Financial regulation

Generally

Banks Act No. 94 of 1990
Co-Operative Banks Act No. 40 of 2007
Financial Advisory and Intermediaries Services Act No. 37 of 2002
Financial Intelligence Centre Act No. 38 of 2001
Financial Markets Act No. 19 of 2012
Income Tax Act No. 58 of 1962
Mutual Banks Act No. 124 of 1993

Consumer credit

Consumer Protection Act No. 68 of 2008
Insolvency Act No. 24 of 1936
National Credit Act No. 34 of 2005

Mortgages

Home Loan and Mortgage Disclosure Act No. 63 of 2000

Corporations

Companies Act No. 71 of 2008
Trust Property Control Act No. 57 of 1988

Funds and platforms

Collective Investment Schemes Control Act No. 45 of 2002

Energy and infrastructure

Civil Aviation Act No. 13 of 2009
Electricity Regulation Act No. 4 of 2006
Gas Act No. 48 of 2001
Independent Communications Authority of South Africa Act No. 13 of 2000
Petroleum Pipelines Act No. 60 of 2003
Preferential Procurement Framework Act No.5 of 2000

Other key market legislation

Broad-Based Black Economic Empowerment Act No.53 of 2003
Commercial Paper Regulations
Competition Act No. 89 of 1998
Conventional Penalties Act No. 15 of 1962
Currency and Exchanges Act, No. 9 of 1933 (including the Exchange Control Regulations)
Inspection of Financial Institutions Act No. 80 of 1998
Securitization Regulations

The Bank Supervision Department of the South African Reserve Bank (the central bank of South Africa) (SARB), headed up by the Registrar of Banks, is responsible for regulating and supervising all banks and banking groups registered in South Africa.

The SARB and the Financial Surveillance Department of South Africa are responsible for implementing and administering South African exchange control policy and as such oversee the inflow and outflow of local currency and other local assets.

The Financial Sector Conduct Authority (previously known as the Financial Services Board) oversees the non-banking financial services industry, which includes retirement funds, short-term and long-term insurance, companies, funeral insurance schemes, collective investment schemes (unit trusts, funds and listed derivatives) and financial advisors and brokers. The Financial Sector Conduct Authority (previously known as the Financial Services Board) also supervises JSE Limited (the Johannesburg Stock Exchange).

Depending on the type of services a prospective applicant wishes to render in South Africa, an applicant must submit an application:

• to the Registrar of Banks, in accordance with the Banks Act in order to register as a bank in South Africa;
• in accordance with the Collective Investment Schemes Control Act (CISCA), to register as a manager of a collective investment scheme, (see Establishing and investing in debt and hedge funds); or
• to the Financial Sector Conduct Authority (previously known as the Financial Services Board) or a recognized representative body, in accordance with Financial Advisory and Intermediaries Services Act (FAIS) to become a financial services provider. FAIS regulates the activities of all non-banking financial services providers.

International banks can operate in South Africa as either a representative office or a branch with the approval of the Registrar of Banks. Each of these models is subject to the requirements of the Banks Act, and the overall regulatory oversight of the South African Reserve Bank. The authorization requirements and process (the process can take up to six months) in respect of branches are more onerous than those of representative offices, as representative offices are not authorized to accept deposits from the public.

Foreign investment funds may register as 'foreign collective investment schemes' under CISCA. In order to qualify for South African registration, a foreign fund must have an investment policy which is consistent with the requirements set out under CISCA.

The main ongoing compliance requirements include:

• the payment of annual fees, such as licensing fees;
• if required, maintaining required levels of capital; and
• adhering to any conditions of authorization imposed by regulators, such as continuous disclosure.

A person undertaking regulated activity without being duly authorized or exempt commits a criminal offence and is liable to imprisonment and, if applicable, fines.

Generally

Provision of credit and other regulated activities

A person who is required to register as a credit provider but who has not done so must not offer, make available or extend credit, enter into a credit agreement or agree to do any of those things without first having registered as a credit provider with the National Credit Regulator. A credit provider includes:

• any person who extends credit under a credit facility;
• a mortgagee under a mortgage agreement; and
• a lender under a secured loan agreement.

A person must apply to be registered as a credit provider if the total principal debt owed to that credit provider under all credit agreements (as defined in the National Credit Act) exceeds the prescribed threshold. With effect from 1 November 2016, the current threshold has been set at ZAR nil. This has far-reaching consequences as companies providing employee loans will be required to register as credit providers in terms of the National Credit Act. A credit arrangement will only fall within the definition of 'credit agreement' in terms of the National Credit Act if the person providing the credit will earn some form of fee (such as interest).

Banks, pension funds and other collective investment schemes are also required to obtain licenses from the relevant regulators in order to carry on their businesses. In relation to legislation applicable to these entities, see Law and regulation. 

Provision of advice

A person may not act or offer to act as a financial services provider, unless such person has been issued with a license by the registrar of financial services. A financial services provider is any person who as a regular feature of such person's business provides any recommendation, guidance or proposal of a financial nature in respect of the purchase of, or investment in, any financial product, the conclusion of any transaction aimed at the incurring of any liability or the variation of any term relating to a financial product.

Persons not domiciled in South Africa must also obtain a license in order to provide financial advice in South Africa.

Consumer credit

See above in relation to entities which are required to be registered as credit providers and financial services providers.

Certain persons may carry on business as a credit provider without having to register with the National Credit Regulator, for example, where that person carries on business in only one province in South Africa and it has complied with the provincial regulations applicable to it.

Financial services may also be provided without having to obtain a license if that person has been exempted from having to obtain a license under the Financial Advisory and Intermediaries Services Act.

Payments out of South Africa are regulated by the Exchange Control Regulations published under and in terms of the Currency and Exchanges Act. Approval must be sought for the making of such payments from the Financial Surveillance Department of the South African Reserve Bank. Applications are required to be made through specified authorized dealers (including commercial banks).

There are also tax considerations which should be taken into account particularly when financing assets which are to be imported into South Africa.

A credit provider must not harass a person in an attempt to persuade that person to apply for credit or to enter into a credit agreement or related transaction. Credit providers are restricted from entering into credit agreements at various times and at specific places unless they comply with a number of legislative requirements. Only persons that are registered as credit providers may advertise the availability of credit, or of goods or services to be purchased on credit.

Any advertisement concerning the granting of credit must clearly state the interest rate and other credit-related costs in the format prescribed by the applicable legislation.

Generally

Private companies

The choice for most setting up a business in South Africa. Private companies (denoted by the suffix Proprietary Limited (Pty Ltd)) are seen as separate legal, limited liability, entities and as such are taxed in their own right and offer the shareholders protection against liabilities (commonly known as the corporate veil). Private companies are not prohibited from having foreign shareholding and only require one shareholder and one director. The Companies Act, however, prohibits a private company from offering its equity to the public.

Public companies

A public company is a limited liability company incorporated to offer shares to the general public for purposes of capital raising. Public companies are identified by the suffix Limited/Ltd and have their own legal identity. Public companies must have at least three directors.

Partnerships

A partnership is akin to a coming together of between two and 20 people who contractually agree to operate a profit-generating business together. They further agree to split any profits as per their agreement (usually in proportion to their interests). In establishing a partnership each partner needs to make a contribution, which contribution may be in cash, expertise or otherwise. A partnership is not a separate legal entity, leaving partners liable for the liabilities of the partnership and exposed to creditors of the partnership.

Foreign companies

Section 23(2) of the Companies Act requires a foreign company that has established a permanent 'place of business' in South Africa for more than 21 days to register as an 'external company', unless a separate legal entity (ie a private company) is established. The registered external company is colloquially referred to as a 'branch' in South Africa. The effect of registration is not to create a new legal entity, but merely results in the foreign company becoming subject to the Companies Act. Under the Companies Act, a branch does not enjoy an identity separate from that of the foreign company. Consequently, the foreign company will remain liable in respect of all acts carried on by the branch in South Africa through its employees/agents/directors. The foreign company must operate in South Africa in its own name and the foreign country in which the foreign company is incorporated must be disclosed. This therefore creates unlimited liability in South Africa for the foreign company.

Funds

Foreign collective investment schemes

Foreign investment funds may register as 'foreign collective investment schemes' under the Collective Investment Schemes Control Act (CISCA). In order to qualify for South African registration, a foreign fund must have an investment policy which is consistent with the requirements set out under CISCA.

En commandite partnerships

The principal vehicle housing South African private equity funds investing in South Africa is the limited liability partnership (called en commandite partnerships). A trust structure (called a bewind trust, and is governed by the Trust Property Control Act No. 57 of 1988) is also sometimes used. Unless the trust structure is used, there are no registration requirements for establishing, and no legislation regulating, en commandite partnerships.

An en commandite partnership is carried on by one or some of the partners, called the general or managing partner, to which every partner whose name is not disclosed (called a commanditarian partner or partner en commandite) contributes a fixed sum of money on condition that he or she receives a certain share of the profit, if there is any, but that in the event of loss he or she is liable to his or her co-partners to the extent of the fixed amount of his or her agreed capital contribution only. Because commanditarian partners are undisclosed, this means that they are not presented as partners, are not liable for partnership debts (enjoy limited liability), may not actively participate in the business of the partnership and cannot reclaim payment of their partnership contribution or payment of their share of the partnership profits in competition with the creditors of the partnership. The general partner of the en commandite partnership has unlimited liability toward creditors of the partnership in circumstances where the partnership’s assets are insufficient to settle relevant debts.

Yes. International banks can operate in South Africa as either a representative office or a branch with the approval of the Registrar of Banks. Non-banking foreign companies may also establish branches in South Africa in accordance with the Companies Act. As set out above, registration may be required as an 'external company' as contemplated in section 23(2) of the Companies Act.