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Saturday, December 24, 2016

Banking Law in South Africa

by Amelia Stenson

Banking law in South Africa is effectively defined by the 1990 Banks Act and simply covers exactly what a bank is allowed or not allowed to do in the normal course of business.

Banking Legislation in South Africa is complex

There are a myriad of other complex bytes of legislation that pertain to South African banking law but these are often so multifaceted that expert advice is required from specialist banking law attorneys. Examples of added legislation that governs South Africa�s banking law are:

The Exchange Control Act
National Credit Legislation
The Financial Intelligence Centre Act
The Prevention of Organised Crime Act
Bills of Exchange Act

Leading Cape Town law firms offer a range of services pertaining to banking law, including advice on BEE specifications, advice on the acquisition of certain assets, leveraged and acquisitions finance, debt capital market and corporate bonds, structured finance, foreign representation, takeovers, insolvency and banking, and financial services regulation.

Common international banking instruments and requirements

Although banking law varies from country to country, there are a number of instruments and requirements that are applicable across the board, including:

Capital Requirement - an outline of how all banks must handle their capital in relation to their assets.
Corporate Governance � a framework intended to keep banks well managed. Specific requirements may include the bank being a body corporate rather than individually owned or in a partnership or trust. If it is incorporated locally rather than on foreign shores, the number of directors is limited and it has a structural organisation that includes offices and officers.

Credit rating requirements � the vast majority of international banks are required to obtain and maintain a minimum credit rating from an approved credit rating agency and to willingly disclose this to investors and prospective investors.

Reserve requirement � the minimum reserves the banks must hold to demand deposits and bank notes. This requirement is no longer about client safety but more about liquidity.

Financial reporting and disclosure requirements � all banks are required by law to prepare annual financial statements acceptable to a financial reporting standard, to have them independently audited and to open them to public scrutiny.

The objectives of Banking Law

In this day and age when leading international banks are hitting the skids, the objectives of banking law are all the more important. There are five primary objectives:

To be prudent with a depositor�s money by reducing the risks bank creditors are exposed to
To avoid the misuse of banks by criminal elements
To protect the confidentiality of banking and banks
To direct credit to preferred sectors
To ensure systematic risk reduction