SECTION: 2
Overview of the
Banks Act, 94 of
1990
TABLE OF CONTENTS
Content
Section 2
Overview of The Bank Act, 94 of 1990
Page
26
Overview
28
2.1
Nature and purpose of the Act
30
2.2
Business of a Bank
34
2.3
Registration requirements for Banks
43
2.4
Insolvency and the role of the Curator
47
2.5
Foreign Banking operations
49
2.6
Prudential requirements for Banks
51
2.7
Summary
55
2.8
Conclusion
58
Annexure
60
27
Version: 03/2004
IB CP3 LG
Overview
Learning Outcome
The following is the Learning Outcome of this Section:
2. Have an Overview of The Bank Act, 94 of 1990.
Learning
Objectives
The Learning Objectives are as follows:
On completion of this Section, you will be able to:
2.
Have an Overview of The Bank Act, 94 of 1990 by:

Realising the nature and purpose of the Act

Comprehending the business of a Bank

Comprehending the registration requirements for Banks

Having insight into insolvency and the role of the Curator

Comprehending foreign Banking operations

Appreciating the prudential requirements for Banks
28
Version: 03/2004
IB CP3 LG
Assessment
Criteria
To demonstrate the achievement of the Learning Objectives, you are required to
meet the criteria and/or provide the following evidence:
Realising the nature and purpose of the Act
 Define the nature and purpose of the Act
 Name the four levels on which our Banking rules and regulations
operate
 Define the role of the Registrar of Banks
 List the legal requirements that the Act lays down for Banks
Comprehending the business of a Bank
 List the business activities of a Bank
 Name undesirable practices as described by the Act
Comprehending the registration requirements for Banks
 Identify the registration criteria for Banks
Having insight into insolvency and the role of the Curator
 List the powers of the Curator
Comprehending foreign Banking operations
 List the information to be furnished by a foreign institution when
applying to conduct the business of a Bank
Appreciating the prudential requirements for Banks
 Name the prudential requirements that the Banks must adhere to
29
Version: 03/2004
IB CP3 LG
2.
2.1
Overview of the Bank Act, 94 of 1990
Purpose and nature of the Act
Introduction
The South African
Banking System
In South Africa, the financial regulatory system has undergone enormous
change. In the first Section of this Unit we discussed the:

Transfer of responsibility for Banking supervision from the Department of
Finance – now known as the National Treasury – to the South African
Reserve Bank in 1987

Establishment of the Financial Services Board in 1989

Creation of the Policy Board for Financial Services and Regulation by Act
of Parliament in 1993
South Africa has the largest and most sophisticated Banking system in Africa.
Although South Africa, within the global Banking community constitutes only a
small percentage of the global financial industry, we have little option but to
adjust to international trends and standards. The Banking sector consists of:

A central Bank, the South African Reserve Bank

A few large, financially strong Banks

Investment institutions

A number of smaller Banks
Our Banking system is well developed and extensively regulated. These rules
and regulations usually operate at four distinct levels:
1. There is general legislation usually applicable to all companies, such as
the Companies Act.
2. Secondly, financial institutions are subject to specific prescriptive
legislation applicable only to their functional business, for example The
Bank Act.
3. The respective registrars apply the rules in terms of their specific
directives. For example, the rules issued in terms of The Bank Act by
the Registrar of Banks.
4. The industry is also bound by the self-imposed rulings of industry
associations, for example the Banking Council.
30
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Registrar and
Deputy Registrar
of Banks
As stated previously, the Banks Act of 1990 regulates the Banking Sector. The
Banking Supervision Department of the Reserve Bank, issues regulations in
terms of this Act and supervises the industry.
A Registrar of Banks is appointed by the Reserve Bank, with the approval of the
Minister of Finance. The Registrar of Banks must perform the functions as set
out in the Act. This must be done:

Under the control of the Reserve Bank

In accordance with directions issued from time to time by the Reserve
Bank
With the approval of the Minister, the Reserve Bank may also designate no
more than four officers or employees in its service as Deputy Registrars of
Banks. These Deputy Registrars are subject to the control and directions of the
Registrar, and must be competent to perform any function that the Registrar is
permitted or required to perform.
From time to time, the Registrar furnishes Banks with circulars containing
guidelines regarding the application and interpretation of the provisions of the
Banks Act.
The Registrar must submit an annual report to the Minister on his activities.
31
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Contents of the
Act
Below is the table of contents with the main Chapters of the Banks Act. The Act
consists of 9 Chapters and 94 Sections. Reference will only be made to certain
Sections of the Act in this Unit.
Banks Act, 94 of 1990
Chapter I
Interpretation and Application of Act
Chapter II
Administration of Act
Chapter III
Authorisation to Establish, and Registration and Cancellation of
Registration of Bank
Chapter IV
Shareholding in and Registration of Controlling Companies in
respect of Banks
Chapter V
Functioning of Banks and Controlling Companies with reference
to the Companies Act
Chapter VI
Prudential Requirements
Chapter VII
Provisions relating to aspects of the Conduct of the Business of a
Bank
Chapter VIII
Control of certain activities of Unregistered Persons
Chapter IX
General Provisions
Regulations
Conditions for the conducting of a business of a Bank by a
Foreign Institution
Capital-Adequacy Requirements for Banks’ Financial Instrument
Trading
 Definitions
 General
 Capital
 Position Risk
 Counterparty Risk
 Large Exposures
 Use of Internal Models
 Reporting
Regulations relating to Banks
Chapter I
Basis of Regulations
Chapter II
Risk-Based Returns and Instructions, Directives and
Interpretations
Chapter III
Corporate Governance
Chapter IV
Application Procedures
Chapter V
Prescribed Fees
Chapter VI
Information Required for SA Reserve Bank
Chapter VII
Definitions and General Provisions
If you have access to the Internet, you can access The Bank Act on:

http://www.acts.co.za/banks
32
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Purpose of The
Bank Act
The purpose of The
Bank Act is to:

Provide for the
regulation and
supervision of the
business of public
companies taking
deposits from the
public

Provide for matters
connected therewith
In short, the Act lays down all the legal requirements to be met before a
Bank may:

Accept deposits

Conduct the commercial activities of Banking
The Act also lays down the legal requirements for:

The registration of foreign Banks doing business in South Africa

Liquidation proceedings in relation to Banks

Investment prudence

Taxation of Banks

Various statutory arrangements affecting the business of Banks
33
Version: 03/2004
IB CP3 LG
2.
2.2
Overview of the Bank Act, 94 of 1990
Business of a Bank
Introduction
In South Africa, only a public company that is registered as a Bank with the
Registrar of Banks is permitted to conduct Banking business according to The
Bank Act of 1990. The Registrar of Banks heads the Office for Banks, which is
part of the Reserve Bank, situated in Pretoria.
Definition of a
Bank
A Bank is defined in Section 1(1) of the Act as follows:
Extract
from
the Act
Use of the name
“Bank”
“Bank” means a public company registered as a Bank in terms of this Act
No person is entitled to use in respect of any business a name or description
which includes the word “Bank” or any derivative therefore. No person may use
the words “deposit-taking institution” or “building society” or any derivative
thereof, otherwise than in the circumstances prescribed in Section 22 of the Act.
Section 22 of the Act reads as follows:
Use of name of Bank
Extract
from
the Act
22.1) Subject to the provisions of subsection (2), an institution which is
registered as a bank or a foreign institution which is authorized under
section 18A to conduct the business of a bank by means of a branch in
the Republic or an institution which is registered as a representative
office of a foreign institution under section 34 shall nota) in the case of such bank use, or refer to itself by, a name other than the
name under which it is so registered; or
b) in the case of such foreign institution, in respect of the branch
concerned use, or refer to the branch by, a name other than the name
under which the conduct of the business of a bank in the Republic was
so authorized,
or any literal translation or abbreviation of such name which has been
approved by the Registrar: Provided that the Registrar may, if he or she
deems it desirable, authorize the use of a name by which such bank or
foreign institution is otherwise generally known.
2) An institution which is registered as a bank may, with the consent of the
Registrar, in conjunction with its registered name or the name of which the
use was authorized by the Registrar under the proviso to subsection (1)
use, or refer to itself by, the name of another bank with which it has
amalgamated or all the assets and liabilities of which have, as
contemplated in section 54(1), been transferred to it or, in the case of a
change of name, the name by which it was previously known.
34
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Use of the name
“Bank”, continued
Extract
from
the Act
2A) A bank may, with the prior written consent of the Registrar, in
conjunction with its registered name, and subject to such conditions as
the Registrar may determine, use or refer to a name of a division, brand
or product of that bank, which name includes the word ‘bank’ or any
derivative thereof.
3) An institution which contravenes the provisions of subsection (1) shall
be guilty of an offence.
4) Any person who, in connection with any business conducted by such
persona) uses any name, description or symbol indicating, or calculated to
lead persons to infer, that such person is a bank registered as such
under this Act; or
b) in any other manner purports to be a bank registered as such under
this Act, while such person is not so registered as a bank, shall be
guilty of an offence.
5) No person shall use in respect of any business a name or description
which includes the word "bank", or any derivative thereof, or the words
"bank" or "building society", or any derivative thereof, unless-a) the business in question is a bank or a foreign institution which is
authorised under section 18A to conduct the business of a bank by
means of a branch in the Republic or an institution that is registered
as a representative office of a foreign institution under section 34;
b) the business in question is registered as a controlling company in
respect of a bank under this Act and the name or description in
question is so used for the purpose of indicating the connection
between the two companies concerned; or
c) such name or description is composed of words which include the
word "bank" as part of a place-name or a personal name,
and the Registrar has in writing authorized such person so to use such
name or description.
6) Notwithstanding the prohibition contained in subsection (5), a companya) of which the formation has been approved by the Registrar in terms
of section 15, may be formed under a name which includes the word
"bank" or the words "bank" or "building society" or a derivative
thereof; or
b) whose application for registration as a bank has been granted by the
Registrar under section 17 and which has not been formed in
accordance with paragraph (a) of this subsection under a name
which already includes the word "bank" or the words "deposit-taking
institution" or "building society" or a derivative thereof, may before
its registration take the necessary steps in accordance with the
Companies Act to include such word, words or derivative in its
name.
7) The Registrar may in writing direct a company referred to in subsection
(6) whose name includes the word "bank" or the words "deposit-taking
institution" or "building society", or any derivative thereof, to remove
such word, words or derivative from its name--
35
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Use of the name
“Bank”, continued
Extract
from
the Act
a) in the case of a company referred to in paragraph (a) of that
subsection, if it fails to apply in terms of section 16(1) for registration
as a bank within the period of 12 months referred to in that section,
or if its application for such registration is refused under section 17;
and
b) in the case of a company referred to in paragraph (b) of that
subsection, if it fails to comply, within a reasonable time after its
application for registration has been granted under section 17, with
the conditions subject to which it was registered.
8) Any person who contravenes any provision of subsection (5) or refuses
or fails to comply with a direction under subsection (7) shall be guilty of
an offence.
9) The provisions of subsection (5) shall not be construed as prohibiting
the use in respect of any company, society, firm, business or
undertaking of any name, style or description which immediately prior to
the commencement of this Act was lawfully so used in terms of the
provisions of any law repealed by this Act
Business
activities
Extract
from
the Act
The business of a Bank is defined in Section 1(1) of the Act as meaning:
(a) the acceptance of deposits from the general public (including persons in
the employ of the person so accepting deposits) as a regular feature of
the business in question;
(b) the soliciting of or advertising for deposits;
(c) the utilisation of money, or of the interest of other income earned on
money, accepted by way of a deposit as contemplated in paragraph (a) –
(i)
for the granting by any person, acting as a lender in his own
name or through the medium of a trust or nominee; of loans to
other persons;
(ii)
for investment by any person, acting as an investor in his own
name or through the medium of a trust or nominee; or
(iii)
for the financing, wholly or to a material extent, by any person
of any other business activity conducted by him in his own
name or through the medium of a trust or a nominee;
(d) the obtaining, as a regular feature of the business in question, of money
through the sale of an asset, to any person other than a Bank, subject to
an agreement in terms of which the seller undertakes to purchase from
the buyer at any future date the asset so sold or any other asset; or
(e) any other activity which the Registrar has, after consultation with the
Governor of the Reserve Bank, by notice in the Gazette declared to be the
business of a Bank,
36
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Business
activities,
continued
Exempt activities
In short, the business of a Bank includes the following:

Accepting deposits from the general public on a regular basis

Soliciting of deposits

Using money from deposits to grant loans or make investments

Repurchase agreements

Foreign exchange dealers

Market makers for government bonds

Any other activity the Registrar deems to be the business of a Bank
There are certain activities, which do not fall under the business of a Bank as
quoted under Section 1 of the Act. The Registrar of Banks has designated, with
the approval of the Minister of Finance, certain activities, which do not fall within
the meaning of the business of a Bank. This therefore exempts the persons
carrying on such activities from the provisions of the Act, provided that the
activities are carried on in accordance with the conditions prescribed by the
Registrar.
Below is an extract from the Definition of “The Business of a Bank”
contained in the Act regarding activities that do not form part of the
business of a Bank. Read through and discuss the extract with your
Coach. Use the space on page 38 and note in your own words the
activities, which do not fall under the business of a Bank.
Extract
from
the Act
but does not include –
(aa) the acceptance of a deposit by a person who does not hold himself out
as accepting deposits on a regular basis and who has not advertised for or
solicited such deposit : Provided that –
(i) the person accepting deposits as contemplated in this paragraph shall
not at any time hold deposits from more than twenty persons or
deposits amounting in the aggregate to more than R500 000; and
(ii) a person and any person controlled directly or indirectly by him
(whether such control is through shareholding or otherwise) or
managed by him, and a subsidiary of such last-mentioned person,
who accepts deposits as contemplated in this paragraph shall for the
purposes of subparagraph (i) of this proviso be deemed to be one
person;
(bb) the borrowing of money from its members by a co-operative subject to
such conditions as may be prescribed;
(cc) any activity of a public sector, governmental or other institution, or of any
person or category of persons, designated by the Registrar, with the approval
of the Minister, by notice in the Gazette, provided such activity is performed
in accordance with such conditions as the Registrar may with the approval of
the Minister determine in the relevant notice;
37
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
(dd) any activity contemplated in paragraph (a), (b) or (c) –
i) performed by any institution registered or established in terms of, by or
under any other Act of Parliament and designated by the Minister by
notice in the Gazette; or
ii) performed in terms of any scheme authorized and controlled by, and
conducted in accordance with the provisions of, any other Act of
Parliament and so designated by the Minister, provided such activity is
performed in accordance with such conditions as the Minister may
determine in the relevant notice;
Extract
from
the Act
(ee) the acceptance, subject to such conditions as the Registrar may from time
to time determine by notice in the Gazette, of money against debentures, bills of
exchange, promissory notes or other similar financial instruments, provided the
money so accepted is not used, in the case of such acceptance of money by a
person other than a Bank, for the granting of money loans or credit (other than
customary credit in respect of the sale of goods or the provision of services by
the issuer of such financial instruments) to the general public;
(ff) the effecting, subject to the provision of any other Act of Parliament and to
such conditions, if any, as the Registrar may from time to time determine by
notice in the Gazette, of a money lending transaction directly between a lender
and a Bank as borrower through the intermediation of a third party who does not
act as a principal to the transaction (hereinafter in this paragraph referred to as
the agent), provided the funds to be lent in terms of the money-lending
transaction are entrusted by the lender to the agent subject to a written contract
of agency in which, in addition to any other terms thereof, at least the following
matters shall be recorded :
i) Confirmation that the agent acts as the agent of the lender; and
ii) that the lender assumes, except in so far as there may in law be a right
of recovery against the agent, all risks connected with the administration
of the entrusted funds by the agent, as well as the responsibility to
ensure that the agent executes the instructions as recorded in the
written contract of agency; or
(gg) the activities, set forth in subparagraphs (A) and (B) hereunder, of a person
(hereinafter in this paragraph referred to as the mandatory) that –
i) is a natural or juristic person registered in terms of, or a juristic person
established by or under, any other Act of Parliament and the main
business activities of whom or of which are regulated or controlled in
terms, by or under such other Act of Parliament; and
ii) has been designated by the Registrar by notice in the Gazette, which is
mandatory, for purposes of effecting a money lending transaction with a
Bank –
(A) accepts money from the mandator in terms of a prescribed contract or
mandate; and
(B) in the execution of the mandate, and subject to such conditions as the
Registrar may determine in the notice referred to in subparagraph (ii) above,
deposits such money into an account maintained by the mandatory with a Bank,
irrespective as to whether or not such money is so deposited together with
money so accepted by the mandatory from other mandators.
38
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
39
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Undesirable
practices
In terms of The Bank Act, Section 78, a Bank:

May not hold shares in any company of which the Bank is a subsidiary

May not loan money to any person against security of its own shares

May not grant unsecured loans or loans against security which in the
opinion of the Registrar is inadequate, for the purpose of furthering the
sale of its own shares

Must hold all its assets in its own name, excluding any asset:
 Bona fide hypothecated to secure an actual or potential liability;
 In respect of which the Registrar has, on application of the bank
concerned, approved in writing that such asset may be held in the
name of another person; or
 Falling within a category of assets designated by the Registrar by
notice in the Gazette as a category of assets which may be held in the
name of another person

May not show in its financial statements or any return (as per Section
75)(1)(d)), as an asset any amount representing either of the following:
 The cost of organisation
 Extension
 The purchase of a business
 A loss (including a loss originating from the sale of an asset)
 Bad debts

May not open any branch, agency, or any further branch or agency, or
pay out dividends on its shares before provision has been made out of the
profits for the items referred to above

May not, for the purpose of effecting a money lending transaction directly
between a lender and a borrower, perform any act in the capacity of an
agent except where the funds to be lent in terms of the money lending
transaction are entrusted by the lender to the bank subject to a written
contract of agency in which, in addition to any other terms thereof, at least
the following matters shall be recorded:
 Confirmation by the lender that the Bank acts as his agent
 That the lender assumes, except in so far as he may in law have a
right of recovery against the Bank, all risks connected with the placing
by the Bank of the funds entrusted to it by the lender, as well as the
responsibility to ensure that the Bank executes the lender’s
instructions as recorded in the written contract of agency
 That no express or implied guarantee regarding the payment of any of
money owing by one person to another in pursuance of the relevant
money lending transaction is furnished by the Bank

May not record any asset at a value increased by the amount of a loss
incurred upon the realisation of another asset in its accounting records
40
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Undesirable
practices,
continued

May not conclude a repurchase agreement in respect of a fictitious asset
or an asset created by means of a simulated transaction

May not purport to have concluded a repurchase agreement without:



Such agreement being substantiated by a written document signed by
the other party thereto
The details of such agreement being recorded in the accounts of the
Bank as well as in the accounts, if any, kept by the Bank in the name
of such other party
May not, without the prior written approval of the Registrar and
notwithstanding anything to the contrary contained in any law, pay out
dividends from its share capital
If a Bank employs an undesirable practice, the Registrar will notify the Bank in
writing that the practice is undesirable. The Registrar may also declare a practice
undesirable for all Banks by notice in the Gazette.
The Bank has 21 days from receipt of the notice, to correct the undesirable
practice. After the expiry period, the Bank shall then be guilty of an offence.
Inter company loan agreements: Are you acting in contravention of the Bank Act
when you borrow money from or lend money to a subsidiary or holding company
or a company within your Group? Access the above article on the internet at:
http://www.hofmeyr.co.za/articles.htm#Banking
Discuss the article with your Coach/Manager. Think of examples where a
client has contravened The Bank Act, for example if a client applies for a
student loan and use the money to buy a car.
41
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Inspection of a
Bank
In terms of Section 12 of the South African Reserve Bank Act, Act 90 of 1989, If
the Governor or a Deputy Governor has reason to suspect that any:

Person

Partnership

Close corporation

Company or other juristic person
who or which is not registered in terms of the Banks Act, 1990 (Act 94 of 1990),
as a bank or in terms of the Mutual Banks Act, 1993 (Act 124 of 1993), as a
mutual bank, is carrying on the business of a bank or a mutual bank, he or she
may direct the Registrar of Banks referred to in section 4 of the Banks Act, 1990,
to cause the affairs or any part of the affairs of such person, Partnership, Close
Corporation, Company or other juristic person to be inspected by an inspector
appointed under section 11 (1), in order to establish whether or not the business
of a Bank or Mutual Bank, as the case may be, is being carried on by that person,
Partnership, Close Corporation, Company or other juristic person.
The provisions of sections 4, 5, 8 and 9 of the Inspection of Financial Institutions
Act, 1984 (Act 38 of 1984), shall apply mutatis mutandis in respect of an
inspection carried out in terms of subsection (1).
Think about the last audit in your department. Have you been part of the
audit/inspection process? Discuss the audit/inspection with your Coach or
a fellow Learner. When and why did this audit/inspection take place? Are
there scheduled intervals? Use the space below and note the reason for
the last audit/inspection that took place.
42
Version: 03/2004
IB CP3 LG
2.
2.3
Overview of the Bank Act, 94 of 1990
Registration requirements for Banks
Introduction
In order to be registered as a Bank, an institution must be a public company
registered as such in terms of the Companies Act, Act 61 of 1973.
A public company may issue shares to the public and must have at least 7
shareholders. As with private companies, they must send copies of their financial
statements to the Registrar of Companies and may list their shares.
We will discuss the Companies Act in detail in a forthcoming Unit.
Registration of a
Bank
Section 11 of the Banks Act reads as follows:
Registration a prerequisite for conducting the business of a Bank
Extract
from
the Act
11. (1) Subject to the provisions of Section 18A, no person shall conduct the
business of a Bank unless such person is a public company and is registered
as a Bank in terms of this Act.
(2) Any person who contravenes a provision of subsection (1) shall be guilty of
an offence.
The following institutions are excluded from the above requirements, as per
Section 2 of the Act, unless otherwise stated:

The Reserve Bank

The Land Bank

The Development Bank of Southern Africa

The Corporation for Public Deposits established by Section 2 of the
Corporation for Public Deposits Act, 1984 (Act No. 46 of 1984)

The Public Investment Commissioners referred to in Section 2 of the
Public Investment

Commissioners Act, 1984 (Act No. 45 of 1984)

Any mutual Bank

Any other institution or body designated by the Minister by notice in the
Gazette
43
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Criteria for
registration
The Registrar has wide discretionary powers to grant or refuse an application for
authorisation to establish a Bank in South Africa.
Section 13 of the Act states that the Registrar will not approve an
application for authorisation to establish a Bank unless he is satisfied that
the:

Establishment of the proposed Bank will be in the interest of the public

Business, which the applicant intends to conduct, is the business of a
Bank

Applicant will conduct the proposed business of a Bank as a public
company incorporated and registered under the Companies Act

Applicant will be able to establish itself successfully as a Bank

Applicant will have the financial means to comply, in the capacity of a
Bank, with the requirements of the Act

The business will be conducted in a sensible manner, and the directors
and executive officers of the proposed Bank are fit and proper persons to
hold such office

Executive officers of the proposed Bank have sufficient experience of
the management of the business of a Bank

The composition of the board of directors of the proposed Bank will be
appropriate having regard to the nature and scale of the intended
business
Once the Registrar has granted authorisation to establish a Bank, the applicants
has 12 months in which to apply to the Registrar for the registration of the
institution as a Bank.
The Registrar shall grant the application if he is satisfied that the:

Business, which the applicant intends to conduct, is that of a Bank

Applicant does not propose to adopt undesirable methods of conducting
business

Memorandum and articles of association are consistent with the Act
An institution, which is registered for the first time as a Bank, cannot commence
doing the business of a Bank until it has furnished proof to the Registrar that it
complies with the provisions of Section 70, Prudential Requirements.
We will discuss the prudential requirements later on in this Section.
44
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Discuss the structure of THE BANK’s top management with regards to the:



Directors
Executive Officers, and
Board of Directors
with your Coach.
Use the space below and sketch a diagram of the reporting structure of
THE BANK’s top management.
45
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Refusal of
application
Conditions for
registration
The Registrar may however refuse an application for registration if:

The applicant no longer complies with the abovementioned criteria

The institution, when registered, will not be able to meet the terms of the
Act, or is likely to conduct its business contrary to the provisions of the Act

The interest, which any person has in the institution, is not in agreement
with a provision of the Act

The interest of potential depositors will be detrimentally affected by the
manner in which the institution proposes to conduct business

The name of the institution is the same or similar as that of an existing
Bank, or of a Bank or other institution previously registered under the Act
or any other statute

The name of the institution is likely to mislead the public

The application does not comply with the requirements of the Act
The Registrar may enforce certain conditions when granting an application for
registration. Section 18 states that:
Conditions of registration
Extract
from
the Act
18. (1) The registration under Section 17 of an institution as a Bank shall be
subject to the prescribed conditions and to such further conditions, if any, as
the Registrar may determine.
(2) In addition to any other condition which the Registrar may impose under
subsection (1), he may impose a condition requiring the institution concerned
to take within a specified period such steps in terms of the Companies Act as
may be necessary to alter its memorandum of association or articles of
association in accordance with the requirements of the Registrar.
Section 58 of The Bank Act stipulates that every Bank, must within 30 days
of its registration, furnish the Registrar with a copy of its register of
directors and officers referred to in Section 215 of the Companies Act.
46
Version: 03/2004
IB CP3 LG
2.
2.4
Overview of the Bank Act, 94 of 1990
Insolvency and the role of the Curator
Introduction
As discussed before, a Bank is a public company and must be registered in terms
of the Companies Act.
The Companies Act contains detailed provisions relative to the winding-up of the
affairs of a public company in insolvency.
Insolvency of a
Bank
The Bank Act prescribes, aside from the provisions of the Companies Act,
that:

The Registrar may at any time institute or oppose legal proceedings for
the winding up of any Bank or the placing of such Bank under judicial
management

No person other than an appointee of the Registrar shall be appointed as
provisional liquidator, liquidator, provisional judicial manager or judicial
manager of a Bank

The Master of the High Court (who oversees all liquidations and insolvency
proceedings) shall appoint a qualified person, nominated by the Registrar, to
assist the liquidator or judicial manager in the performance of his functions
The Registrar is entitled to receive copies of all the legal proceedings relating to
the winding up of a Bank in insolvency.
Powers of the
Curator
If the Registrar is of the opinion that a Bank is in financial difficulties, he may,
with the written consent of the Chief Executive Officer (CEO) or the Chairman of
the Board of Directors appoint a Curator to the Bank (Section 69). The decision
to appoint a Curator must however be in the public’s interest.
The Curator will have wide powers, and the Minister of Finance may further
empower the Curator to:

Suspend or reduce the right of creditors to claim or receive interest on any
money owing to them by the Bank

Make payments, whether in respect of capital or interest, to any creditor/s
of the Bank concerned at the time, in such order and manner as he may
consider fit

Cancel any agreement between the Bank and any other party to advance
money due, or to cancel any agreement to extend any existing facility

Convene meetings of creditors of the Bank to establish the nature and
extent of the Bank’s indebtedness
47
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Powers of the
Curator,
continued

Negotiate with individual creditors on the final settlement of the debt

Make and carry out any decision, which in terms of the Companies Act
would have been required to be made

Cancel any lease of moveable or immoveable property entered into by the
Bank

Dispose of any asset of the Bank, including any advance or any loan

Cancel any guarantee issued by the Bank, unless the Bank has contracts
to make good under such guarantee within 30 days after the appointment
of the Curator
Section 69 of the Act states that where a Bank is placed under Curatorship, the
Registrar may appoint a commissioner to investigate the business, trade,
dealings, affairs or assets and liabilities of the Bank. Such commissioner will
have wide powers of inspection.
Talk to your Coach or a fellow Learner about recent liquidations/
insolvencies in the financial sector. For example, think about Saambou
Bank. Look for articles regarding the above and note main learning points
in the space below.
48
Version: 03/2004
IB CP3 LG
2.
2.5
Overview of the Bank Act, 94 of 1990
Foreign Banking operations
Introduction
In the last few years, many foreign Banks and investment institutions have set up
operations in South Africa.
The Bank Act also regulates the business of a Bank conducted by a foreign
institution in South Africa.
Application for
authorisation and
registration
In order to obtain authorisation to conduct the business of a Bank, the
foreign institution is required to lodge a written application to the Registrar
of Banks.
The following information needs to be listed on the prescribed form:

The name of the foreign institution

The country in which it was established

The name of its proposed Chief Representative Officer in South Africa

The address (domicilium) of its proposed representative officer in South
Africa
The institution applying for authorisation must adhere to several other
application criteria.
Some of these criteria includes:

A prescribed fee of R9 000,00 must accompany the application for
authorisation

A certificate of competent authority must also accompany the application,
stating that the applicant conducted the business of a Bank in the foreign
country and under their laws

The institution must appoint at least two natural persons residing in South
Africa who are authorised to conduct the management of the business of a
branch. One of these must be appointed as the Chief Executive of the
branch
Once the Registrar grants an application for authorisation, he will furnish the
foreign institution with a certificate of authorisation to conduct business. The
institution then needs to pay a registration fee of R3 000,00.
49
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
In Unit 1, Introduction to law and how laws govern credit, we discussed a
natural and a legal person. Can you remember the difference? Use the
space below and describe a natural person and a legal person.
Application for
authorisation and
registration,
continued
After establishment of the institution, the Branch or Representative Officer must
notify the Registrar, in writing, of any:

Change of name of the institution

Change of address of the representative office or branch office

The closing down of the representative office or branch office as soon as
it occurs
Section 18A(7) of the Act determines that any foreign institution who conducts
the business of a Bank by means of a branch in South Africa, without
obtaining the Registrar’s written authorisation, is guilty of an offence.
If a foreign institution is doing business as a Bank in South Africa by means of a
branch, and fails to comply with the prescribed condition/s to which its
authorisation is subject, its activities may be cancelled or suspended.
With the consent of the Minister of Finance, the Registrar must in writing:
 Inform the institution of his intention to cancel/suspend such authorisation

Give reasons for the intended cancellation/suspension

Ask the insitution to motivate, within 30 days from the date of the notice,
why its authorisation should not be cancelled/suspended
50
Version: 03/2004
IB CP3 LG
2.
2.6
Overview of the Bank Act, 94 of 1990
Prudential requirements for Banks
Introduction
As discussed in the 1st Section of this Unit, the Registrar has extensive regulatory
and supervisory powers in respect of Banks.
Every Bank is obliged to provide returns prescribed by regulation to the
Registrar in order to enable him to monitor compliance with the formal, prudential
and other requirements imposed on Banks by the Act.
Such regulations may be and are amended from time to time by the Registrar in
order to provide for amendments and additions to the prescribed returns, and the
frequency of submission thereof.
Furnishing of
information
Section 7 of the Act describes that the Registrar may direct a:

Bank

Controlling company

Subsidiary of a Bank

Subsidiary of a Controlling Company
to furnish him, in writing with:

Any information that he requires for the performance of his functions
under The Bank Act

A report on any matter, by a public accountant as defined in Section 1 of
the Public Accountants’ Auditors Act, Act 80 of 1991, or by any other
person with the appropriate professional skill. This person must be
designated or approved by the Registrar and he may require the relevant
report to be in a certain specified form

No a due diligence audit of the financial condition of any Bank may be
conducted without first notifying the Registrar in writing of the intention to
do so

The person who requested a due diligence audit of the financial condition
of a Bank, must furnish the Registrar with a copy of the audit report
51
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Prudential
requirements
In addition, Banks are subject to various reporting requirements concerning large
exposures, while exchange control limits are imposed on the size of foreign
assets and liabilities of Banks.
A Bank's capital and reserves act as a first line of defence if losses are incurred,
causing shareholders rather than depositors to lose their money first.
This encourages shareholders to demand prudence from the Bank's
management in its extension of credit and other business.
In South Africa, capital requirements are, with effect from the commencement
of the Banks Amendment Act of 1994, the higher of R50 million or a specified
percentage of the Bank's risk weighted assets and off-balance sheet activities.
unimpaired
reserve =
minimum reserve
The minimum amount of share capital and unimpaired reserve funds to be
held against an asset or activity is determined by the corresponding level of
risk. Currently, it is calculated as 8% (the overall capital requirement
percentage), multiplied by the risk weight applicable to the asset or activity,
multiplied by the average daily amount of the book value of the asset or activity in
the relevant quarter.
At least half the required capital should consist of primary share (tier one)
capital and unimpaired reserve funds. This means capital obtained through
the issue of ordinary shares or non-redeemable non-cumulative preference
shares and general or special reserves that have been disclosed as such in the
financial statements of the Bank.
The remainder may be secondary share (two tier) capital and unimpaired
reserve funds, meaning cumulative preference shares and loan capital obtained
by way of prescribed categories of debt instruments as well as general or special
reserves that have not been disclosed in the financial statements.
Apart from capital requirements, a Bank has to fulfil certain liquid asset
requirements and cash reserve requirements. The cash reserve requirements
are used on occasions as an instrument of monetary policy - with any rising of
requirements obviously being a restrictive measure - while the other requirements
have a more structural character.
A Bank has to hold an average daily amount of liquid assets of not less
than 5% of the average daily amount of its total liabilities to the public.
52
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Prudential
requirements,
continued
Bullion = gold
bars; gold or silver
in bulk before
coining, or valued
by weight
Liquid assets include:

Any credit balance in a clearing account with SARB

Bank notes and coins in a Bank's vaults and automated teller machines

Gold coin and bullion

Short-term Treasury bills issued

Securities of the Reserve Bank with a maturity of not more than 3 years

Short-term Land Bank bills

Government stock with a maturity of not more than 3 years
Excluded are foreign currency assets (except gold coin and bullion) and assets
pledged or otherwise encumbered.
The provisions relating to large credit exposures require the board of
directors of a Bank to give its consent for an investment or loan exposure
to any one client if such an exposure exceeds 10% of the Bank's capital
and reserves.
At the same time a transaction exposing a Bank to any one client as to an
amount exceeding 25% of the Bank's capital and reserves has to be
reported to the Registrar of Banks.
Failure/inability to
comply with
prudential
requirements
If a Bank fails to comply with the prudential requirements or is unable to comply
with any such provisions, it is obliged, in writing, to report its failure or inability to
the Registrar stating the reasons for such failure or inability.
The Registrar is entitled to immediately take action against a Bank. If he deems
it fit to overlook the failure or inability, he may grant the Bank an opportunity,
subject to certain conditions as he may determine, to comply with the relevant
provisions.
If the Bank does not comply with the requirements, the Registrar is entitled, by
way of written notice, to impose upon the Bank a fine payable within a specified
period.
Should the Bank fail to pay such fine within the specified period the Registrar
may institute civil action against that Bank to recover that fine or any portion
thereof.
53
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Discuss the prudential requirements that the Bank must adhere to with
your Coach and/or Manager. Note learning points regarding the
requirements in your own words in the space below.
54
Version: 03/2004
IB CP3 LG
2.
2.7
Overview of the Bank Act, 94 of 1990
Summary
Summary
Below is a summary of the key learning points of this Section. Read through
them carefully and ensure that you understand all the concepts. Discuss any
uncertainties with your Coach.

The central Bank is the South African Reserve Bank.
The rules and regulations pertaining to Banking systems operate at 4 levels:
General legislation
(Companies Act)
Specific prescriptive
legislation
(Banks Act)
Legal
requirements
Specific directives
(Rules in terms of
Banks Act)
Self-imposed Rulings
(Rules by Banking
Council)

A Registrar of Banks is appointed by the Reserve Bank. The Registrar of
Banks must perform, under the control of the Reserve Bank and in
accordance with directions issued by the Bank from time to time, the functions
as set out in the Act.

The purpose of the Act is to provide for the regulation and supervision of the
business of public companies taking in deposit and to provide for matters
connected therewith.

The Act also lays down legal requirements for the general business of a Bank.

Only a public company that is registered as a Bank with the Registrar of
Banks is permitted to conduct the business of a Bank.

A business of a Bank includes:







Accepting deposits from the general public on a regular basis
Soliciting of deposits
Using money from deposits to grant loans or make investments
Repurchase agreements
Foreign exchange dealers
Market makers for government bonds
Any other activity the Registrar deems to be the business of a Bank
55
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Summary,
continued

The Governor of the Reserve Bank may order the inspection of any person,
partnership or other entity to establish if they are carrying on the business of a
Bank or a mutual Bank
The Registrar will not approve an application for authorisation to establish a Bank
unless he is satisfied that the:

Establishment of the proposed Bank will be in the interest of the public

Business, which the applicant intends to conduct, is the business of a
Bank

Applicant will conduct the proposed business of a Bank as a public
company incorporated and registered under the Companies Act

Applicant will be able to establish itself successfully as a Bank

Applicant will have the financial means to comply, in the capacity of a
Bank, with the requirements of the Act

The business will be conducted in a sensible manner, and the directors
and executive officers of the proposed Bank are fit and proper persons to
hold such office

Executive officers of the proposed Bank have sufficient experience of the
management of the business of a Bank

The composition of the board of directors of the proposed Bank will have
appropriate regard to the nature and scale of the intended business

The Registrar may at any time institute or impose legal proceedings for the
winding up of any Bank or the placing of such Bank under judicial
management

No person other than an appointee of the Registrar shall be appointed as
provisional liquidator, liquidator, provisional judicial manager or judicial
manager of a Bank

The Master of the High Court (who oversees all liquidations and insolvency
proceedings) shall appoint a qualified person, nominated by the Registrar, to
assist the liquidator or judicial manager in the performance of his duties

Banks are subject to various reporting requirements concerning large
exposures, while exchange, control limits are imposed on the size of foreign
assets and liabilities of Banks

If a Bank fails to comply with the prudential requirements or is unable to
comply with any such provisions, it is obliged, in writing, to report its failure or
inability to the Registrar stating the reasons for such failure or inability
56
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Use the space below and note your own additional learning points from this
Section.
57
Version: 03/2004
IB CP3 LG
2.
2.8
Overview of the Bank Act, 94 of 1990
Conclusion
Conclusion
Apart from The Bank Act, four other Acts are important to Banks.
1. The first is the Companies Act, No 61 of 1973. With effect from January
1994 the disclosure, requirements relating to the financial statements of
Banks have been broadened. In essence, Banks are now required to
make full disclosure in terms of the Companies Act and GAAP (i.e.
generally accepted accounting practice). In addition, a revised accounting
statement - Disclosure in the Financial Statements of Banks (AC120) became effective from January 1996.
This statement prescribes:




Minimum disclosure of Banks' financial statements
The preparation of cash-flow statements
The disclosure of commitments, contingencies, material trust
activities, significant asset, liability and off-balance-sheet item
concentrations
Previously undisclosed reserves
2. The second is the Currency and Exchange Act, of 1933, in terms of
which the authorities can promulgate regulations that directly or indirectly
affect Banks. It is used to impose constraints through exchange control
on cross-border financial transaction, including limitations on funds held
offshore by Banks.
3. The third is the Usury Act, 1968, which determines the maximum interest
rates that financial institutions may impose on lending, credit, and leasing
transactions.
4. The fourth is the Credit Agreements Act, 1980, which stipulates certain
constraints on instalment sale and leasing transactions. It affects Banking
institutions with regards to prescribed minimum deposits, leasing
conditions, and terms of payments on contracts.
Recognition has been given in Banking legislation in recent years to the
expansion of "informal" Banking business that has mostly occurred in the less
developed communities.
The Bank Act has been amended to provide for the existence of numerous
savings clubs ('stokvels') which are outside the normal scope of Banks regulation
and supervision, but which also do not have access to accommodation at the
discount window of the central Bank.
58
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Conclusion,
continued
Various other Acts also govern the business of a Bank and the rules and
regulations promulgated therewith.
As Banks are entitled to trade on the financial market, applicable legislation
regarding those markets such as the:




















Unit Trust Control
Safe Deposit of Securities
Supervision of Financial Institutions Rationalisation
South African Reserve Bank
Financial Institutions (Investment of Funds) Act
Currency and Exchanges
Financial Markets Control Act
Competition Act
Co-operatives Act
Long and Short Term Insurance Acts
Unit Trusts Control Act
Participation Bonds Act
Financial Advisory and Intermediary Services Bill
Financial Intelligence Centre Bill
The National Payments Systems Act
Crime Prevention
Promotion of Access to Information Act
Promotion of Equality
Discrimination Act, and
Home Loan and Mortgage Disclosure Bill
must be adhered to, to ensure a sound business infrastructure. These Acts and
Bills set out in detail the minimum entry and standards requirements.
Some of these Acts will be discussed in detail in forthcoming Units.
59
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Annexure
BASEL CORE PRINCIPLES FOR EFFECTIVE BANKING SUPERVISION
Following is the press statement of the Basel Committee on Banking Supervision of the Bank for
International Settlements marking the release of the "Core Principles for Effective Banking
Supervision.” The press statement, released on September 22, 1997, outlines the work of the
committee and lists 25 principles of effective supervision. The full 46-page text of the Core Principles
is available on the Bank for International Settlements Internet site at http://www.bis.org/publ
The Basel Committee on Banking Supervision, with the endorsement of the central Bank Governors
of the Group of Ten countries, is today releasing the Basel Core Principles for Effective Banking
Supervision. This document, which is a revised version of a consultative paper released in April
1997, establishes a set of twenty-five basic Principles which the Basel Committee believes must be in
place for a supervisory system to be effective.
The Basel Core Principles have been drawn up by the Basel Committee in close collaboration with
the supervisory authorities in fifteen emerging market countries and have benefited from broad
consultation with many other supervisory authorities throughout the world.
The Principles represent the basic elements of an effective supervisory system. They are
comprehensive in their coverage, addressing the preconditions for effective Banking supervision,
licensing and structure, prudential regulations and requirements, methods of ongoing Banking
supervision, information requirements, formal powers of supervisors and cross-border Banking.
The Basel Core Principles are intended to serve as a basic reference for supervisory and other public
authorities worldwide to apply in the supervision of all the Banks within their jurisdictions. Supervisory
authorities throughout the world will be invited to endorse the Core Principles, not later than October
1998. Endorsement will include an undertaking to review current supervisory arrangements against
the Principles. The speed with which changes can be introduced will vary, depending on whether the
supervisory authorities already possess the necessary statutory powers. Where legislative changes
are required, national legislators are requested to give urgent consideration to the changes necessary
to ensure that the Principles can be applied in all material respects.
1. The Basel Committee on Banking Supervision is a Committee of Banking Supervisory
Authorities, which was established by the central Bank Governors of the Group of Ten
countries in 1975. It consists of senior representatives of Bank supervisory authorities and
central Banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg,
Netherlands, Sweden, Switzerland, United Kingdom and the United States. It usually meets at
the Bank for International Settlements in Basel, where its permanent Secretariat is located.
2. The Basel Committee has been working to improve Banking supervision at the international
level for many years, both directly and through its many contacts with Banking supervisors in
every part of the world. In the last year and a half, it has been examining how best to expand
its efforts aimed at strengthening prudential supervision in all countries by building on its
relationships with countries outside the G-10 as well as on its earlier work to enhance
prudential supervision in its member countries. In April 1997 the Committee released two
documents:
 A draft comprehensive set of Core Principles for effective Banking supervision (The
Basel Core Principles); and,
 A Compendium (to be updated periodically) of the existing Basel Committee
recommendations, guidelines and standards most of which are cross-referenced in the
Core Principles document.
60
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Both documents, with the endorsement of the G-10 central Bank Governors, were submitted to the G7 and G-10 Finance Ministers in preparation for the Denver Summit in the hope that they would
provide a useful mechanism for strengthening financial stability in all countries. They were welcomed
by Ministers at the Summit and the Committee was encouraged to continue its work.
3. The document now being issued is a revised version of the April 1997 document. There are
still twenty-five Principles and only a few contain changes of substance. Other changes to the
document are mostly textual in nature.
4. In developing the Principles, the Basel Committee has worked closely with non-G-10
supervisory authorities. The document has been prepared in a group containing
representatives from the Basel Committee and from Chile, China, the Czech Republic, Hong
Kong, Mexico, Russia and Thailand. Nine other countries (Argentina, Brazil, Hungary, India,
Indonesia, Korea, Malaysia, Poland and Singapore) were also closely associated with the
work. The drafting of the Principles benefited moreover from broad consultation with a larger
group of individual supervisors, both directly and through the regional supervisory groups, as
well as with the International Monetary Fund and World Bank.
5. The document calls on national agencies to apply the Principles in the supervision of all
Banking organisations within their jurisdictions. The Principles are minimum requirements and
in many cases may need to be supplemented by other measures designed to address
particular conditions and risks in the financial systems of individual countries.
6. The Basel Core Principles are intended to serve as a basic reference for supervisory and
other public authorities in all countries and internationally. It will be for national supervisory
authorities, many of which are actively seeking to strengthen their current supervisory regime,
to use the attached document to review their existing supervisory arrangements and to initiate
a programme designed to address any deficiencies as quickly as is practical within their legal
authority.
7. The Principles have been designed to be verifiable by supervisors, regional supervisory
groups, and the market at large. The Basel Committee will play a role, together with other
interested organisations, in monitoring progress made by individual countries in implementing
the Principles. It is suggested that the IMF, the World Bank and other interested organisations
use the Principles in assisting individual countries to strengthen their supervisory
arrangements in connection with their work aimed at promoting overall macroeconomic and
financial stability.
8. Supervisory authorities throughout the world are encouraged to endorse the Basel Core
Principles. The members of the Basel Committee and the sixteen other Banking supervisory
agencies that have participated in their drafting all agree with the content of the document.
9. The Basel Committee believes that achieving consistency with the Core Principles by every
country will be a significant step in the process of improving financial stability domestically and
internationally. The speed with which this objective will be achieved will vary. In many
countries, substantive changes in the legislative framework and in the powers of supervisors
will be necessary because many supervisory authorities do not at present have the statutory
authority to implement all of the Principles. In such cases, the Basel Committee believes it is
essential that national legislators give urgent consideration to the changes necessary to
ensure that the Principles can be applied in all material respects. The need for new legislation
will be taken into account by the Basel Committee in monitoring progress towards
implementation.
61
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
10. The Basel Committee will continue to pursue its standard-setting activities in key risk areas
and in key elements of Banking supervision as it has done in documents such as those
reproduced in the Compendium. The Basel Core Principles will serve as a reference point for
future work to be done by the Committee and, where appropriate, in cooperation with non-G10 supervisors and their regional groups. The Committee stands ready to encourage work at
the national level to implement the Principles in conjunction with other supervisory bodies and
interested parties. Finally, the Committee is committed to strengthening its interaction with
supervisors from non-G-10 countries and intensifying its considerable investment in technical
assistance and training.
11. The twenty-five Core Principles are set out below.
Preconditions for Effective Banking Supervision
1. An effective system of Banking supervision will have clear responsibilities and objectives for
each agency involved in the supervision of Banking organisations. Each such agency should
possess operational independence and adequate resources. A suitable legal framework for
Banking supervision is also necessary, including provisions relating to authorisation of
Banking organisations and their ongoing supervision; powers to address compliance with laws
as well as safety and soundness concerns; and legal protection for supervisors.
Arrangements for sharing information between supervisors and protecting the confidentiality of
such information should be in place.
Licensing and Structure
2. The permissible activities of institutions that are licensed and subject to supervision as Banks
must be clearly defined, and the use of the word "Bank" in names should be controlled as far
as possible.
3. The licensing authority must have the right to set criteria and reject applications for
establishments that do not meet the standards set. The licensing process, at a minimum,
should consist of an assessment of the Banking organisation's ownership structure, directors
and senior management, its operating plan and internal controls, and its projected financial
condition, including its capital base; where the proposed owner or parent organisation is a
foreign Bank, the prior consent of its home country supervisor should be obtained.
4. Banking supervisors must have the authority to review and reject any proposals to transfer
significant ownership or controlling interests in existing Banks to other parties.
5. Banking supervisors must have the authority to establish criteria for reviewing major
acquisitions or investments by a Bank and ensuring that corporate affiliations or structures do
not expose the Bank to undue risks or hinder effective supervision.
62
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Prudential Regulations and Requirements
6. Banking supervisors must set prudent and appropriate minimum capital adequacy
requirements for all Banks. Such requirements should reflect the risks that the Banks
undertake, and must define the components of capital, bearing in mind their ability to absorb
losses. At least for internationally active Banks, these requirements must not be less than
those established in the Basel Capital Accord and its amendments.
7. An essential part of any supervisory system is the evaluation of a Bank's policies, practices
and procedures related to the granting of loans and making of investments and the ongoing
management of the loan and investment portfolios.
8. Banking supervisors must be satisfied that Banks establish and adhere to adequate policies,
practices and procedures for evaluating the quality of assets and the adequacy of loan loss
provisions and loan loss reserves.
9. Banking supervisors must be satisfied that Banks have management information systems that
enable management to identify concentrations within the portfolio and supervisors must set
prudential limits to restrict Bank exposures to single borrowers or groups of related borrowers.
10. In order to prevent abuses arising from connected lending, Banking supervisors must have in
place requirements that Banks lend to related companies and individuals on an arm's-length
basis, that such extensions of credit are effectively monitored, and that other appropriate steps
are taken to control or mitigate the risks.
11. Banking supervisors must be satisfied that Banks have adequate policies and procedures for
identifying, monitoring and controlling country risk and transfer risk in their international
lending and investment activities, and for maintaining appropriate reserves against such risks.
12. Banking supervisors must be satisfied that Banks have in place systems that accurately
measure, monitor and adequately control market risks; supervisors should have powers to
impose specific limits and/or a specific capital charge on market risk exposures, if warranted.
13. Banking supervisors must be satisfied that Banks have in place a comprehensive risk
management process (including appropriate board and senior management oversight) to
identify, measure, monitor and control all other material risks and, where appropriate, to hold
capital against these risks.
14. Banking supervisors must determine that Banks have in place internal controls that are
adequate for the nature and scale of their business. These should include clear arrangements
for delegating authority and responsibility; separation of the functions that involve committing
the Bank, paying away its funds, and accounting for its assets and liabilities; reconciliation of
these processes; safeguarding its assets; and appropriate independent internal or external
audit and compliance functions to test adherence to these controls as well as applicable laws
and regulations.
15. Banking supervisors must determine that Banks have adequate policies, practices and
procedures in place, including strict "know-your-customer" rules, that promote high ethical and
professional standards in the financial sector and prevent the Bank being used, intentionally or
unintentionally, by criminal elements.
63
Version: 03/2004
IB CP3 LG
2.
Overview of the Bank Act, 94 of 1990
Methods of Ongoing Banking Supervision
16. An effective Banking supervisory system should consist of some form of both on-site and offsite supervision.
17. Banking supervisors must have regular contact with Bank management and thorough
understanding of the institution's operations.
18. Banking supervisors must have a means of collecting, reviewing and analysing prudential
reports and statistical returns from Banks on a solo and consolidated basis.
19. Banking supervisors must have a means of independent validation of supervisory information
either through on-site examinations or use of external auditors.
20. An essential element of Banking supervision is the ability of the supervisors to supervise the
Banking group on a consolidated basis.
Information Requirements
21. Banking supervisors must be satisfied that each Bank maintains adequate records drawn up in
accordance with consistent accounting policies and practices that enable the supervisor to
obtain a true and fair view of the financial condition of the Bank and the profitability of its
business, and that the Bank publishes on a regular basis financial statements that fairly reflect
its condition.
Formal Powers of Supervisors
22. Banking supervisors must have at their disposal adequate supervisory measures to bring
about timely corrective action when Banks fail to meet prudential requirements (such as
minimum capital adequacy ratios), when there are regulatory violations, or where depositors
are threatened in any other way. In extreme circumstances, this should include the ability to
revoke the Banking license or recommend its revocation.
Cross-border Banking
23. Banking supervisors must practise global consolidated supervision over their internationallyactive Banking organisations, adequately monitoring and applying appropriate prudential
norms to all aspects of the business conducted by these Banking organisations worldwide,
primarily at their foreign branches, joint ventures and subsidiaries.
24. A key component of consolidated supervision is establishing contact and information
exchange with the various other supervisors involved, primarily host country supervisory
authorities.
25. Banking supervisors must require the local operations of foreign Banks to be conducted to the
same high standards as are required of domestic institutions and must have powers to share
information needed by the home country supervisors of those Banks for the purpose of
carrying out consolidated supervision.
Source: USIA Electronic Journal, Vol. 3, No. 4, August 1998.
http://usinfo.state.gov/journals/ites/0898/ijee/ejfaf2.htm
64
Version: 03/2004
IB CP3 LG