standard of perfection’.

Rather, when deciding whether to conduct an investigation or bring charges and/or render fines or accept self-reporting of corrupt and unethical business practices, and therefore reduce the fines levied, in terms of the FCPA, the DOJ and SEC will consider, inter alia, the adequacy and effectiveness of a company’s internal organisational safeguards and compliance procedures and programme/s at the time that the alleged violation of the FCPA is committed.

There are examples of criminal investigations that have resulted in substantial fines being imposed on US companies due to insufficient internal organisation to prevent bribery of foreign public officials leading to the payment of bribes abroad to secure contracts.

The establishment and extent of internal organisational structures are factors considered when determining whether to reduce fines and the remedial steps that are required to be implemented by an offending company, including whether to appoint a monitor to oversee the introduction of these internal organisational safeguards (compliance programmes).

Other important considerations may include, inter alia, the nature and seriousness of the offence, the pervasiveness of wrongdoing within the company, the company’s history of similar misconduct, and whether the company has self-reported, cooperated, and taken appropriate remedial action.

It should be noted that the DOJ and SEC may choose not to pursue charges against a company for violating the FCPA where the company in question has an effective compliance programme and may even ‘reward a company for its program, even when that program did not prevent the particular underlying FCPA violation that gave rise to the investigation’.

The DOJ and SEC apply a pragmatic, common-sense approach when considering compliance programmes, involving the following three broad questions:

• Is the compliance programme well designed?
• Is the compliance programme adequately resourced to function effectively?
• Does the compliance programme work in practice?

Compliance programmes that merely employ a ‘tick-box’ approach will likely be ineffective and companies should consider the specific needs, challenges, and risks associated with their businesses when creating a compliance programme.

The DOJ and SEC have identified the following ‘hallmarks of effective compliance programs’. However, those responsible for compliance should carefully consider what their specific business would require from a compliance programme to effectively prevent, detect, and remedy violations of the FPCA. This would include:

• Commitment by senior management to a culture of compliance, which is reinforced and implemented at all levels of the business and is accompanied by a clearly articulated policy against corruption.
• An effective code of conduct that is clear, concise, and accessible to all employees and other parties associated with the company, as well as policies and procedures designed to mitigate risks associated with the business.
• Oversight and implementation of the compliance programme by the senior executive/s of the company who should be sufficiently autonomous from management and should have the necessary resources to effectively implement the programme in the organisation.
• A comprehensive, risk-based compliance programme that is tailored to address the specific risks associated with the company’s business, is adequately resourced, and is implemented in good faith.
• Steps taken to ensure that relevant policies and procedures are effectively communicated throughout the company through periodic training, certification, and/or ongoing advice and guidance in respect of the compliance programme.
• Clear and appropriate disciplinary procedures that are applied across the company on a prompt, reliable, fair, and consistent basis. Positive incentives may also facilitate greater compliance and the SEC has encouraged companies to reward ‘doing the right thing’.
• Risk-based due diligence in respect of third parties associated with the company – considering the third party’s qualifications and associations and the business rationale for the third party’s inclusion in the transaction – and ongoing monitoring of relationships with third parties.

In conclusion, a company in the private sector that complies with section 34A of PRECCA, by adopting adequate procedures to prevent persons associated with that company from conducting corrupt activities, will probably find that it employs the same kind of or similar compliance practices recognised by the FCPA, as the ‘adequate procedures’ to prevent corruption.

Of crucial importance is that South African subsidiaries of US-held corporations, or any corporation that falls within the FCPA definition of such, ensure that when their ‘adequate procedures’ are implemented, they similarly consider and comply with the provisions of FCPA. If there is any doubt as to the application of the FCPA, the adoption of these procedures can only stand a corporation in good stead.

Report explores how the related disclosures can support investor protection and market integrity objectives and sets out future considerations for key stakeholders

IOSCO on 13 November 2024 published a Report on Transition Plans Disclosures. Developed by IOSCO’s Sustainable Finance Taskforce (STF), the Report sets out how transition plans disclosures can support the objectives of investor protection and market integrity, shares challenges and key findings which point towards a series of coordinated actions for IOSCO and other stakeholders to consider in the future which concern four main aspects:

1. Where transition plans are published, encouraging consistency and comparability through guidance on transition plan disclosures,
2. promoting assurance of transition plan disclosures;
3. enhancing legal and regulatory clarity and oversight, and
4. building capacity.

On consistency and comparability, stakeholders suggested additional guidance on transition plans disclosures could clarify disclosure expectations and lead towards more standardized information. They see alignment of guidance on transition plans disclosures as key so that investors can understand and compare information across different jurisdictions, even though national transition plans requirements may differ.

IOSCO’s Report therefore welcomes the IFRS Foundation’s plan to develop educational material and, if needed, application guidance to support transition plans disclosures that provide investors with the information needed to make informed decisions about risks and opportunities. IOSCO encourages the International Sustainability Standards Board (ISSB) to maintain a high level of interoperability of the IFRS Sustainability Disclosure Standards with key jurisdictional standards as they develop this educational material.

To enhance clarity, IOSCO also encourages relevant standard setters to consider providing markers on what would constitute forward-looking information, in accordance with their standards and governance processes. This can support reporting entities in managing potential liability risks while disclosing much needed forward-looking, climate-related, information.

Jean-Paul Servais, Chair of IOSCO’s Board and Chair of the Belgium Financial Services & Markets Authority (FSMA), said: “Climate transition plans are becoming increasingly used by companies. To help investors and issuers, IOSCO publishes today a comprehensive report on transition plan disclosures. In this respect, IOSCO welcomes the ISSB’s announcement on developing educational materials in this area and invites them to continue their efforts with regards to alignment of standards and guidance. We will continue to engage with the ISSB in this process.”

The Report highlights the five most useful components of transition plans disclosures that were suggested by market participants in IOSCO’s outreach:

1. Ambition and targets;
2. Decarbonization levers and action plan;
3. Governance and oversight;
4. Financial resources and human capital, and;
5. Financial implications.

Rodrigo Buenaventura, Chair of IOSCO’s Sustainable Finance Task Force, commented: “Comparable, consistent and reliable disclosures of transition plans may have a positive effect on market participants’ ability to make informed decisions, ultimately benefiting both investors and the integrity of the capital markets. High-quality transition plans are key to navigate the transition towards lower GHG emissions, a climate-resilient global economy and are relevant to all jurisdictions, entities and investors”.

IOSCO intends to continue its engagement with key stakeholders, including the IFRS Foundation, while promoting market integrity and mitigating greenwashing risks with regards to transition plans, thus supporting investors’ informational needs and the ability of markets to price sustainability-related risks and opportunities and support capital allocation.