Law of Banking and

Instruments of Payment
LWPYA2-44

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Higher Education Act, 101, of 1997. Registration Certificate number: 2001/HE07/008
 Prescribed
Textbook
Sharrock, R. (ed.) 2016. The Law of Banking
and Payment in South Africa. Cape Town: Juta.

Print ISBN: 9780190753481

eBook ISBN: 9780190740313

 Assessments
There two formative assessments for this module:
• An online test, contributing 25% towards your final mark (week 3)
• An online test, contributing 25% towards your final mark (week 6)
Summative assessment:
Proctored Examination which will be uploaded on myLMS. This Assessment counts 50% of
the final mark and the assessment will be open for a period of three hours.
Week 0
Introduction to Banking Law

1.1 Understand the concept

of law.

1.2 Comprehend the

history of the South
African legal system.
The Role of banks in commerce

Primary role is to take in funds—called deposits—

from those with money, pool them, and lend them
to those who need funds. Banks are intermediaries
between depositors and borrowers.
Questions for Discussion
Discussion

Traditional role Explain the role of loan intermediary

What will happen if banks don’t implement or sustain risk

Failure
management?

Law What types of law regulate banking?

 The South African Banking
sector
The Banks Act 94 of 1990
To provide for the regulation and supervision of the business of public companies taking deposits from the public; and to
provide for matters connected therewith.

The South African Reserve Bank Act 90 of 1989

To consolidate the laws relating to the South African Reserve Bank and the monetary system of the Republic; and to
provide for matters connected therewith

Aim of banking 2. Introduce a variety 3. Increase provision

1. Ensure prudent
supervision & financial management
of measures to of banking services to
legislation protect consumers “unbanked”
 Different types of banks
By Bank Act: Commercial v Part of or outside national
Mutual payment system

First-; second- and third-tier

Retail v Investment banking banks
Activity
Discussion

Looking at the different types of banks in South Africa, there

are also different ways in how they can be catogorised.

You will go into breakout rooms & discuss first-, second- and
third-tier banks.
 First Tier

Devt Bank Land and Agric

Commercial Investment
of SA Devt Bank of SA

Second
Tier

Postbank Of Co- Operative

Mutual Banks
Sa BanksThird
Tier

Village Dedicated Mobile

Stokvels
Banks Banks Banking
 The Definition of “bank”
• Incorporated public companies

• Registered under Banks Act

• Carrying on the ‘business of a bank’

• Which includes taking deposits from general public

Conducting the business of a bank without being registered as

a bank is a contravention of S11(1) of the Banks Act
= an offence punishable by a fine and/or
imprisonment
 Business of a bank
Any of 5 activities

Any other
Concluding activity
Utilising money ‘repurchase declared by
deposited (or agreements’ as Registrar to be
Taking deposits interest/income a business i.e business of a
Soliciting/
from general earned on it) sale of assets bank (after
Advertising for
public as a eg. granting for money with consultation
deposits
regular feature; loans, undertaking to with Governor
investment, buy asset from of Reserve
financing the buyer at a Bank) – by
future date notice in Govt
Gazette
Questions for Discussion
Discussion

5 Activities Exclusions

What 6 activities are

Discuss each activity
excluded
DEFINITION OF “deposit”
An amount of money paid by one person to
another person subject to an agreement that

• conditionally or unconditionally repaid;

An equal amount or any part thereof will be
• either by the person who received money or by any other person;
• with/without a premium;
• on demand or at specified/unspecified dates; or
• In circumstances agreed to by the person making the payment and the
person receiving it;

No interest will be payable OR interest will be

payable at specified interval
Questions for Discussion
Discussion

Discuss Exclusions

What 9 payments are

Definition of a deposit
excluded
 The nature of banking law & its sources

Discuss the diversity Discuss the sources of SA

of SA Banking Law Banking Law
 Introduction
Banking law = Part of the law that regulates the legal
relations of banks in their capacity as financial
institutions (widely or narrowly)

Wide definition =
Virtually all spheres
Narrow definition =
of law that may be
Those fields of law that
relevant to bankers
apply exclusively or
mainly to
 Introduction
Two broad fields of banking law:
Private banking law

Regulates the legal relationship Regulates legal relationship

between banks and their between banks and those organs
customers & third parties who of
contract with the bank, or who state (e.g. Registrar of Banks)
are otherwise affected having authority over banks

Public banking law

by banking activities
• Principally application of
general law of obligations: E.g.
contract, delict and
unjustified enrichment
• Make provision for state
control of money and banking
and banking activities in
particular
 Activity

In groups:
Discuss what is meant by
the diversity of South African
banking law
 The sources of SA Banking Law
In categorising the sources of South African banking law, one should distinguish between primary sources
and secondary sources (also known as authoritative sources and persuasive sources)
• The primary sources contain those principles that are binding on South African courts as well as the parties
who appear before them and to whom the South African law applies
• In short, the primary sources are the sum total of those sources that are generally referred to as ‘South
African banking law’
• The clearest example of a primary source is legislation (statutes) enacted by parliament
• The secondary sources do not contain any principles that are binding per se on South African courts, or the
parties appearing before them
• However, secondary sources are important in that they may be consulted by a South African court to
interpret explain and augment the primary sources if, and when, they are unclear, underdeveloped or not
developed at all on a certain point
• The best example of a secondary source of our banking law is foreign law, of which English law was for a
long time regarded as the most important
The Primary sources
Legislation

Indigenous Judicial
law precedent

The
Primary
sources
Roman- Custom or
Dutch law trade usage

Roman
law
The Secondary sources
Secondary
sources

International Customary Foreign

Law International Municipal Law
Law

Basel Committee
European
on Banking English Law
Community Law
supervision
 Activity

In groups:
Discuss the different sources of
South African
banking law
The South African Banking System

Functions of Reserve Bank The Statutory Regulation

Applicable legislation of banks
The South African Banking System

South African banking sector has undergone drastic changes

• Banks Act 94 of 1990
• New product offerings and engaging low-income unbanked population
• South Africa has a sound and stable banking environment
• Well regulated – Integrity, security, efficiency & stability
• Tier 1 banks – Commercial/retail banks, mutual banks & branches of foreign
banks
The South African
Reserve Bank
•• Pivotal role in the regulation of banks
•• Protect the value of the South African
currency (ZAR)
•• Balanced & sustainable economic
growth
•• Mandate enshrined in the
Constitution, 1996
Functions Applicable legislation

Bank regulation &

supervision

Sec 10(1)(c)(i)

Exercise various powers

relating to financial market
The Statutory regulation of banks
Please take note that
only certain parts
needs to be studied
The Banks Act
The Prevention of
Organised Crime Act The National
and the Financial Payment
Intelligence Centre System Act
Act

Statutory
regulation
The Financial The National
Advisory & Credit Act
Intermediary Services
Act
The Consumer
Protection Act
 Activity

In groups:
Discuss the different acts that
regulates banking
 The Banks Act

Main purpose • Most NB statute regulating the SA banking sector

• To protect the public against any losses they might suffer due to the
lack of solvency or possible malpractices on the part of banks
Twofold purpose • To safeguard the public against unfair competition by institutions that
offer similar services to banks

• The Reserve Bank, the Land Bank, the Development Bank of Southern
Does not apply to the 6 institutions Africa, the Corporation for Public Deposits, the Public Investment
Corporation Limited, and any mutual bank

Consists of • 9 chapters and 96 sections

 The National
The National
Payment
Credit Act
System Act

A person must register as a credit provider if the person, alone

• Payment systems are critical to the effective or in conjunction with
functioning of financial systems in a others, is a credit provider under at least 100 credit agreements
country and globally • Or the total principal debt owed to that credit provider under
• If a payment system is insufficiently all outstanding credit
protected against risk such as credit, liquidity agreements, exceeds the threshold published in the Gazette by
and settlement risks, disruption within the the Minister of
Finance under Section 42 (currently zero, as from 11 May 2016)
system could trigger or transmit further
• Banks have to apply
disruptions among its participants and the • National Credit Regulator (NCR) registers entities, and issues a
economy certificate valid
throughout the Republic
 The Consumer
Protection Act

Was enacted to advance and support the economic welfare of consumers

in

South Africa

Protects the rights of consumers

Also encourages a culture of consumer responsibility

Applies to every transaction with the RSA, except if exempted by the Act

The promotion of any goods or services or of the supplier of any goods

and services within the Republic
 The Consumer
Protection Act

Provides for 8 consumer rights:

• 1. Right to equality

• 2. Right to privacy

• 3. Right to choose

• 4. Right to disclose information

• 5. Right to fair and responsible marketing

• 6. Right to fair and honest dealing

• 7. Right to fair, just and reasonable terms and conditions

• 8. Right to fair value, quality and safety

 The Financial Advisory & Intermediary Services Act

‘Advice’ is defined in the Act ‘any

A ‘financial product’ mean
recommendation, guidance or
Purpose is to regulate the securities and instruments
proposal of a financial nature,
rendering of certain financial (shares, debentures, money
furnished, by any means or
advisory and intermediary market instruments, warrants,
medium, to any client or group of
services to clients negotiable certificates of deposit
clients, in any of a number of
etc.)
ways’

Financial services provider = Any

person, other than a
Investment schemes, long or
representative, who as a regular
short-term insurance products,
feature of the business of the
pension funds, deposits, FOREX,
person, furnishes advice and
medical aid,
renders an intermediary service
(Banks participate herein)
 The Prevention of Organised Crime Act and the Financial Intelligence Centre Act

Money laundering: The concealment of the origins of illegally obtained money, typically by means of transfers
involving foreign banks or legitimate businesses

SA has criminalised money laundering in 3 separate provisions of the 1998 POCA

Terrorist financing is criminalised by POCDATARA (Protection of Constitutional Democracy against Terrorist and
Related Activities Act)

The collection or provision of property with a view to commit a terrorist act is criminalised

AMT/CFT = Anti-money Laundering / Combating of Financing of Terrorism

POCA – Criminalises money laundering

FICA - Contains measures aimed at anti-money laundering measures

Questions for Discussion
Discussion

1. What malpractices can a bank engage in?

Why is it NB for a bank to be solvent? (bank runs, banking

2.
crisis)

Should the government have this kind of control/surveillance

3.
over our financial affairs? Is it necessary? Why? Why not?

What crimes/malpractices can normal people engage in vis-à-

4.
vis a bank or other financial institution?

5. What role does a bank play in your life?

6. Should the South African Reserve Bank be nationalised?

Chapter 4 (only 4.1 – 4.6, 4.7.3,
4.8 – 4.9.4, 4.10 – 4.13, 4.14 –
4.16.2)

Chapter 6 (only 6.1 – 6.5.2, 6.7 –

6.17)

Section 10(3) of Prescription Act

68 of 1969

South African Reserve Bank Act

90 of 1989: Section 17

Regulation 3(1)(c) of the

Exchange Control Regulations