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Banks

In 2008 the world economy faced its most dangerous crisis since the Great Depression of the 1930s. The fall out resulted in the total collapse of several large financial institutions, the bail-out of banks by national governments, and down-turns in stock markets around the world.1 The causes are not simple nor singular, but one feature that most analysts, commentators and commissions of enquiry have agreed upon comprised the failures in financial regulation and corporate governance at banks.

Although not from the economic recession that followed, relatively-speaking, South Africa emerged unscathed from the crisis that befell the financial institutions. In part, that has been accredited to our bank regulatory environment and fiscal disciplines, and in which the Banks Act 1990,2 plays an important role. The Act falls under the Ministry of Finance, but is administered, effectively, by the Registrar of Banks.

There are a number of esoteric provisions in the Banks Act which are, for this reason, not referred to hereunder.

A. Powers of Registrar

The Registrar of Banks has a particularly significant controlling function in the appointment by banks of their directors and officers – they are, after all, people who have tremendous ‘power’ when it comes to other people’s money and their financial well-being in general. He is obliged, by the Act, to enquire into their competence and soundness of judgment; their general probity (that is, uprightness and honesty); and their diligence, as well as things like previous convictions or other business practices.

  1. The Registrar is entitled, at any time, to request any person to complete a questionnaire and to provide information to enable him to form an opinion about the qualities of that person. It is an offence to refuse or fail to comply with such a request. It is also an offence to furnish any information which is untrue or misleading.3

  2. Actually, the bank must give the Registrar 30 days’ prior notice of the intended appointment. At that stage it must also furnish information and particulars about the intended appointee. It is an offence to give information which is false or misleading.4

  3. The Registrar can direct a bank (or its controlling company, or their subsidiary) to furnish him with information at a certain time, or times, or intervals, or in respect of certain periods. It is an offence to fail to comply with such a direction.5

  4. The Registrar can also direct that the bank furnish a report from a public accountant, or any appropriately skilled professional, on any matter concerning that information. It is an offence to fail to comply with such a direction.6

  5. The Registrar may call upon a bank to discontinue the publication or issue of any advertisement, brochure, prospectus, and the like if it contains factually incorrect information or it is, in the Registrar’s opinion, not in the public interest. It is an offence not to comply with such a request.7

  6. For that matter, the Registrar can issue a written directive to any bank, or its controlling company, or their auditors regarding any aspect arising out of the application of the Act. It is a criminal offence to fail to comply with such directive.8

B. Filing returns with the Registrar

  1. Within 30 days of its registration, every bank (and every controlling company) must furnish the Registrar with a copy of its register of directors and officers. Failure to do so is an offence.9

  2. Within 90 days of registration, the bank must furnish the Registrar with a return regarding the shareholders and commits an offence by failing to do so.10

  3. Every year, by 30 January, all banks must furnish an updated return regarding shareholders, and commits an offence by failing to do so.11

  4. Within 30 days of the appointment of its auditor, the Bank must apply to the Registrar for approval of the appointment. It is an offence to fail to do so.12

  5. Whenever a bank:
    • gives notice to its shareholders of a meeting, or of the declaration of a dividend, or of a report on its activities; or
    • gives notice to the Registrar of Companies of an intended change of address; or
    • submits to him a return regarding its directors; or
    • forwards to him its financial statements as obliged by the Companies Act,

    it shall simultaneously also forward a copy to the Registrar of Banks, and commits an offence by failing to do so.13

  6. In order to enable the Registrar to determine whether it is complying with the statutory obligations; a minimum share capital, unimpaired reserve funds, and minimum liquid assets, or the nature and amounts of its assets, liabilities and contingent liabilities, every bank must lodge with the Registrar a return. This return must be in conformity with financial reporting standards issued in terms of the Companies Act and cover the period prescribed by the Registrar. Failure to comply with these obligations constitutes a criminal offence.14

C. Information about the bank

  1. If anyone intends to conduct a ‘due diligence’ audit of the financial condition of a bank, the Registrar must first be notified. It is an offence to contravene this obligation.15

  2. The person who requests the due diligence audit commits an offence if he does not furnish the Registrar with a copy of the ensuing report.16

  3. It is an offence to disclose any information contained in the report (except to the bank itself, of course), without the written consent of the Registrar.17

  4. If a bank ever publishes a statement in which the amount of its authorised share capital is mentioned, it commits an offence by not also mentioning the amount of its issued share capital.18 19

D. Registration, and shareholding in banks

  1. It is an offence for any ‘person’ to conduct the business of a bank if it is not (a) a public company and (b) registered as a bank in terms of the Act.20

  2. All banks must obtain from the Registrar an annual business licence. Failing to do so results in a criminal offence.21

  3. The same applies to local branches of foreign banks.22

  4. For that matter, foreign banks may not establish a representative office in the Republic without the written consent of the Registrar. An offence is committed by contravening this prohibition.23

  5. An institution which for the first time is registered as a bank commits an offence if it commences doing business before it has furnished proof to the Registrar of its (a) minimum share capital and (b) unimpaired reserve funds, as required by the Act.24

  6. Any foreign institution that conducts the business of a bank by means of a branch in the Republic, without having obtained prior written authorisation from the Registrar, is guilty of an offence.25

  7. It is an offence for anyone to furnish the Registrar with untrue or misleading information in connection with an application for authorisation to establish a bank, or for registration as a bank.26

  8. It is an offence for a bank to use, or refer to itself by a name other than the one under which it is registered.27

  9. In the case of a foreign institution, it must use the name under which it was authorised to conduct business as a bank, and commits an offence if it does otherwise.28

  10. If any person uses, in connection with a business, any name, description or symbol indicating (or likely to lead people to infer) that such person is a bank registered under the Act, and he is not so registered, he commits a crime.29

  11. In fact, if he in any other manner purports to be a bank, it is also an offence.30

  12. No person may use, in respect of any business, a name or description which includes the word ‘bank’, or the words ‘building society’, or ‘deposit taking institution’ (or derivatives thereof) unless authorised in writing by the Registrar. It is an offence to do otherwise.31

  13. The Registrar can direct any person who is carrying on the business of a bank, but is neither registered as a bank nor authorised to do so, to furnish such documents and information as the Registrar may specify. It is an offence to fail to comply with such a directive, including any time limits it may stipulate.32

  14. The Registrar can also order such person to repay any money obtained by carrying on the business of a bank, with or without conditions as to periods and interest. It is an offence to fail to comply with such a directive.33

  15. At the same time as issuing that directive, the Registrar will appoint a ‘manager’ to oversee the repayment of the money (etc.), in compliance with the directive. This manager has wide powers of recovery of assets, investigation and interrogation. Any person who:
    • when requested by the manager to take an oath or to make an affirmation, refuses to do so;
    • refuses, or fails to answer to the best of his ability a question by the manager;
    • furnishes the manager with any false information;
    • refuses, or fails to comply with any reasonable request made by the manager;
    • hinders the manager in the exercise of his powers or the performance of his duties; or
    • commits any other deed designed to obstruct, or to enable any person to evade the repayment of money,

    shall be guilty of an offence.34

  16. If an institution ceases to be registered as a bank, the Registrar can order it to repay to members of the public all deposits, plus interest. It is an offence to fail to comply with such an order.35

  17. It is an offence to receive a dividend, in respect of any share in a bank which is registered contrary to the provisions of the Act.36

E. Subsidiaries, branch offices and other interests

  1. It is an offence for a bank to do any of the following, without the prior written approval of the Registrar:
    • establish a subsidiary whether within or outside the Republic;37
    • acquire a subsidiary;38
    • enter into any agreement having either of those effects;39
    • invest in a joint venture if that total investment (by the bank) results in its exposure to an amount exceeding more than 5% of its capital and reserves;40
    • open, or acquire a branch or representative office outside the Republic;41
    • acquire an interest in any undertaking having its registered office or principal place of business outside of the Republic;42
    • create or acquire a trust, outside of the Republic, of which the bank is a major beneficiary;43
    • establish or acquire any financial or business undertaking outside the Republic;44
    • establish or acquire a representative office outside the Republic;45 or
    • create or acquire a division through or by means of which another person conducts his business.46
  2. If a bank is given authority to establish a representative office outside of the Republic, it must notify the Registrar:
    • of any substitution of the chief representative officer in that country;
    • any change of address of the office; and
    • if the office closes down,

    and commits an offence by failing to do so.47

F. Undesireable practices

  1. There are several ‘practices’ in which banks are prohibited from engaging.48 Of these, the following are noteworthy, and it is an offence to contravene these prohibitions. Thus, a bank may not:
    • hold shares in any company of which the bank is a subsidiary;49
    • lend money to any person on the security of its own shares;50
    • lend money to any person on the security of shares in the bank’s controlling company;51
    • grant unsecured loans which are to be used for purchasing its own shares;52
    • grant loans which are to be used for purchasing its own shares, but where the security is (in the opinion of the Registrar) inadequate;53
    • hold assets otherwise than in its own name;54 55
    • show as assets in its financial statements (or in any return dealing with its assets, liabilities and capital) any amount representing the purchase of a business, or a loss, or bad debts, or the cost of organization or extension;56
    • before provision has been made for the items just mentioned, open any branch or agency or pay out dividends;57
    • pay out dividends from share capital, at least not without the prior written approval of the Registrar.58
  2. Shares in a bank (or its controlling company) may not be held by or registered in the name of nominees without the written approval of the Registrar.59 Any bank which contravenes this prohibition commits a criminal offence.60

  3. In order to ensure that it complies with that prohibition, banks may request information from any person seeking such shares, or in fact any person in whose name shares are registered. It is an offence to refuse or fail to furnish such information.61

  4. A bank which pays any dividend while a shortfall exists in respect of its minimum capital requirement, or its reserve funds, or in respect of its minimum liquid assets, commits an offence.62

  5. Any director or employee who accepts any benefit in connection with any advance granted by the bank commits an offence.63

  6. Any director or employee who purchases any immovable property owned by, or mortgaged to the bank commits an offence; unless he has the written consent of the Registrar or makes the purchase at a duly advertised public auction.64

G. Curatorship

It can happen that the Registrar of Banks appoints a curator to manage the affairs of a bank under certain circumstances. The curator has a wide range of powers, including that of investigating the business, trade, dealings, assets and liabilities of the bank (or its associates).

  1. If you have been duly summoned to attend an investigation, it is an offence if you fail, without sufficient cause, to attend at the time and place specified in the summons.65

  2. You must remain in attendance until excused by the commissioner from further attendance, and commit an offence if you do not.66

  3. If you:
    • refuse to be sworn or to affirm as a witness;67 or
    • fail without sufficient cause to answer fully and satisfactorily any question lawfully put by a commissioner, or to produce books or papers which a commissioner has required you to produce,

    it is a criminal offence.68

  4. It is an offence to wilfully furnish the commissioner with any false information.69

  5. If you refuse or fail to comply with any reasonable request by the commissioner in the exercise of his powers or the performance of duties, you commit an offence.70

  6. The same goes if you hinder the commissioner in the exercise of his powers or the performance of his duties.71

  7. Lastly, it is a crime if you fail to comply with any direction by the commissioner or the Registrar in connection with such an investigation.72

H. Minimum requirements and restrictions

There are a number of requirements and restrictions on asset holding. The Act makes it a criminal offence not to comply with its provisions in regard to:

I. Some relief

  1. If the Registrar believes, on reasonable grounds, that a bank (or its controlling company) has contravened or failed to comply with the Act he can impose a penalty – not exceeding R10 000 for every day the contravention endures. If the Registrar does impose a penalty, no criminal prosecution for contravention is, thereafter, competent.77
  1. Taken from: Financial Crisis of 2007 – 2008 in Wikipedia https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008

  2. As amended; the latest amendment was effected by Act 3 of 2015. 

  3. Section 1(1A)(d) read together with section 91(1)(aA). 

  4. Section 60(5) read together with section 91 (1)(aA). 

  5. Section 7 read together with section 91(a). 

  6. Section 7(b) read together with section 91(a). 

  7. Section 78(3) read together with section 91(b). 

  8. Section 6(6) read together with section 6(6)(e). 

  9. Section 58 read together with section 91(b). 

  10. Section 59(1) read together with section 91(b). 

  11. Section 59(1) read together with section 91(b). 

  12. Section 61(2) read together with section 91(b). 

  13. Section 65(1), section 59(1) read together with section 91(b). 

  14. Section 75, section 59(1) read together with Section 91(b). 

  15. Section 7(3) read together with section 91(b). 

  16. Section 7(4) read together with section 91(b). 

  17. Section 7(5) read together with section 91(b). 

  18. ‘Authorised share capital’ is the (total number) value of the shares in the bank which it is able to issue to shareholders, i.e. as authorised by its Memorandum and Articles of Association. Put differently, this represents the maximum amount of capital it can raise through shares. The ‘issued share capital’ is that value/number (i.e. part or whole) of the authorised share capital issued, released or sold by the bank to shareholders. In other words, this symbolises the capital actually invested by shareholders in the bank. 

  19. Section 66 read together with section 91(b). 

  20. Section 11. 

  21. Section 35 read together with section 91(b). 

  22. Section 35 read together with section 91(b). 

  23. Section 34(1) read together with 91(b). 

  24. Section 17(5) read together with section 17(6). 

  25. Section 34(4) read together with section 91(b). 

  26. Section 21. 

  27. Section 22(1) read together with section 22(3). 

  28. Section 22(1) read together with section 22(3). 

  29. Section 22(4). 

  30. Section 22(4). 

  31. Section 22(5) read together with section 22(8). 

  32. Section 82(1) read together with section 82(3). 

  33. Section 83(1) read together with section 83(3). 

  34. Section 84(1) read together with section 84(8). 

  35. Section 32(1) read together with section 32(4). 

  36. Section 41(1) read together with section 91(b). 

  37. Section 52(1)(a) read together with section 91(b). 

  38. Section 52(1)(a) read together with section 91(b). 

  39. Section 52(1)(a) read together with section 91(b). 

  40. Section 52(1)(aA) read together with section 91(b). 

  41. Section 52(1)(b) read together with section 91(b). 

  42. Section 52(1)(c) read together with section 91(b). 

  43. Section 52(1)(d) read together with section 91(b). 

  44. Section 52(1)(d) read together with section 91(b). 

  45. Section 52(1)(e) read together with section 91(b). 

  46. Section 52(1)(f) read together with section 91(b). 

  47. Section 52(4) read together with section 91(b). 

  48. Section 78(1) sets out a long list. 

  49. Section 78(1)(a) read together with section 91(b). 

  50. Section 78(1)(b) read together with section 91(b). 

  51. Section 78(1)(b) read together with section 91(b). 

  52. Section 78(1)(c) read together with section 91(b). 

  53. Section 78(1)(c) read together with section 91(b). 

  54. Section 78(1)(d) read together with section 91(b). 

  55. Section 78(1)(d) sets out 3 exceptions. 

  56. Section 78(1)(e) read together with section 91(b). 

  57. Section 78(1)(f) read together with section 91(b). 

  58. Section 78(1)(k) read together with section 91(b). 

  59. This does not apply in the case of unit trusts, nor does it apply to stock brokers, executors and the like. 

  60. Section 38(1) read together with section 91(b). 

  61. Section 39 read together with section 91(b). 

  62. Section 91(3). 

  63. Section 91(2)(a) read with section 91(5). 

  64. Section 91(2)(b) read with section 91(5). 

  65. Section 69A(14)(a). 

  66. Section 69A(14(b)(1). 

  67. Section 69A(14(b)(ii). 

  68. Section 69A(14)(b)(iii). 

  69. Section 69A(14)(c). 

  70. Section 69A(14)(d). 

  71. Section 69A(14)(e). 

  72. Section 69A(14)(f). 

  73. Section 72 read with section 91(1)(b). 

  74. Section 73 read with section 91(1)(b). 

  75. Section 76 read with section 91(1)(b). 

  76. Section 77 read with section 91(1)(b). 

  77. Section 91A.