On the horizon for 2024

financial
22 Feb 2024

There were a number of changes to the South African regulatory landscape in 2023, and with January already behind us, 2024 has gotten off to a flying start. Although we do not have a crystal ball, we anticipate that this trend will continue and that there will be several regulatory developments this year, particularly in the technology and financial sectors. We will continuously monitor these sectors, and keep a close eye on the following:

Crypto assets and services 

Over the last few years, there have been several regulatory developments in the crypto assets and services sector, and more movement is anticipated in the coming years. With crypto assets now recognised as a financial product, crypto asset service providers (CASPs) are required to be licensed as financial services providers and comply with the requirements under the Financial Advisory and Intermediary Services Act, 37 of 2002. As part of the transition, existing CASPs are allowed to continue providing services pending the outcome of their licence applications, provided that they applied before 30 November 2023. The Financial Sector Conduct Authority (FSCA) has warned that CASPs that continue to render financial services in relation to crypto assets without having applied for a licence, are guilty of an offence and may be liable for a fine and/or imprisonment. Any CASPs that missed the November 2023 deadline, or who want to start rendering such financial services, would be required to wait until their applications have been approved, before rendering such services.

Additionally, in a bid to address money laundering and terrorist financing concerns surrounding crypto assets, CASPs have been included within the ambit of accountable institutions under the Financial Intelligence Centre Act, 38 of 2001. This has placed several obligations on CASPs, including being required to conduct customer due diligences, keep records of client information and transactions, and comply with certain reporting obligations.

COFI and CODI

Once promulgated, the Conduct of Financial Institutions Bill (COFI Bill) and the draft Deposit Insurance Regulations in respect of the Corporation for Deposit Insurance (CODI) will have a significant impact on the financial sector.

The COFI Bill has been in the works for several years, and it is not yet known whether it will be promulgated this year or not. It is intended to overhaul the existing fragmented legislation, and provide a consolidated regulatory framework for the conduct of financial institutions, which promotes the fair treatment and protection of customers.

CODI was established in March 2023 to manage South Africa’s Deposit Insurance Fund, which was established to address the too-big-to-fail problems experienced during the global financial crisis. The purpose of this fund is to provide protection to depositors, in that it will enable depositors to access their deposits, up to a stipulated maximum amount, in the event that their bank fails, is liquidated, or placed into resolution. It is also intended to enhance public confidence in South Africa’s banking system. Draft Deposit Insurance Regulations setting out procedural and administrative requirements relating to the functioning of CODI (i.e. qualifying depositors and products, and the maximum coverage) were issued for comment last year. It is anticipated that these regulations will be published this year.

JIBAR to ZARONIA

Following the finalisation of the global move from LIBOR to risk-free reference rates (RFRs), South Africa will similarly embark on a benchmark interest rate transition from the forward-looking Johannesburg Interbank Average Rate (JIBAR) to the more realistic South African Rand Overnight Index Average (ZARONIA), which is determined in arrears, based on historical transactions. It is anticipated that the final date for the publication of JIBAR will be announced this year. This will have a significant impact on banks’ systems and clients, and will require amendments to agreements to incorporate fallback provisions for when JIBAR is discontinued.

ESG

We have seen an increase in solar and other renewable energy projects in South Africa, with certain entities obtaining authorisation to feed into the grid, and we anticipate that this trend will continue in 2024. However, growth in this sector, and consequently in the funding of these projects, is hampered by the existing grid infrastructure in South Africa.

Furthermore, a proposed guidance note on climate-related risk practices for banks was issued by SARB for comment in August 2023, and we are anticipating the publication of the final guidance note. The note provides guidance on the integration of climate-related risks into governance and risk management frameworks, including the development of relevant policies for the identification, reporting and mitigation of such risks, the Board of Director’s oversight and management responsibilities in this regard, and guidance on internal capital adequacy assessment processes.

Artificial intelligence (AI)

Although AI is largely unregulated in South Africa, and we do not anticipate any significant strides to be made this year, this technology and its regulation should be continuously monitored. Similarly to the initial aversion of industries to the transition from legacy on-prem systems to cloud-based technologies, it is anticipated that once concerns surrounding AI are addressed, AI will play a significant role in the functioning of most industries, including the financial sector. Some of the current concerns include the security risks imposed by AI, the large amounts of data that are required, the additional energy required to cater for the additional computing capacity, and the production of biased outputs.

Based on the above, there are exciting times ahead, and we look forward to continuing on this journey with our clients, and future clients.

Please note that the above does not constitute legal advice. Please contact Grant Willams or Meghan Annandale if you would like any further information on the above.

Article sourced from Eversheds Sutherland.

See also:

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
Grant Williams

Grant Williams is a partner in our commercial group. He specialises in commercial law with an emphasis on media, telecommunications and IT. Grant’s recent experience includes assisting with the establishment... Read more about Grant Williams

Meghan Annandale

Meghan Annandale is an Associate in our Technology, Media and Telecommunications Department at the Bryanston office. She graduated from the University of Pretoria with a BA Law degree in 2016... Read more about Meghan Annandale

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