With effect from 01 June 2023 a new framework for the “resolution” of “designated institutions”, has commenced in terms of the Financial Sector Regulation Act, 2017 (“FSRA”) and in terms of which the South African Reserve Bank (“SARB”) has been given a wide range of powers for the resolution of these institutions.
Section 29A of the FSRA stipulates that “designated institutions” include, inter alia, a bank, a systemically important financial institution, the payment system operator and participants of a systemically important payment system, and a company that is a holding company of a bank, a systemically important financial institution, or a payment system operator of a systemically important payment system. Importantly, if a bank or a systemically important financial institution is a member of a designated “financial conglomerate”, each of the other members of the conglomerate will also be classified as a designated institution.
Chapter 12A has been introduced into the FSRA which designates the powers and procedures of resolution and the authority conferred onto the SARB in order to do so. Section 166J of the FSRA sets out the procedure as to how a designated institution is placed under resolution,which is a two-step process being (i) the SARB makes a recommendation to the Minister of Finance (“the Minister”) that, in the opinion of the SARB, a designated institution, inter alia, “is or will likely be, unable to meet its obligations...” and (ii) the Minister may, after consideration of the SARB recommendation, make a written determination to the governor of the SARB, placing the designated institution in resolution.
Section 166D of the FSRA provides a list of steps that once a designated institution has been placed in resolution, are void if they are taken without the concurrence of the SARB. These include, but are not limited to (i) adopting a special resolution to wind up the designated institution voluntarily; (ii) applying to a court for an order that the designated institution be wound up; (iii) applying to a court for an order in terms of section 131 of the Companies Act to place the designated institution under supervision and commencing business rescue proceedings; to name a few.
Section 166S of the FSRA is of particular importance and illustrates the extent of the powers granted to the SARB, including that “If the Reserve Bank determines that it is necessary for the orderly resolution of a designated institution in resolution that the designated institution enter into a particular transaction, the designated institution may enter into the transaction, and may do so despite any law or agreement that would otherwise restrict or prevent it from doing so, including a law or agreement that requires consent or approval by a specified person.”
This new resolution framework is therefore an important amendment to the FSRA and will likely have far-reaching implications for designated institutions.
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06 June 2023