South Africa's financial sector
South Africa's financial services sector, backed by a sound regulatory and legal framework, is superb, boasting dozens of domestic and foreign institutions providing a full range of services - commercial, retail and merchant banking, mortgage lending, insurance and investment.South Africa's banking sector compares favourably with those of industrialised countries. Foreign banks are well represented and electronic banking facilities are extensive, with a nationwide network of automatic teller machines (ATMs) and internet banking facilities available.
The Financial Services Board oversees the regulation of financial markets and institutions, including insurers, fund managers and broking operations but excluding banks, which fall under the South African Reserve Bank.
South Africa's banking system
The South African banking system is well developed and effectively regulated, comprising a central bank, a few large, financially strong
banks and investment institutions, and a number of smaller banks.
Many foreign banks and investment institutions have set up operations in South Africa over the past decade. The Banks Act is primarily based on similar legislation in the United Kingdom, Australia and Canada.
Although no formal agreements have been concluded towards a consistent international position in the area of banking regulation, there have been amendments to exchange controls as well as financial market legislation, making South Africa an attractive investment prospect.
The National Payment System Act of 1998 was introduced to bring the South African financial settlement system in line with international practice on settlement systems and systematic risk management procedures. The Act confers greater powers and duties on the SA Reserve Bank in respect of providing clearing and settlement facilities.
The Payment Association of South Africa, under the supervision of the Reserve Bank, has facilitated the introduction of payment clearing house agreements. It has also introduced agreements pertaining to settlement, clearing and netting agreements, and rules to create certainty and reduce systemic and other risks in inter-bank settlement. These developments have brought South Africa in line with international inter-bank settlement practice.
Investment and merchant banking remains the most competitive front in the industry, while the country's "big four" banks - Absa, First National Bank, Standard Bank and Nedbank - continue to consolidate their grip on the retail market.
South African Reserve Bank
In 1985 a department for bank supervision was created in the Reserve Bank to monitor the foreign activities of South African banking institutions. With this
step South Africa confirmed its support of the Basle Concordat of June 1983, in terms of which central banks undertake to extend their supervisory activities to include the international activities of banking institutions to facilitate closer co-operation between the supervising authorities.
Following recommendations made in 1985 by the De Kock commission of inquiry into the monetary system and monetary policy in South Africa, the functions of this department were expanded to include supervision of the domestic activities of all banks - a task previously performed by the Registrar of Financial Institutions.
An office headed by the Registrar of Banks, operating as part of the Reserve Bank, is responsible for registering institutions as banks or mutual banks as well as enforcing all the requirements of the Acts.
The registrar acts with relative autonomy in executing his duties, but has to report annually on his activities to the minister of finance, who in turn has to table this report in Parliament. The extent of supervision entails the establishment of certain capital and liquidity requirements and the continuous monitoring of institutions' adherence to legal requirements and other guidelines.
The performance of an individual institution is also monitored on an ongoing basis against developments in the relevant sector as a whole. If deemed necessary, inspectors can be appointed to inspect the affairs of any bank, or any institution or person not registered as a bank if there is reason to suspect that such an institution or person is carrying on the business of banking.
Financial Services Board
The Financial Services Board is a unique independent institution established by statute to oversee South Africa's non-banking financial services
industry in the public interest.
The Financial Services Board's mission is to promote sound and efficient financial institutions and services together with mechanisms for investor protection in the markets South Africa supervises.
Major financial institutions regulated by the board include the country's exchanges and insurers, both short term-and long-term.
South Africa's exchanges
The JSE Limited
The JSE Limited is the 18th largest exchange in the world by market capitalisation (some R3.3-trillion as of September 2005).
With approximately 400 listed companies and a market liquidity of 31.2% (September 2005), South Africa's exchange is only marginally smaller than Stockholm's and larger than no fewer than nine exchanges officially classified as "developed".
World-class systems allow the JSE to offer leading technology, surveillance and settlement on a T+5 basis.
The JSE is an essential cog in the functioning of South Africa's economy, providing an orderly market for dealing in securities and thereby creating new investment opportunities in the country.
The JSE's main function is to facilitate the raising of capital by re-channelling cash resources into productive economic activity, thus building South Africa's economy while enhancing job opportunities and wealth creation.
In addition, from a derivatives perspective, the JSE provides an effective and efficient price determination facility and price risk management mechanism.
Under one roof, the JSE offers investors the choice of four markets:
- An equities market, including stocks from the Main Board and the small to mid-cap Alternative Exchange.
- An interest rate market.
- An active financial derivatives market.
- An agricultural products market
Bond Exchange of South Africa
The Bond Exchange of South Africa (Besa), which formally registered as an exchange in 1996, previously traded as the Bond Market Association and offers three-day rolling settlement and implements a bond automated trading settlement system.
Besa currently enjoys an annual liquidity of 38 times the market capitalisation, making it one of the most liquid emerging bond markets in the world. Besa complies with all Group of 30 recommendations on clearing and settlement.
