Preliminary Note CONTENTS 1 Introduction 2 The bank as borrower the cheque account 3 The bank as borrower the savings/deposit account 4 The bank as lender 5 Securities for facilities 6 Formalities required by the Banks Act and Regulations 1 Introduction 1.1 Scope of title This title is intended to cover the law governing financial and banking institutions, the business of commercial banking, and currency (including exchange control). The subject matter of the title will be treated in the following order: (a) banking institutions: (i) the Reserve Bank; (ii) banks under the Banks Act;1 (iii) mutual banks; and (iv) other banking institutions; (b) the business of commercial banking; (c) currency; (d) exchange control; (e) money laundering; and (f ) the Financial and Advisory Services Act.2 1 94 of 1990. 2 37 of 2002. 2 Banking institutions 2.1 Legislation The main statutes governing banking institutions are the following: (a) the South African Reserve Bank Act,1 which repealed the SA Reserve Bank Act 29 of 1944. The powers of the Reserve Bank and the registrar have been extended in relation to foreign countries by the Extension of the Powers of the SA Reserve Bank Act 95 of 1990; (b) the Banks Act;2 previously named the Deposittaking Institutions Act, and it repealed the Banks Act 23 of 1965; (c) the Mutual Banks Act,3 which repealed the Mutual Building Societies Act 24 of 1965. 1 90 of 1989. 2 94 of 1990. 3 124 of 1993. 2.2 The Reserve Bank 2.2.1 Introduction The South African Reserve Bank is the central bank of the Republic.1 It is regulated in terms of the South African Reserve Bank Act,2 consolidating the laws relating to the South African Reserve Bank and the monetary system of the Republic.3 The Reserve Bank was originally established under the Currency and Banking Act.4 It has the sole right to issue banknotes and coins in the Republic.5 The bank is a juristic person.6 T h e definition of a \"bank\" in s 1 of the Bills of Exchange Act 34 of 1964 includes the Reserve Bank; cf Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 308. The primary objective of the bank is to protect the value of the currency of the Republic in the interest of balanced and sustainable economic growth in the Republic.7 In pursuit of its primary objective, the bank must perform its functions independently and without fear, favour or prejudice, but there must be regular consultation between the bank and the cabinet member responsible for national financial matters.8 The governor must submit annually to the minister a report on the bank's implementation of monetary policy.9 The bank has a share capital of two million rand.10 1 Constitution of the Republic of SA 108 of 1996s 223. 2 90 of 1989. 3 See the long title to the SA Reserve Bank Act 90 of 1989. 4 31 of 1920; repealed by the SA Reserve Bank Act 29 of 1944.
5 SA Reserve Bank Act 90 of 1989s 14. 6 S 2. 7 SA Reserve Bank Act 90 of 1989s 3; Constitution of the Republic of SA 108 of 1996s 224(1). 8 S 224(2) of the Constitution. See Malan and Pretorius (2001) 13 SA Merc LJ 35 3640 on the independence of the bank. 9 SA Reserve Bank Act 90 of 1989s 31. 10 S 21(1). 2.2.3 Board of directors The bank is managed by a board of 14 directors1 consisting of: (a) a governor, three deputy governors (one of whom must be designated by the president as senior deputy governor) and three other directors all appointed by the president after consultation with the minister and the board;2 and (b) seven directors elected by the shareholders.3 The governor must be a person of tested banking experience.4 Of the directors elected by the shareholders, four must be persons who are or have been actively and primarily engaged in commerce or finance; one must be a person who is or has been so engaged in agriculture; and two must be persons who are or have been so engaged in industrial pursuits.5 A person may not be appointed, elected or remain as director if he or she is: (a) not resident in the Republic; (b) a director, officer or employee of a bank or mutual bank; (c) a minister or deputy minister in the government of the Republic; or (d) a member of Parliament or a provincial legislature.6 The governor and deputy governors hold office for five years and the directors who are government representatives hold office for three years.7 Section 5(1A)(1B) refer to the provisions relating to the term of office of directors who are shareholders' representatives. A director is eligible for reappointment or reelection after expiration of the term of office.8 Directors (including the governor and deputy governors) hold office on such conditions as to remuneration (and allowances) as may be determined by the board and on such other conditions as may be prescribed by regulation.9 Section 6 refers to the provisions relating to the filling of casual vacancies. The governor and deputy governors must devote the whole of their time to the business of the bank, though each may accept or hold any office to which he or she is appointed by or with the approval of the president or the minister.10 1 SA Reserve Bank Act 90 of 1989s 4(1). 2 S 4(1)(a). 3 S 4(1)(b). 4 S 4(2)(a). 5 S 4(3). 6 S 4(4). 7 S 5(1). 8 S 5(2). 9 S 5(3). 10 S 5(4). 2.2.4 Meetings of the board The governor must preside at meetings of the board, and in the governor's absence, the deputy governor designated by the governor. The minister may designate any other director to act as chairperson of the board during the minister's pleasure.1 If the director so designated by the minister is absent, the governor must preside, or in his or her absence a deputy governor designated by the governor, and in the absence of both, the directors present may elect one of them to preside.2 The quorum for a meeting is seven directors.3 A decision of the majority of directors present constitutes a decision of the board.4 The person presiding at a meeting has a deliberative vote and, in the event of an equality of votes, a casting vote.5 1 SA Reserve Bank Act 90 of 1989s 7(1). 2 S 7(2). 3 S 7(3). 4 S 7(4). 5 S 7(5). 2.2.5 Delegation of powers The board may from time to time delegate any of its powers to the governor or a deputy governor or an officer of the bank for such period and purpose and on such terms, conditions or restrictions as it deems fit.1 The governor or a deputy governor may assign the exercise of any power so delegated to a deputy governor or an officer of the bank for a particular period or purpose; such assigned exercise of power is subject to the same terms, conditions or restrictions as were imposed by the board when delegating the power.2 1 SA Reserve Bank Act 90 of 1989s 8(1). 2 S 8(2). 2.2.6 Validity of decisions An act or decision of the board or an act performed under the board's authority will not be invalid merely because the board did not consist of the full number of directors, or because a disqualified or invalidly elected person sat or acted as a director when the decision was taken or the act performed or authorised,1 provided that where the disqualified or invalidly elected person sat or acted as a director, the directors who were present and entitled to sit or act as directors constituted a quorum, and a majority of them voted in favour of the
decision or the act performed or authorised.2 1 SA Reserve Bank Act 90 of 1989s 9. 2 S 9 proviso. 2.2.7 Powers, duties and functions of the bank T h e p o w e r s a n d f u n c t i o n s o f t h e R e s e r v e B a n k a r e t h o s e customarily exercised and performed by central banks.1 These powers and functions must be determined by an Act of Parliament, and must be exercised or performed subject to the conditions prescribed in terms of the Act.2 Subject to the provisions of the South African Reserve Bank Act3 relating to prohibited business4 the bank may: (a) (i) make banknotes or cause banknotes to be made;5 (ii) mint coins or cause coins to be minted;6 (iii) issue banknotes and coins, or cause banknotes and coins to be issued, for use in the Republic;7 (iv) make, or cause to be made, banknotes to be issued for use in another country, and mint, or cause to be minted, coins to be so issued;8 and (v) destroy banknotes and coins or cause them to be destroyed;9 (b) with the object of making banknotes or minting coins, and with any object incidental thereto, form companies in accordance with the provisions of the Companies Act,10 and take up shares in such companies;11 (c) (i) perform such functions, implement such rules and procedures and, in general, take such steps as may be necessary to establish, conduct, monitor, regulate and supervise payment, clearing or settlement systems;12 (ii) form, or take up shares or acquire an interest in, any company or other juristic person that provides (aa) a service for the purpose of or associated with; or (bb) any facility for or associated with the utilisation of any such payment, clearing or settlement systems;13 (iii) perform the functions assigned to the bank by or under any law for the regulation of such payment, clearing or settlement systems;14 and (iv) participate in any such payment, clearing or settlement systems;15 (d) acquire shares in a limited company formed and registered in accordance with the provisions of the Companies Act,16 if the board is of the opinion that any such acquisition will be conducive to the attainment of any of the objects of the South African Reserve Bank Act;17 (e) accept money on deposit, allow interest on any deposit or on a portion of a deposit and collect money for other persons;18 (f ) grant loans and advances provided that unsecured loans and advances may be granted only in the following cases: (i) an unsecured loan to the government of the Republic or to a company referred to in section 10(1)(b) or, with the approval of the board, to any company in which the bank has acquired shares in accordance with the provisions of section 10(1)(d) of the South African Reserve Bank Act;19 (ii) an unsecured loan or advance, at such rate of interest as the board may from time to time determine, to an officer or employee of the bank: (aa) in order to enable such officer or employee to acquire a dwelling for his or her own use, in a case where, owing to the nature of the rights of the officer or employee in respect of the property in question, such property cannot in law be mortgaged in favour of the bank;20 or (bb) for the purposes of the implementation of a motorcar scheme which, in terms of the rules made by the board, forms part of the conditions of service of the officer or employee;21 (g) buy, sell, discount or rediscount bills of exchange drawn or promissory notes issued for commercial, industrial or agricultural purposes, or exchequer bills of the government of the Republic or of the government of any other country, or securities of a local authority in the Republic;22 (h) buy, sell or deal in financial instruments and, in accordance with the provisions of any law regulating the safe deposit of securities, hold such financial instruments in safe custody, or cause such financial instruments to be held in safe custody, for other persons;23 (i) issue its own interestbearing securities for purposes of monetary policy and buy, sell, discount or rediscount, or grant loans or advances against, such securities;24 (j) subject to the provisions of section 13(a) and (b) of the South African Reserve Bank Act, enter into repurchase agreements with any institution in respect of interestbearing securities or such other securities as the bank may determine;25 (k) buy, sell or deal in precious metals and hold in safe custody for other persons gold, securities or other articles
of value;26 (l) buy and sell foreign currencies;27 (m) buy, sell, accept or deal in special drawing rights;28 (n) open credits and issue guarantees;29 (o) effect transfers in accordance with generally accepted banking practice, and sell drafts drawn on its branches and correspondents;30 (p) establish branches or appoint agents and correspondents in or outside the Republic;31 (q) open accounts in foreign countries and act as agent or correspondent of any bank carrying on business in or outside the Republic;32 (r) make arrangements or enter into agreements with any institution in a foreign country to borrow, in such manner, at such rate of interest and subject to such other terms and conditions as the bank may deem fit, any foreign currency which the bank may consider it expedient to acquire;33 (s) perform such other functions of bankers and financial agents as central banks customarily may perform;34 (t) lend or advance money on security of a mortgage of immovable property or of a notarial or other bond or a cession thereof, to any officer or employee or former officer or employee of the bank for the purpose of enabling any such officer or employee to acquire a dwelling for his or her own use,35 provided that: (i) if the board is of the opinion that the value of any security held against any loan or advance is insufficient, the bank may accept as additional security a mortgage bond on immovable property or any other security approved by the board; and (ii) if any immovable property so mortgaged is sold for the purpose of satisfying the mortgage debt and the purchase price obtainable is insufficient to cover the whole of the bank's claim in connection with the mortgage, the bank may buy in that property and realise it at such time and in such manner as the board may determine;36 (u) acquire immovable property required by the bank for business purposes or for the purpose of providing a dwelling for any officer of the bank, and sell, dispose of, donate or otherwise alienate any such immovable property, provided that a donation of such immovable property may only be made with the approval of the board;37 and (v) perform the functions assigned to the bank by the Banks Act38 and the Mutual Banks Act.39 The rates at which the bank will discount or rediscount the various classes of bills, promissory notes and other securities, must be determined and announced by the bank from time to time.40 The minister has appointed the Reserve Bank to carry out the powers and functions assigned to the treasury by the Exchange Control Regulations. In pursuit of its primary object, the Reserve Bank must perform its functions independently and without fear, favour or prejudice,41 but there must be regular consultation between the bank and the cabinet member responsible for national financial matters.42 1 Constitution of the Republic of SA 108 of 1996s 225; see Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 309311. 2 Constitution of the Republic of SA 108 of 1996s 225. 3 90 of 1989. 4 S 13. 5 S 10(1)(a)(i). 6 S 10(1)(a)(ii). 7 S 10(1)(a)(iii). 8 S 10(1)(a)(iv). 9 S 10(1)(a)(v). 10 61 of 1973. 11 SA Reserve Bank Act 90 of 1989s 10(1)(b). 12 S 10(1)(c)(i). 13 S 10(1)(c)(ii). 14 S 10(1)(c)(iii). 15 S 10(1)(c)(iv). 16 61 of 1973. 17 90 of 1989s 10(1)(d). 18 S 10(1)(e). See Malan 310311. 19 90 of 1989s 10(1)(f )(i). 20 S 10(1)(f )(ii)(aa). 21 S 10(1)(f )(ii)(bb). 22 S 10(1)(g). 23 S 10(1)(h). See the Custody and Administration of Securities Act 85 of 1992. 24 SA Reserve Bank Act 90 of 1989s 10(1)(i). 25 S 10(1)(j). 26 S 10(1)(k). 27 S 10(1)(l). 28 S 10(1)(m).
29 S 10(1)(n). 30 S 10(1)(o). 31 S 10(1)(p). 32 S 10(1)(q). 33 S 10(1)(r). 34 S 10(1)(s). 35 S 10(1)(t). 36 S 10(1)(t)(i)(ii). 37 S 10(1)(u). 38 94 of 1990. 39 124 of 1993; SA Reserve Bank Act 90 of 1989s 10(1)(v). 40 S 10(2). 41 Constitution of the Republic of SA 108 of 1996s 224(2). 42 Ibid. The cabinet member referred to is the Minister of Finance. 2.2.8 Extension of powers in relation to foreign countries In terms of the Extension of the Powers of the South African Reserve Bank Act,1 the powers of the bank and the registrar have been extended in relation to foreign countries proclaimed by the president of the Republic, in respect of persons carrying on, or intending to carry on, b u s i n e s s a s a b a n k i n g i n s t i t u t i o n o r b a n k c o n t r o l l i n g c o m p a n y i n s u c h c o u n t r y . 2 T h e b a n k o r t h e r e g i s t r a r m a y perform within or in relation to the foreign country, or in respect of such a person, any function which the bank or registrar would be capable of performing in the Republic.3 Any function which in terms of the legislation vests in the minister is deemed for these purposes to vest in the person in that country holding the office corresponding to the office of the minister.4 1 95 of 1990 2 S 1. 3 Ibid. 4 S 2. The minister is the Minister of Finance: ibid. 2.2.9 Inspection of banks and mutual banks The Reserve Bank may appoint inspectors to carry out inspections of t h e a f f a i r s o f a b a n k o r m u t u a l b a n k .1 T h e p r o v i s i o n s o f t h e I n s p e c t i o n o f F i n a n c i a l I n s t i t u t i o n s2 a p p l y mutatis mutandis: SA Reserve Bank Act3 read with s 12(1) of the Interpretation Act.4 An inspector must be furnished with a certificate of appointment.5 1 SA Reserve Bank Act 90 of 1989s 11(1). 2 Act 80 of 1998. 3 Act 90 of 1989s 11(2). 4 Act 33 of 1957. 5 SA Reserve Bank Act 90 of 1989s 11(3). 2.2.10 Inspection of person not registered as bank or mutual bank The governor or a deputy governor who has reason to suspect that a person, partnership, close corporation, company or other juristic person not registered as a bank or mutual bank is carrying on the business of a bank or mutual bank, may direct the registrar of banks to cause an inspection of the affairs thereof in order to ascertain whether the business of a bank or mutual bank is b e i n g c a r r i e d o n .1 S o m e p r o v i s i o n s o f t h e I n s p e c t i o n o f F i n a n c i a l I n s t i t u t i o n s A c t2 a p p l y mutatis mutandis: S A Reserve Bank Act3 read with s 12(1) of the Interpretation Act.4 1 SA Reserve Bank Act 90 of 1989s 12(1). 2 Act 80 of 1998. 3 Act 90 of 1989s 12(2). 4 Act 33 of 1957. 2.2.11 Prohibited business The bank may not: (a) purchase its own shares or grant loans or advances upon the security thereof;1 (b) without the consent of the minister, purchase the shares of any bank or grant loans or advances upon the security thereof;2 (c) subject to the provisions of section 10(1)(t) and (u) of the South African Reserve Bank Act, lend or advance money on security of a mortgage of immovable property or of a notarial or other bond or a cession thereof, or acquire immovable property;3 (d) buy, discount or rediscount bills of exchange or promissory notes drawn or issued for commercial and industrial purposes, which have a maturity exceeding 120 days;4 (e) buy, discount or rediscount bills of exchange or promissory notes drawn or issued for agricultural purposes, which have a maturity exceeding six months;5 (f ) hold in stocks of the government of the Republic which have been acquired directly from the treasury by subscription to new issues, the conversion of existing issues or otherwise, a sum exceeding its paidup capital and reverse fund plus onethird of its liabilities to the public in the Republic.6 1 SA Reserve Bank Act 90 of 1989s 13(a). 2 S 13(b). 3 S 13(c). 4 S 13(d). 5 S 13(e). 6 S 13(f ). 2.2.12 Share capital The share capital of the bank is two million rand divided into two million shares of R1 each.1
A shareholder's liability is limited to the amount unpaid on his or her shares.2 The bank may, from time to time, i n c r e a s e i t s s h a r e c a p i t a l b y t h e i s s u e o f f u r t h e r s h a r e s , s u b j e c t t o t h e c o n s e n t a n d a p p r o v a l o f t h e b o a r d .3 T h e premium obtained from the issue of shares must be added to the bank's reserve fund.4 1 SA Reserve Bank Act 90 of 1989s 21(1). 2 S 21(2). 3 S 21(3). 4 S 21(4). 2 . 2 . 1 3 S h a r e h o l d e r s A s h a r e h o l d e r m a y n o t h o l d m o r e t h a n 1 0 0 0 0 s h a r e s i n t h e b a n k .1 H o w e v e r , a n y shareholder holding more than 10 000 shares at the commencement of the South African Reserve Bank Act may continue to hold the same but may not acquire further shares in the bank for so long as he or she holds more than 10 000 shares.2 If the number of shares held by such person is reduced to 10 000 or less, then the 10 000 share limitation will also apply to such shareholder.3 Shares may not be held in the name of or transferred to a nominee4 unless the nominee is a central securities d e p o s i t o r y a s d e f i n e d i n t h e C u s t o d y a n d A d m i n i s t r a t i o n o f S e c u r i t i e s A c t .5 A t a m e e t i n g o f s h a r e h o l d e r s , a shareholder will be entitled to one vote per 200 shares of which he or she has been the registered owner for a period of not less than six months prior to the meeting.6 If any shares are registered contrary to the provisions of s 22(4) at the date of commencement of the SA Reserve Bank Act7 , the bank must ensure that these shares are immediately registered in the name of the beneficial owner. 8 No shareholder will be entitled to exercise any vote indirectly or directly in respect of any shares held by him or her in excess of 10 000. Likewise, no group of companies having interlocking directorates will be entitled directly or indirectly to exercise any vote in respect of the total number of shares in the bank held by those companies in excess of 10 000.9 A shareholder who is not ordinarily resident in the Republic will not be entitled to vote at any meeting of shareholders.10 1 SA Reserve Bank Act 90 of 1989s 22(1). 2 S 22(2). 3 S 22(3). 4 S 22(4) 5 Act 85 of 1992. 6 S 23(1). 7 90 of 1989 8 S 22(5). 9 S 23(2). 10 S 23(3). 2.2.14 Allocation of surplus Any surplus remaining at the end of the bank's financial year after provision has been made for: (a) bad and doubtful debts; (b) depreciation in assets; (c) gratuities or other pension benefits of officers and employees; (d) all such items as are usually provided for by bankers; and (e) payments of a dividend at 10% per annum on paidup share capital out of the net profits, must be divided into tenths of which onetenth must be allocated to the bank's reserve fund and ninetenths must be paid to the government.1 1 SA Reserve Bank Act 90 of 1989s 24. 2.2.15 Establishing certain accounts The bank is required to establish the following accounts: (a) a gold price adjustment account;1 (b) a foreign exchange adjustment account;2 and (c) a forward exchange contracts adjustment account.3 The bank must furnish the treasury, at times determined by it, with returns reflecting the operations of these accounts.4 A report by the bank's auditors that a statement to which the report relates is a correct reflection of transactions, receipts and payments on these accounts may be accepted as correct by the auditorgeneral.5 Any credit or debit balance on these accounts must, at the close of the financial year or at such other times as the bank and treasury determine, be transferred to a gold and foreign exchange contingency reserve account established and managed by the bank on behalf of the treasury.6 1 SA Reserve Bank Act 90 of 1989s 25(3). 2 S 26(2). 3 S 27(2). 4 S 29(1). 5 S 29(2). See AuditorGeneral Act 12 of 1995; Constitution of the Republic of SA 108 of 1996s 188. 6 SA Reserve Bank Act 90 of 1989s 28(1). 2.2.16 Statutory price of gold and the gold price adjustment account All gold of the bank must be valued at a price per specified mass of fine gold (the \"statutory price\") determined by the minister from time to time in consultation with the bank. This price must be published in the Government Gazette as soon as practicable after its
determination.1 The gold is traded for the profit or loss of the government.2 The gold price adjustment account must account for any profit or loss resulting from a change in the statutory price, and any difference between the statutory price and the price at which the bank buys or sells gold after due allowance for handling and realisation costs.3 1 SA Reserve Bank Act 90 of 1989s 25(1). 2 S 25(2). 3 S 25(3). 2.2.17 Foreign exchange adjustment account All assets of the bank expressed in foreign currency, that is c u r r e n c i e s o t h e r t h a n t h e c u r r e n c y o f t h e R e p u b l i c , a r e f o r t h e p r o f i t o r l o s s o f t h e g o v e r n m e n t .1 T h e f o r e i g n exchange adjustment account must account for the loss or profit on these assets resulting from the depreciation or appreciation of the foreign currencies in relation to the currency of the Republic.2 1 SA Reserve Bank Act 90 of 1989s 26(1). 2 S 26(2). 2.2.18 Forward exchange contracts adjustment account Any profit or loss (the profits and losses mentioned exclude the usual exchange margins earned or paid thereon) on forward exchange contracts entered into by the bank,1 borrowings by the bank in a currency other than that of the Republic2 (these profits and losses exclude interest, commission or other charges or the usual exchange margins earned or paid thereon) or any agreement3 entered into by the Minister of Trade and Industry with the Export Credit Agency for the reinsurance of any contract entered into by that corporation with any exporter of capital goods or services from the Republic, for insurance of monetary loss or detriment attributable to a change in the value of the currency of the Republic in relation to the currency of the United States of America, will accrue to the government.4 Any profit or loss so accruing will be accounted for by the bank in a forward exchange contracts adjustment account.5 1 SA Reserve Bank Act 90 of 1989s 27(1)(a). 2 S 27(1)(b). 3 Under the Export Credit and Foreign Investments Reinsurance Act 78 of 1957s 2. 4 SA Reserve Bank Act 90 of 1989s 27(1)(c) read with s 12(1) of the Interpretation Act 33 of 1957. 5 S 27(2). 2.2.19 Gold and foreign exchange contingency reserve account Any credit balance on the gold and foreign exchange contingency reserve account will accrue as a profit to the government for the benefit of the State Revenue Fund and may be credited to that fund, in whole or part, at such time as the bank and treasury may deem desirable, until which time it will be carried forward in the gold and foreign exchange contingency reserve account.1 The bank may, at the request of, or with the approval of the treasury, advance the abovementioned credit balance or part thereof to the national supplies procurement fund; interest on such advance, if any, must be paid into the State Revenue Fund at such times as the treasury may determine.2 Any debit balance will be a loss for government and will be a charge against the State Revenue Fund, but must be carried forward in the gold and foreign exchange contingency reserve account until the bank and the treasury deem it desirable to settle the outstanding balance.3 Any loss will be defrayed from money appropriated by Parliament for that purpose.4 1 SA Reserve Bank Act 90 of 1989s 28(2)(a)(b). 2 S 28(2)(c). 3 S 28(3)(a)(b). 4 S 28(3)(c). 2.2.20 Audit and inspection For every financial year of the bank, two firms of public accountants must be appointed by the shareholders at a general meeting to act as the auditors of the bank during that year. 1 Moreover, the minister may, in writing, cause an investigation to be made into the affairs of the bank by one or more authorised officers of the Department of Finance.2 1 SA Reserve Bank Act 90 of 1989s 30(1). 2 S 30(2). 2.2.21 Information to be furnished by Reserve Bank The bank must: (a) from time to time set out a return containing a statement of assets and liabilities of the bank as at the close of business on the last business day of every month.1 This return must be submitted to the Department of Finance and be in the form set out in Schedule 1. (b) within three months of the close of each financial year transmit to the Department of Finance two copies of its financial statements, as well as an audit report;2 (c) within 60 days after the close of its financial year transmit to the department two copies of a list with the full names and addresses of the shareholders and the number of shares held by each;3 and (d) when called upon by a written notice of the department, furnish such further returns as may be specified in that notice.4 The department must publish every return so received in the Government Gazette as soon as is practicable.5 The minister must table before Parliament a copy of the report of the governor6 and of each financial statement or list received within 14 days of receipt thereof if Parliament is then in ordinary session, or within 14 days of the commencement of the next ensuing ordinary session.7 1 SA Reserve Bank Act 90 of 1989s 32(1)(a). 2 S 32(1)(b). 3 S 32(1)(c).
4 S 32(1)(d). 5 S 32(2). 6 See s 31. 7 S 32(3). 2.2.22 Secrecy An officer, director or employee of the bank as well as an officer in the Department of Finance may not disclose to any person any information relating to the affairs of the bank, its shareholders or clients, such information having been acquired in the performance of his or her duties or exercise of his or her functions. Other information acquired in the course of participating in the activities of the bank, may also not be disclosed. This provision is subject to the exception that such information may be disclosed to the minister or DirectorGeneral: Finance, or for the purpose of doing his or her duties or exercising his or her functions or when required to do so before a court of law or under any law.1 Where the information relates to the affairs of a client of the bank, the written consent of the minister and the governor, after consultation with the client concerned, is required for disclosure.JL:Jump,\"Banking and Finance Preliminary Note par Banking and Finance Preliminary Note par 2.2.22 fn 2\">2 Furthermore, a person may not disclose to another any information contained in a written communication in any way marked confidential or secret and which was addressed by the bank to any person, or which was addressed by any person to the bank except for the purposes of performing his or her duties or exercising his or her powers in terms of any law, or when required to do so before a court of law, or with the written consent of both sender and recipient of that communication.3 1 SA Reserve Bank Act 90 of 1989s 33(1). 2 S 33(1) proviso. 3 S 33(2). 2.2.23 Offences Any person who: (a) forges, alters or unlawfully issues a note of the bank or something purporting to be a note of the bank, or any coin;1 (b) utters, tenders or accepts any such note or a coin which has been forged, altered or unlawfully issued, knowing it to be forged, altered or unlawfully issued;2 (c) without the authority of the bank, engraves or makes upon any material whatsoever any words, figures, letters, marks, lines or devices the print whereof resembles in whole or in part any words, figures, letters, marks, lines or devices peculiar to and used in or upon any note of the bank or any coin which is legal tender;3 (d) without the authority of the bank, uses or knowingly has in his or her possession any material whatsoever upon which has been engraved or made any such words, figures, letters, marks, lines or devices;4 (e) contravenes the provisions relating to the preservation of secrecy;5 (f ) wilfully defaces, soils or damages any note of the bank, or writes or places any drawing thereon or attaches thereto anything in the nature of an advertisement, or wilfully defaces or damages any coin which is legal tender;6 (g) removes from the premises where coins are manufactured, without lawful authority or excuse, any matrix, master punch, die, collar, piercing and cutting tool, pattern or mould, or any other tool, machine, engine, instrument or thing used or employed in or in connection with the minting of coins, or any useful part of the several objects aforesaid, or any coin or bullion;7 (h) is found in possession of any blank or defective coin of the size, shape and metal composition of any coin of which the minting is authorised by the South African Reserve Bank Act, and is unable to account satisfactorily for such possession;8 (i) fraudulently inserts or uses in a machine that vends merchandise or services or collects fares or tolls, anything that is intended to pass for the coin or the token of value that the machine is designed to receive in exchange for the merchandise, service, fare or toll, as the case may be;9 (j) sells, exchanges or otherwise disposes of any metal reproduction of any gold coin contemplated in Schedule 2 of the South African Reserve Bank Act, or uses the word \"Krugerrand\", \"Natura\" or \"Protea\" or any derivative thereof or any combination thereof with any other word in the furtherance of the sale, exchange or disposal in any other manner of such a reproduction or of any metal article of commerce;10 (k) without the written approval of the Department of Finance, intentionally destroys, melts down, dissolves in any dissolvent, breaks up or damages a coin that has been issued under the South African Mint and Coinage Act11 or the South African Reserve Bank Act,12 or removes any such coin out of the Republic, or causes or permits it to be so removed, with the purpose of so dealing with it or causing it to be so dealt with outside the Republic;13 or (l) sells or disposes of any coin issued as contemplated in (k) above, knowing or suspecting that such coin is to be dealt with in a manner constituting an offence under (k) above,14 will be guilty of an offence and liable on conviction: (i) in the case of an offence referred to in (a) or (b) above, to imprisonment for a period not exceeding 15 years;15
(ii) in the case of an offence referred to in (c) or (d) above, to imprisonment for a period not exceeding five years;16 (iii) in the case of an offence referred to in (e) above, to a fine not exceeding R4 000 or to imprisonment for a period not exceeding one year, or to both such fine and imprisonment;17 (iv) in the case of an offence referred to in (f ) above, to a fine not exceeding R250;18 (v) in the case of an offence referred to in (g), (h) or ( j) above, to a fine not exceeding R8 000 or to imprisonment for a period not exceeding two years, or to both such fine and imprisonment;19 (vi) in the case of an offence referred to in (i) above, to a penalty which may in law be imposed for the crime of fraud;20 (vii) in the case of an offence referred to in (k) above, to a fine not exceeding R50 000 or to imprisonment for a period not exceeding five years, or to both such fine and such imprisonment;21 and (viii) in the case of an offence referred to in (l) above, to a fine not exceeding R10 000 or to imprisonment for a period not exceeding two years, or to both such fine and such imprisonment.22 For the purposes of the above: (a) \"bullion\" means any gold, platinum, silver, nickel, gold alloys, platinum alloys, silver alloys, nickel alloys or bronze or other minting alloys in the form of ingots, bars, strips, sheets, scissel, cuttings, granules, rejected coins, blanks, filings, sweepings, dross, scrap or wire; and (b) a coin will be regarded as defective if it has been wrongly manufactured, and would accordingly be unfit for issue as a proper coin in accordance with the standards of manufacture applied by the institution entrusted with the manufacture of coins for the purposes of the South African Reserve Bank Act.23 1 SA Reserve Bank Act 90 of 1989s 34(1)(a). 2 S 34(1)(b). 3 S 34(1)(c). 4 S 34(1)(d). 5 S 34(1)(e). 6 S 34(1)(f ). 7 S 34(1)(g). 8 S 34(1)(h). 9 S 34(1)(i). 10 S 34(1)(j). 11 78 of 1964. 12 90 of 1989. 13 S 34(1)(k). 14 S 34(1)(l). 15 S 34(1)(i). 16 S 34(1)(ii). 17 S 34(1)(iii). 18 S 34(1)(iv). 19 S 34(1)(v). 20 S 34(1)(vi). 21 S 34(1)(vii). 22 S 34(1)(viii). 23 S 34(2). 2.2.24 Rules and regulations The board may make rules not inconsistent with the provisions of the South African Reserve Bank Act1 or the regulations thereunder for the good governance of the bank, the conduct of its business as well as in regard to the appointment and conditions of service of its officers and employees.2 Regulations may be made by the minister with regard to: (a) the election of directors by shareholders;3 (b) the conditions (other than those of remuneration) relating to appointment of directors and the circumstances for vacation of the office of a director;4 (c) meetings of the board and of shareholders, including procedural matters in this respect; 5 (d) any matter required or permitted to be prescribed by regulation under the Act;6 and (e) generally, all matters necessary or expedient in order to achieve the objects of the Act.7 1 90 of 1989. 2 S 35. 3 S 36(a). 4 S 36(b). 5 S 36(c)(d). 6 S 36(dA). 7 S 36(e). 2.2.25 Proceedings by minister The minister may, if he or she is of the opinion that the bank has failed to comply with the provisions of the South African Reserve Bank Act1 or a regulation made thereunder, on written notice, require the board to make good or remedy the default within a specified period.2 Failing compliance with such notice
the minister may apply to the High Court for the required relief.3 1 90 of 1989. 2 S 37(1). 3 S 37(2). 2.2.26 Liquidation The Reserve Bank may not be placed in liquidation except by an Act of Parliament.1 In such event, the reserve fund and any surplus assets must be divided between the government and shareholders in the proportion of 60% and 40%.2 In the event of the amount so payable to a shareholder exceeding the average market price of his or her shares in the bank over the period of 12 months preceding the day three months prior to the introduction in Parliament of the bill providing for liquidation, so much of the amount as exceeds the said average must be paid to the government.3 No writ of execution or attachment or similar process may be issued or proceeded with against the bank if the minister has certified that he or she has introduced or intends to introduce in Parliament a bill placing the bank in liquidation and has not withdrawn the certificate.4 1 SA Reserve Bank Act 90 of 1989s 38(1). 2 S 38(2). 3 S 38(3). 4 S 38(4). 2.3 Banks under the Banks Act 2.3.1 Scope of Banks Act The Banks Act1 provides for the regulation and supervision of the business of public companies taking deposits from the public.2 It imposes requirements which any institution must comply with before it may carry on the business of a bank as well as in the lawful carrying on of such business.3 An institution that is for the first time registered as a bank may not commence doing the \"business of a bank\"4 until it has furnished p r o o f t o t h e r e g i s t r a r t h a t i t c o m p l i e s w i t h t h e p r u d e n t i a l r e q u i r e m e n t s .5 T h e m i n i s t e r i s e m p o w e r e d , o n t h e recommendation of the registrar and after consulting the governor of the Reserve Bank, to amend the definition of \"the business of a bank\" by regulation.6 The minister is the Minister of Finance.7 The term \"bank\" means a public company registered as a bank in terms of the Banks Act.8 These provisions do not apply to (a) the Reserve Bank;9 (b) the land bank; (c) the Development Bank of Southern Africa;10 (d) the corporation for public deposits;11 (e) the public investment commissioners;12 (f ) a mutual bank; or (g) any other institution or body so designated by the minister.13 1 94 of 1990. This Act was previously named the Deposittaking Institutions Act; it repealed the Banks Act 23 of 1965. For the term \"deposit\" see s 1(1) of the Banks Act 94 of 1990. See also Transitional Local Council of Randfontein v ABSA Bank Ltd [2002] 2 All SA 134 (W). 2 See the long title of the Act. 3 S 2. 4 S 1(1). 5 S 17(5). 6 S 1(2). 7 S 1(1). 8 S 1(1); Alpha Bank Bpk v Registrateur van Banke 1996 1 SA 330 (A) 344. 9 See SA Reserve Bank Act 90 of 1989. 10 See Development Bank of Southern Africa Act 13 of 1997. 11 See Corporation for Public Deposits Act 46 of 1984s 2. 12 See Public Investment Commissioners Act 45 of 1984 s 2. 13 See Mutual Banks Act 124 of 1993. 14 Banks Act 94 of 1990s 2(b)(vii). 2.3.2 Registrar of Banks For the registration of banks and the other purposes of the Banks Act,1 there is an office in Pretoria called the office for banks.2 This office is part of the Reserve Bank.3 At its head is the Registrar of Banks,4 who is an officer or employee of the Reserve Bank designated by it with the minister's approval.5 The registrar must perform the functions assigned to him or her under both the Banks Act and the Mutual Banks Act;6 and he or she must do this under the control of the Reserve Bank and in accordance with directions issued by the Reserve Bank from time to time.7 The Reserve Bank may, with the minister's approval designate as deputy registrars so many officers or employees in its service as it may deem necessary, up to a maximum of four.8 The deputy registrar is competent to perform any function of the registrar subject to the registrar's control and directions.9 The registrar may with the approval of the Reserve Bank delegate to any officer or employee of the bank any of the powers conferred on the registrar or authorise such person to perform any duty assigned to him or her. 10 Such delegation does not prevent the registrar from exercising such power. 11 For the exercise by the registrar of certain powers the consent of the minister is required.12 The registrar may from time to time furnish banks with guidelines by means of circulars on the interpretation and application of the Act.13 1 94 of 1990.
2 S 3. 3 Ibid. See SA Reserve Bank Act 90 of 1989. 4 Ibid. 5 Banks Act 94 of 1990s 4(1). 6 124 of 1993s 2. 7 Banks Act 94 of 1990s 4(1). 8 S 4(2). 9 Ibid. 10 S 5(1); Mutual Banks Act 124 of 1993s 3(1). 11 Banks Act 94 of 1990s 5(2); Mutual Banks Act 124 of 1993s 3(2). 12 Banks Act 94 of 1990ss 18B 23. 13 S 6(4); Mutual Banks Act 124 of 1993s 4(4). 2.3.3 Powers of inspection In addition to the powers conferred by the Banks Act1 the registrar has the powers conferred by the Inspection of Financial Institutions Act.2 These include powers of inspection.3 These provisions must not be construed as prohibiting the registrar from holding discussions from time to time with the executive officer of a bank, or with any executive officer or employee, appointed by that Chief Executive Officer, of: (a) the bank; (b) any subsidiary or controlling company of the bank or any subsidiary of such controlling company; (c) any juristic person which, had it been a company, would have been a subsidiary of the bank or controlling company; (d) any juristic person whose board of directors or governing body normally acts in accordance with the instructions of the bank or its controlling company; or (e) any trust that is directly or indirectly controlled by either the bank or its controlling company, with a view to facilitating effective individual or consolidated supervision of the bank or group of banks of which the bank is a member.4 1 94 of 1990s 6. 2 80 of 1998. 3 S 4. 4 Banks Act 94 of 1990s 6(3). The corresponding provision in the Mutual Banks Act 124 of 1993 is s 4. 2.3.4 Information required by registrar The registrar may, by written notice, require a bank, its controlling company or a subsidiary of that bank or its controlling company, to furnish him or her with such specified information for such specified period or periods at a designated time, times or intervals as reasonably may be required for the performance of his or her functions.1 The registrar may also direct a bank, its controlling company or a subsidiary of the bank or controlling company to furnish him or her with the report of a public accountant2 or other appropriate person, designated or approved by the registrar, on any matter, or any aspect of a matter, about which the registrar has or may require the bank, controlling company or subsidiary to furnish information.3 The report must be drawn up at the expense of the bank, controlling company or subsidiary in question. The report must be in the form specified in the notice.4 1 Banks Act 94 of 1990s 7(1)(a). 2 As defined in the Public Accountants' and Auditors' Act 80 of 1991 s 1. 3 Banks Act 94 of 1990s 7(1)(b) read with s 7(2). 4 S 7(2). The corresponding provision in the Mutual Banks Act 124 of 1993 is s 5. 2.3.5 Power to extend periods Any person who is required to furnish the registrar with any return, document or information within a specified period may apply in writing to the registrar for an extension of time.1 The registrar is empowered to grant or refuse the application.2 He must notify the applicant in writing of his decision.3 1 Banks Act 94 of 1990 s 8(1). 2 S 8(2). 3 ibid. The corresponding provision in the Mutual Banks Act 124 of 1993 is s 6. 2.3.6 Board of review Any person aggrieved by a decision of the registrar under a provision of the Banks Act,1 may within the prescribed period and in the prescribed manner apply for a review of that decision to a board of review consisting of three members appointed by the minister2 as follows: (a) one person, who must be the chairperson, appointed on the basis of his or her knowledge of law;3 (b) one person who in the opinion of the minister has wide experience and knowledge of the latest developments in the banking industry;4 and (c) one person who is a registered accountant and auditor, 5 with wide experience and knowledge of the latest developments in the accounting and auditing professions.6 The members hold office for three years and are eligible for reelection on the expiration of their term of office.7 Any casual vacancy must be filled by a person appointed by the minister who holds office for the unexpired portion of the period of office of his or her predecessor.8 Any member of the board who has a personal interest in a matter must recuse him or herself and must be replaced by a person temporarily appointed by the minister.9 A review must be heard at a date, time and place determined by the board of review which must give written notice
of the date, place and time to both the applicant and the registrar. 10 For the purposes of any review the board may summon any person who, in its opinion, may be able to give material information relating to the matter before it or who it believes may have in his or her possession, custody or control any document having a bearing on the subject, to appear before it at a specified time and place, to be interrogated or to produce that document, and it may retain any document so produced for examination.11 The board may call any person present at the review of proceedings as a witness and may interrogate that person or call upon him or her to produce any document in his or her possession, custody or control.12 It may administer an oath or accept an affirmation from any person called as a witness.13 A person called as a witness will be entitled to legal representation at his or her own expense.14 1 94 of 1990. 2 S 9(1)(2). This applies also to mutual banks: Mutual Banks Act 124 of 1993s 7 read with s 1(1). 3 Banks Act 94 of 1990 s 9(2)(a). 4 S 9(2)(b). 5 See Public Accountants' and Auditors' Act 80 of 1991 s 15. 6 Banks Act 94 of 1990 s 9(2)(c). 7 S 9(5). 8 S 9(6). 9 S 9(4). 10 S 9(7). 11 S 9(8)(a). 12 S 9(8)(c). 13 S 9(8)(b). 14 S 9(8)(c). 2.3.7 Review procedures The board of review is confined to establishing whether or not, in the taking of the r e l e v a n t d e c i s i o n , t h e r e g i s t r a r e x e r c i s e d h i s o r h e r d i s c r e t i o n p r o p e r l y a n d i n g o o d f a i t h .1 T h e p r o c e d u r e a t a review is determined by the chairperson of the board of review.2 The board may confirm, set aside or vary the decision of the registrar on the basis of a majority decision.3 The decision of the board must be given in writing and copies given to both the registrar and the applicant.4 1 Banks Act 94 of 1990 s 9(2A). 2 S 9(9). 3 S 9(10)(11). 4 S 9(12). 2.3.8 Annual report by registrar The registrar must submit an annual report of his or her activities to the minister who must table a copy of that report before Parliament within 14 days after receipt of the report if Parliament is then in ordinary session, otherwise within 14 days of the commencement of the next ordinary session.1 1 Banks Act 94 of 1990s 10; Mutual Banks Act 124 of 1993s 8. 2.3.9 Registration a prerequisite No person except a public company registered as a bank in terms of the Banks Act1 may carry on the business of a bank in the Republic.2 Contravention of this provision is an offence3 The use of the word \"bank\" is restricted.4 Any person who while not registered as a bank holds him or herself out to be a bank registered as such commits an offence.5 There is provision for the reregistration of banks and deposittaking institutions that were registered prior to the amendment of the relevant legislation.6 This is subject to the provision which allows a bank in a foreign country to conduct, in accordance with the registrar's prior written authorisation, the business of a bank by means of a branch in the Republic.7 Registration as a bank is preceded by: (a) an application for authorisation to establish a bank; and (b) an application for registration as a bank.8 These applications must be made in the prescribed manner and on the prescribed form to the registrar, who may r e q u i r e t h e a p p l i c a n t t o f u r n i s h s u c h i n f o r m a t i o n a s h e o r s h e d e e m s n e c e s s a r y . 9 A s i m i l a r p r o c e d u r e g o v e r n s applications by a foreign bank10 or by a public company for registration as a controlling company. 11 The registrar is empowered to grant or refuse the relevant application, or to grant it subject to conditions he or she determines.12 Any person who in connection with any application furnishes information that to his or her knowledge is untrue or misleading in a material respect commits an offence.13 When the registrar grants or refuses an application, or revokes an authorisation, he or she must give written notice to the applicant.14 N o p u b l i c c o m p a n y m a y b e f o r m e d u n d e r t h e C o m p a n i e s A c t15 t o c o n d u c t t h e b u s i n e s s o f a b a n k u n l e s s t h e registrar has granted written approval,16 which he or she may do only if satisfied that the company will probably be eligible for registration as a bank.17 No memorandum or articles of association of a public company formed to conduct the business of a bank may be registered without the registrar's written approval.18 There are restrictions on the right of a person other than a bank to exercise control over a bank.19 A public company which wishes to exercise control over a bank may apply to the registrar for registration as a controlling company.20 \"Controlling company\" means a public company registered in terms of the Act as a controlling company in respect of a bank.21 1 94 of 1990. 2 S 11(1). 3 S 11(2). 4 S 22(5). 5 S 22(3).
6 Ss 33 33A. 7 S 18A. 8 Ss 12 16. 9 Ss 12(3) 16(3). 10 S 18A or s 34 11 Ss 5 43 44. 12 Ss 13(1) 18(1). 13 S 21. 14 Ss 13(3) 17(3) 14(2). 15 61 of 1973. 16 Banks Act 94 of 1990s 15(1). 17 S 15(2). 18 S 15(3). 19 Ss 42(1) 43(1); see s 37(1) in regard to the permission needed to acquire shares in a bank or controlling company. 20 S 43(1). 21 S 1(1). 2.3.10 Application for authorisation to establish a bank A person who wishes to conduct the business of a bank may apply to the registrar for authorisation to establish a bank.1 Before an application may be granted the registrar must be satisfied that: (a) the establishment of the bank is in the public interest; (b) the business to be carried on is that of a bank; (c) the proposed business will be conducted in the capacity of a public company registered under the Companies Act;2 (d) the applicant will be able to establish itself successfully as a bank; (e) the applicant will have the financial means to comply with the provisions of the Banks Act;3 (f ) the business will be conducted in a prudent manner; (g) every person who is to be an executive officer of the bank has sufficient experience of the management of the type of business contemplated; and (h) the board of directors of the proposed bank will be appropriate with regard to the nature and scale of the business contemplated and that every person who is to be a director or executive officer of a proposed bank is a fit and proper person.4 The registrar may require the applicant to furnish such further information as he or she deems necessary.5 1 Banks Act 94 of 1990s 12(1). 2 61 of 1973. 3 94 of 1990. 4 S 13(2). 5 S 12(3). 2.3.11 Revocation of authorisation The registrar may at any time prior to registration revoke authorisation if he or she is satisfied that false or misleading information was furnished in the application or that success has not been achieved with the formation of the proposed bank within six months of the grant of authorisation.1 If the registrar revokes an authorisation he or she must give written notice to the person to whom authorisation was granted.2 1 Banks Act 94 of 1990s 14(1). 2 S 14(2). 2.3.12 Application for registration as a bank An applicant to whom the registrar has granted authorisation to establish a bank may apply in the manner prescribed in the regulations relating to banks within 12 months of the grant of authorisation for registration as a bank.1 The application must be accompanied by such information as the registrar may require.2 The application and all documents furnished must be signed by the chairperson or Chief Executive Officer of the institution.3 If the registrar upon consideration of the documents and information is satisfied that the proposed business which the applicant wishes to conduct is that of a bank, that the applicant will not adopt undesirable business methods and that the memorandum and articles of association of the bank are not inconsistent with the provisions of the Banks Act or undesirable for any reason, he must grant such application.4 The application may be refused if the registrar is of the opinion that: (a) the provisions of section 13(2) are no longer complied with; (b) the bank concerned, when registered, will probably be unable to comply with the provisions of the Act or is likely to pursue a practice contrary to the provisions of the Act; (c) the interest of any person concerned with the bank is inconsistent with a provision of the Act; (d) the interests of potential depositors would be adversely affected by the manner in which it is proposed to conduct the business; (e) the name of the bank is identical to, or so closely resembles the name of an existing bank or mutual bank, that one is likely to be mistaken for the other, or is identical to, or closely resembles, the name under which
any institution which was registered under any law repealed by the Act, or any mutual bank, was previously registered and that reasonable grounds exist for objection against the use of the name by the institution concerned, or the name is likely to mislead the public; or (f ) the application does not comply with a requirement of the Act.5 An institution which is for the first time registered as a bank may not commence the business of a bank until it has furnished proof to the registrar that it complies with the prudential requirements6 under section 70. Contravention of this provision is an offence.7 1 Banks Act 94 of 1990s 16(1) (2)(a). 2 S 16(2)(b) (3). 3 S 16(4). 4 S 17(1). 5 S 17(2). 6 S 17(5). 7 S 17(6). 2.3.13 Conditions of registration Registration of a bank is subject to the prescribed conditions and to such further conditions as the registrar determines.1 In addition, the registrar may impose a condition requiring the institution to take steps in terms of the Companies Act2 to alter its memorandum or articles of association in accordance with the registrar's requirements.3 1 Banks Act 94 of 1990s 18(1). 2 61 of 1973. 3 Banks Act 94 of 1990s 18(2). 2.3.14 Branches of foreign banks An institution established in a country outside the Republic that lawfully conducts banking business in that foreign country, may, with the registrar's prior written authorisation, conduct the business of a bank by means of a branch in the Republic subject to the prescribed conditions and such further conditions as the registrar determines.1 The conditions for conducting the business of a bank by a foreign institution by means of a branch in the Republic are regulated by Government Gazette 16356 GN R521, 3 April 1995. Application for the registrar's authorisation must be made in the prescribed manner, on the prescribed form and with the prescribed fee.2 The registrar may require the foreign institution to furnish such further information as he or she deems necessary. 3 T h e r e g i s t r a r m a y n o t g r a n t t h e a p p l i c a t i o n u n l e s s s a t i s f i e d t h a t p r o p e r s u p e r v i s i o n w i l l b e exercised by the responsible supervisory authority in the foreign institution's country of domicile.4 The registrar must notify the foreign institution of his or her decision in writing.5 Upon granting such an application the registrar must issue a certificate in the prescribed form to the foreign institution concerned.6 Any foreign institution which carries on the business of a bank by means of a South African branch without first obtaining a certificate is guilty of an offence.7 1 Banks Act 94 of 1990s 18A(1). 2 S 18A(2). 3 S 18A(3). 4 S 18A(4). 5 S 18A(5). 6 S 18A(6). 7 S 18A(7). 2.3.15 Cancellation or suspension of authorisation to foreign bank The registrar may, with the minister's consent, cancel or suspend on conditions the registrar deems fit, the authorisation granted to a foreign institution if it has failed to comply with a condition to which the authorisation is subject.1 Before the registrar cancels or suspends such authorisation, he or she must give written notice to the foreign institution of his or her intention and the reasons for the intended cancellation or suspension, and must call on the institution to show cause within a period specified in the notice, being not less than 30 days, why the cancellation or suspension should not take place.2 After considering any representations, the registrar may in his or her discretion either (a) proceed with the cancellation or suspension, or (b) refrain from taking any further steps.3 The registrar must notify the foreign institution in writing of his or her decision.4 1 Banks Act 94 of 1990s 18B(1). 2 S 18B(2). 3 S 18B(3). 4 Ibid. 2.3.16 Name of bank An institution that is registered as a bank or a foreign institution authorised to conduct the business of the bank by means of a branch in the Republic may only use or refer to itself by the name under which it is registered, or a literal translation or abbreviation thereof approved by the registrar. In the case of a foreign institution, in respect of the branch concerned, such foreign institution may not refer to the branch by a name other than that under which it was authorised to conduct business.1 In terms of a proviso the registrar may, if he or she deems it desirable, authorise the use of a name by which such bank or foreign institution is otherwise generally known.2 It may, with the registrar's consent, in conjunction with its registered name, or a name authorised by the registrar, use or refer to itself by the name of another bank with which it has amalgamated or all the assets and liabilities of which have been transferred to it, or, in the case of a change of name, the name by which it was previously known.3 Contravention of these provisions is an offence.4 A bank may, with the prior written consent of the registrar, in conjunction with its registered name, and subject to such conditions as the registrar may determine, use or refer to a name of a division, brand or product of that bank, which name includes the word \"bank\" or any derivative thereof.5
1 Banks Act 94 of 1990 s 22(1)(a) (b). 2 As to change of name see s 56(2)(b) (3)(b). 3 S 22(2). 4 S 22(3). 5 S 22(2A). 2.3.17 Cancellation or suspension of registration as a bank The registrar may, with the minister's consent, by written notice cancel the registration of a bank or suspend it on conditions the registrar deems fit:1 (a) if the bank has not conducted any business as a bank during the six months since registration;2 (b) if the bank has ceased to conduct the business of a bank or is not in operation;3 (c) if the registration was obtained on the strength of untrue or misleading information furnished by any person who has been convicted therefor;4 (d) if the bank has failed to comply with a condition to which the registration is subject; 5 (e) in the case of a bank whose main place of business is in a foreign country, if its authorisation to conduct business there is revoked by the competent authority of that country.6 Registration may be cancelled or suspended by an order of court.7 Registration may be cancelled at the request of a bank pursuant to a special resolution,8 or when the affairs of a bank have been completely wound up.9 1 Banks Act 94 of 1990s 23(1). This is subject to the provisions of s 24. 2 Ibid. 3 S 23(3). 4 S 23(2)(a). 5 S 23(2)(c). 6 S 23(2)(b). 7 S 25. 8 S 27. 9 S 28. 2.3.18 Notice of intention to cancel or suspend Before the registrar cancels or suspends the registration of a bank,1 he or she must give written notice to the chairperson or Chief Executive Officer of this intention and the reasons for the intended cancellation or suspension, and must call on the bank to show cause within a period specified in the notice, being not less than 30 days, why the cancellation or suspension should not take place.2 After considering any representations, the registrar may in his or her discretion either (a) proceed with the cancellation or suspension, or (b) refrain from taking any further steps.3 The registrar must notify the chairperson or Chief Executive Officer in writing of the decision.4 1 Under Banks Act 94 of 1990s 23. 2 S 24(1). 3 S 24(2). 4 Ibid. 2.3.19 Restriction of a bank's activities The registrar may, instead of an application to court, restrict the activities of a bank in such respects and on such conditions as he or she specifies in a written notice to the institution.1 The provisions of s 24 apply mutatis mutandis.2 1 Banks Act 94 of 1990s 26(1). 2 S 26(2). For the corresponding provision for mutual banks see Mutual Banks Act 124 of 1993s 24. 2.3.20 Withdrawal of suspension or restriction The registrar may by written notice withdraw a suspension or restriction if satisfied that the institution has complied with all the requirements in the conditions of suspension or restriction.1 Application for an order discharging an order of suspension may be made to the court.2 1 Banks Act 94 of 1990s 29(1). 2 S 29(2). For the corresponding provision for mutual banks see Mutual Banks Act 124 of 1993s 26. 2.3.21 Publication of information T h e r e g i s t r a r m u s t p u b l i s h i n t h e Government Gazette i n f o r m a t i o n o f t h e registration, cancellation or suspension of registration, restriction of activities, withdrawal of suspension or restriction, and change of name of a bank.1 The registrar must likewise publish notice of every consent to establish a representative office of a foreign institution,2 and of every authorisation granted to a foreign institution to conduct the business of a bank by means of a branch.3 1 Banks Act 94 of 1990 s 30(a). For the corresponding provision for mutual banks see Mutual Banks Act 124 of 1993s 27. 2 Banks Act 94 of 1990 s 30(b). 3 S 30(c). 2.3.22 Lapse of registration Registration may lapse,1 in which case the registrar may in writing order the institution to: (a) repay all money due by it to members of the public in respect of deposits accepted by it while registered as a bank, together with any interest thereon;2 and (b) change its name and its memorandum and articles of association within the time and in the manner required by the registrar.3
1 Banks Act 94 of 1990s 31 sets out the date on which registration lapses. 2 S 32(1)(a). 3 S 32(1)(b). 2.3.23 Representative offices of foreign institutions An institution established outside the Republic which lawfully conducts banking in a foreign country may not establish a representative office in the Republic without the prior written consent of the registrar. 1 This consent may be obtained by a written application to the registrar accompanied by the relevant documents and information, the prescribed fee, and a certificate of the competent authority in the foreign country that the applicant is authorised to conduct banking business in that country. 2 T h e registrar may require the applicant to furnish such further information as he or she deems necessary. 3 The registrar may grant the application either unconditionally or subject to conditions he or she determines.4 Upon granting the application, the registrar must issue the foreign institution with a certificate of authorisation on the prescribed form to establish a representative office in the Republic.5 The foreign institution must inform the registrar in writing of any change of name, change of address, substitution of its chief representative officer in the Republic, or closing down of the representative office.6 A r e p r e s e n t a t i v e o f f i c e m a y n o t c o n d u c t t h e b u s i n e s s o f a b a n k i n t h e R e p u b l i c .7 R e g u l a t i o n s r e l a t i n g t o representative offices have been published in GN R1370 of 13 December 2001. 1 Banks Act 94 of 1990s 34(1). 2 S 34(2). 3 S 34(2A). 4 S 34(2B). 5 S 34(2C). 6 S 34(3). 7 S 34(4). 2.3.24 Annual licence A bank, a branch of a foreign institution and a representative office must obtain from the registrar, on payment of the prescribed fee, a business licence relating to its particular business in respect of each year ending on 31 December.1 1 Banks Act 94 of 1990s 35. 2.3.25 Registration of controlling companies in respect of banks No person other than a bank or an institution, approved by the registrar, which carries on a business similar to that of a bank in a country other than the Republic, may exercise control over a bank unless such person is a public company and is registered as a controlling company in respect of such bank.1 A person will be deemed to have control over a bank if, where the person is a company, the bank is a subsidiary of that company or, whether or not the person is a company, if that person, either by him or herself or together with his or her associates: (a) holds shares in the bank with a nominal value in excess of 50% of the total nominal value of all the shares issued, unless due to restrictions on the voting rights attached to the shares that person voting alone or together with his or her associates is unable to influence the outcome of the voting at a general meeting of the bank decisively; (b) is entitled to exercise more than 50% of the voting rights in respect of the issued shares of the bank; or (c) is entitled or has the power to determine the appointment of the majority of the directors of the bank.2 A public company which wishes to control a bank, or which is a controlling company3 in respect of any public company which has applied for registration as a bank, may apply on the prescribed form to the registrar for registration as a controlling company in respect of the bank or proposed bank.4 A public company intending to acquire control over a bank established by a conversion in terms of the Mutual Banks Act 124 of 1993, may apply for registration as a controlling company in respect of that bank at any time after the special resolution authorising the conversion has been adopted.5 The application must be accompanied by the prescribed documents and information as well as any additional information which the registrar may require.6 After consideration of the application the registrar may grant or refuse the application or grant the application subject to such conditions as he or she deems fit.7 The registrar must be satisfied of certain facts before the application may be granted.8 The registrar must notify the applicant of his or her decision in writing.9 Once the application has been granted, the conditions set have been complied with and the prescribed fees have been paid, the registrar must register the company as a controlling company in respect of the bank concerned and issue a certificate to that effect.10 An applicant who applied for registration as the controlling company may not be registered as such until the company in respect of which the application is made has been registered as a bank.11 1 Banks Act 94 of 1990s 42(1). See also s 37. 2 S 42(2)(3). 3 As defined in the Companies Act 61 of 1973s 1. 4 Banks Act 94 of 1990s 43(1). 5 Banks Act 94 of 1990s 43 : see Mutual Banks Act 124 of 1993s 66. 6 Banks Act 94 of 1990s 43(2)(3). 7 S 44(1) (5)(6). 8 S 44(2). 9 S 44(3). 10 S 44(4)(a). 11 S 44(4)(b). 2.3.26 Cancellation of registration of controlling company R e g i s t r a t i o n a s a c o n t r o l l i n g c o m p a n y m a y b e cancelled by the registrar1 or by a competent court,2 or it may be cancelled at the request of the controlling company.3 The registrar must give the controlling company prior written notice allowing it an opportunity to show
cause within a period specified in the notice (being not less than 30 days) why the registration should not be cancelled.4 Registration will cease within 30 days of cancellation by the registrar, or on the date on which the order of court becomes effective, or where the cancellation is at the request of the controlling company, on the date determined by the registrar.5 Registration of a controlling company will lapse if the registration of the bank in respect of which it is registered, is cancelled with effect from the date on which the bank ceased to be registered as such.6 1 Banks Act 94 of 1990s 45. 2 S 46. 3 S 47. 4 s 45(2). 5 S 49. 6 S 48. 2.3.27 Investments by controlling company The investment of a controlling company: (a) in undertakings other than banks, or banks which conduct business similar to that of a bank outside the Republic, or controlling companies, or companies whose main object is the holding or development of property which is used or intended to be used for the purpose of conducting the business of a bank, or (b) in fixed property which is not used or intended to be used for the purpose of conducting the business of a bank, may not at any time exceed 40% of the sum of its share capital and reserve funds.1 1 Banks Act 94 of 1990s 50. 2.3.28 Shareholders in banks and controlling companies There are restrictions on the shareholding in banks and controlling companies.1 No bank or controlling company may, without the registrar's written approval, allot, issue or register any of its shares in a name other than that of the beneficial shareholder, or transfer any of its shares in the name of a person other than a beneficial shareholder or, after the commencement of the Banks Act, allow shares to continue to be registered in the name of a person other than the beneficial shareholder. 2 This does not, however, affect the allotment, issue or registration of the transfer of shares in the bank or controlling company: (a) in the name of a trustee of a unit trust scheme as defined in the Unit Trusts Control Act,3 or of a nominated company of the trust approved by the Registrar of Unit Trust Companies; (b) in the name of an executor, administrator, trustee, curator, guardian or liquidator in the circumstances mentioned in the Companies Act;4 (c) for a period of up to six months in the name of a stockbroker or a company established by him or her for certain purposes, or a company controlled by the bank or its employee, if it is necessary so to allot, issue or register the shares in order to facilitate delivery to the purchaser or to protect the rights of the beneficiary of those shares or where the beneficiary is unknown; or (d) in the name of a person in special circumstances determined by the minister by notice in the Government Gazette;5 or (e) in the name of a central securities depository.6 Any person who wishes shares in a bank or controlling company to be allotted or issued to him or her or to be registered in his or her name, or in whose name shares are registered, and any person acting on his or her behalf, may be required by written request of the bank or controlling company to furnish certain information.7 Any bank or controlling company or any director, officer, employee or agent of such bank or company who, in good faith and on the strength of information reasonably obtained, unknowingly contravenes the provisions of section 38 of the Banks Act is not guilty of an offence.8 A person may not personally or by proxy, cast a vote attached to or receive a dividend payable on a share in a bank or controlling company issued or allotted to that person or registered in his or her name in contravention of the provisions of the Act.9 The validity of any bank or controlling company will not be affected by the casting of a vote in contravention of this provision if it was adopted by the requisite majority of votes validly cast.10 Any dividend in terms of section 41(1)(b) accrues to the bank or controlling company concerned.11 The bank must, in its financial statements, mention the names of individual shareholders who hold more than 25% of the issued shares in the bank to which voting rights attach if the total value of the amounts of the bank's investments with or loans or advances or other exposures to such individual exceeds the nominal value of the said shares.12 If a bank publishes any statement or issues any document in which the amount of its authorised share capital is mentioned, it must mention the amount of its issued share capital.13 1 Banks Act 94 of 1990s 37. 2 S 38(1). 3 54 of 1981. 4 61 of 1973s 103(3). 5 Banks Act 94 of 1990s 38(2). 6 S 38(2)(e); the term \"central securities depository\" is defined in the Custody and Administration of Securities Act 85 of 1992 s 1. 7 Banks Act 94 of 1990s 39. 8 S 40.
9 S 41(1). 10 S 41(2). 11 S 41(3). 12 S 67. 13 S 66. 2.3.29 Functioning of banks and controlling companies under the Companies Act Companies registered as banks or controlling companies remain companies in terms of the Companies Act1 and, subject to certain provisos, the provisions of that Act apply to them.2 A bank may not, without the prior written approval of the registrar or otherwise than in accordance with conditions set by the registrar, establish a subsidiary or enter into an agreement which has the effect of making any company a subsidiary; invest in a joint venture within or outside the Republic if the investment results in the bank being exposed to an amount exceeding 5% of its capital and reserves;3 open a branch office outside the Republic; acquire an interest in an undertaking conducting business outside the Republic; create a trust outside the Republic in which the bank is a major beneficiary or establish any financial or business undertaking under its direct or indirect control; o r e s t a b l i s h a r e p r e s e n t a t i v e o f f i c e o u t s i d e t h e R e p u b l i c .4 A j o i n t v e n t u r e m e a n s a c o n t r a c t u a l a r r a n g e m e n t between two or more persons (one of them being a bank or controlling company) who undertake an economic activity subject to their joint control.5 In order to obtain the approval of the registrar, written application must be made containing full particulars of the proposed action as well as any additional information the registrar may require.6 After a representative office has been established outside the Republic, the bank must notify the registrar of any change in the chief representative officer or address of the office in the country concerned, or the closing down of the office as soon as it occurs.7 A bank or controlling company must inform the registrar, at such intervals and in the form he or she prescribes, of any shareholding or interest it may have in subsidiaries, joint ventures, undertakings, trusts or financial or other business undertakings contemplated in section 52 of the Banks Act.8 No compromises, amalgamations or arrangements referred to in the Companies Act9 and which involve a bank as one of the principal parties to the transaction, and no arrangement for the transfer of all or some of the assets and liabilities of a bank to another person will have legal force unless the minister's prior written approval has been obtained through the registrar.10 No reconstruction of companies within a group in respect of which annual financial statements are required to be made out11 and of which a bank, its controlling company or subsidiary is a member may be effected without the registrar's prior written consent.12 Detailed provision is made for the alteration of the memorandum and articles of association of a bank as well as for the change of its name.13 Every bank and every controlling company must, within 30 days of its registration, furnish the registrar with a copy of its register of directors and officers.14 Every bank and every controlling company must furnish the registrar with a return regarding its shareholders at the date of registration or as at 31 December each year. 15 The return must be prepared in the prescribed manner and must contain all the necessary information required.16 1 61 of 1973. 2 Banks Act 94 of 1990s 51. 3 S 52(1)(aA). 4 S 52(1)(a)(e). 5 S 52(6). 6 S 52(2)(3). 7 S 52(4). The provisions of s 52(1), (a), (c) and (d) and (2) and (3) apply mutatis mutandis to controlling companies: s 52(5). 8 S 53. 9 61 of 1973. 10 Banks Act 94 of 1990s 54. See ABSA Bank Bpk v C L Von Abo Farms Bk 1999 3 SA 262 (O); ABSA Bank Ltdv Van Biljon 2002 1 SA 1163 (W); Nedcor Investment Bank Ltd v Visser 2002 4 SA 588 (T). 11 In terms of the Companies Act 61 of 1973s 288(1). 12 Banks Act 94 of 1990s 55. 13 Ss 5657. 14 S 58. 15 S 59(1). 16 S 59(2)(5). See Van Zyl 1995 Stellenbosch LR 54. 2.3.30 Directors of banks and controlling companies, compliance function and corporate governance Directors A director stands in a fiduciary relationship to the bank or controlling company of which he or she is a director. 1 A director must act honestly and in good faith and exercise his or her powers exclusively in the best interests and for the benefit of the bank and its depositors or of the controlling company;2 and in the performance of his or her functions as director a director must comply with the guidelines and requirements that may be prescribed by regulation.3 One of the general powers of management is the power to litigate and to authorise litigation. A bank cannot be managed properly as a bank if its management cannot take effective steps to recover loans from borrowers.4 In order to determine whether a particular person is a fit and proper person to hold office as director or executive officer of a bank or controlling company, the registrar is entitled to request any person to complete a questionnaire designed to enable the registrar to form an opinion regarding the qualities of that person.5
Not more than 49% of the directors of a bank may be employees of that bank, or any of its subsidiaries, or of the controlling company of that bank, or any of the controlling company's subsidiaries.6 Similarly not more than 49% of the directors of a controlling company may be employees of that company or of any bank in respect of which that company is registered as a controlling company.7 At a meeting of the board of directors of a bank or a controlling company, the directors who are employees of the bank or controlling company may not together have a vote in excess of 49% of the total vote of all directors present and voting at the meeting.8 No person who is a director of a bank or controlling company at the date of commencement of the Banks Act will, on expiry of his or her term, be eligible for reelection until he or she qualifies for such appointment in terms of section 60.9 Compliance function A bank must establish an independent compliance function as part of the risk management framework of the bank.10 The compliance function must be headed by a compliance officer of the bank, who must perform his or her functions with such care and skill as can reasonably be expected from a person responsible for such a function in a similar institution.11 The appointed compliance officer shall perform his or her functions subject to such requirements and conditions as may be prescribed in the regulations relating to banks.12 Corporate governance The board of directors and executive officers of a bank must establish and maintain an adequate and effective process of corporate governance, which must be consistent with the nature, complexity and risks inherent in the activities and the business of the bank concerned.13 The process of corporate governance must be established with the objective of achieving the bank's strategic and business objectives efficiently, effectively, ethically and equitably (within acceptable risk parameters), to ensure: (a) compliance with the strategic framework and guidelines established for the bank or controlling company; (b) commitment by the executive officers of the bank or controlling company to adhere to corporate behaviour that is universally recognised and accepted as correct and proper; (c) a balance of interests of the shareholders and other interested persons who may be affected by the conduct of directors or executive officers of the bank or controlling company within a framework of effective accountability; (d) that mechanisms and procedures are established and maintained to minimise or avoid potential conflicts of interests between the business interests of the bank or controlling company and the personal interests of directors or executive officers of the bank or controlling company; (e) responsible conduct by the directors and executive officers of the bank or controlling company; (f ) the achievement of the maximum level of efficiency and profitability of the bank within an acceptable risk profile for the bank or controlling company; (g) the timely, accurate and meaningful disclosure of matters that are material to the business of the bank or controlling company or the interests of the shareholders of or other persons having an interest in the bank or controlling company; (h) that the board of directors retains control over the strategic and business direction of the bank or controlling company, whilst enabling its executives to manage the bank's or controlling company's operations and the achievement of the agreed strategic and business objectives; and (i) compliance with all applicable laws and regulations.14 A bank must establish and maintain the process of corporate governance in accordance with any requirements that may be prescribed in the regulations relating to banks.15 1 Banks Act 94 of 1990s 60(1). 2 S 60(2)(a). 3 S 60(2)(b) read with s 90(1)(b). 4 African Bank Ltd v Theron 1996 4 All SA 156 (SE) 162163. 5 S 1(1A)(c); and see s 60(5). The provisions of s 1(1A) apply to mutual banks: Mutual Banks Act 124 of 1993s 1(2). 6 Banks Act 94 of 1990s 60(3)(a). 7 S 60(3)(b). 8 S 60(3) proviso. 9 S 60(5)(b). 10 S 60A(1). 11 S 60A(2). 12 S 60A(3). 13 S 60B(1). 14 S 60B(2). 15 S 60B(3). 2.3.31 Auditors A p e r s o n m a y n o t b e a p p o i n t e d a s a u d i t o r o f a b a n k w i t h o u t t h e a p p r o v a l o f t h e r e g i s t r a r1 a n d such auditor must be appointed for such period and on such conditions as may be prescribed.2 A bank must apply, on the prescribed form, within 30 days of the appointment of an auditor for the approval of the registrar. 3 T h e
registrar may, without giving reasons, refuse such approval or withdraw approval of an auditor previously granted in which case the auditor must immediately vacate his or her office.4 If the registrar refuses or withdraws his or her approval, the directors of the bank must appoint another auditor and apply anew for approval.5 A person appointed as auditor in terms of section 61(4) of the Banks Act will be deemed to have been appointed at the immediately preceding annual general meeting of the institution. If a bank fails to appoint an auditor, 6 the registrar may make the necessary appointment.7 A person appointed to replace an auditor whose approval has been withdrawn must be appointed for the remainder of the period for which the person whom he or she replaces was appointed and is subject to the same conditions as his or her predecessor.8 The auditor must, when furnishing the public accountants' and auditors' board with copies of the report, acknowledgement of receipt thereof and reply thereto and with other particulars9 relating to an irregularity or suspected irregularity in the conduct of the affairs of the bank for which the auditor has been appointed, also furnish the registrar with such copies and particulars.10 The auditor must inform the registrar of any matter relating to the affairs of the bank of which the auditor became aware in the performance of his or her functions as auditor and which, in his or her opinion may be of concern to the registrar in his or her supervisory capacity and must, upon request, furnish the registrar with written information relating to such matters specified by the registrar.11 Whenever the auditor furnishes the registrar with written information as envisaged above, he or she may also supply copies of such information to the Chief Executive Officer of the bank concerned.12 The furnishing of information by the auditor in good faith will not constitute a contravention of any provision of the law or any breach of a code of professional conduct to which the auditor may be subject.13 The provisions of section 63 must not be construed as conferring upon any person any right of action against an auditor which he or she would not otherwise have had.14 1 Banks Act 94 of 1990s 61(1)(a). 2 S 61(1)(b). 3 S 61(2). 4 S 61(3). 5 S 61(4). 6 S 61(5). 7 S 62. 8 s 61(6). 9 In terms of the Public Accountants' and Auditors' Act 80 of 1991 s 20(5)(a)(e). 10 Banks Act 94 of 1990s 63(1)(a). 11 S 63(1)(b)(c). 12 S 63(2). 13 S 63(3). 14 S 63(4). 2.3.32 Audit committee, risk committee and directors' affairs committee Audit committee The board of directors of a bank must appoint at least three of its members, the majority of whom including the chairperson, are not members of the bank, any of its subsidiaries or of its controlling company or any of its subsidiaries,1 to form an audit committee to assist in evaluating the adequacy and efficiency of the internal control systems, accounting practices, information systems and auditing practices applied within the bank in the daytoday management of its business; to facilitate and promote communication regarding the above matters, between the board of directors and the executive officers of, the auditors appointed for, and the employees charged with the internal auditing of the transactions of the bank and introduce such measures as it sees fit to enhance the credibility and objectivity of financial statements and reports prepared with reference to the affairs of the bank.2 Nothing contained in s 63(1) must be construed as conferring upon any person any right of action against an auditor which, but for the provisions of that subsection, such person would not have had.3 The board of directors will be exempt from appointing an auditing committee where the bank is a member of a group of companies in respect of which group financial statements are required4 and an audit committee has been appointed for the holding company of the group and that committee has assumed the responsibility of an audit committee in respect of all of the banks within the group.5 Risk committee The board of directors of a bank must appoint at least three of its members, of whom at least two are non executive directors, to form a risk committee.6 The functions of the risk committee are to: (a) assist the board in its evaluation of the adequacy and efficiency of the risk policies, procedures, practices and controls applied within that bank in the daytoday management of its business; (b) assist the board in the identification of the build up of and concentration of the various risks to which the bank is exposed; (c) assist the board in developing a risk mitigation strategy to ensure that the bank manages the risks in an optimal manner; (d) assist the board in ensuring that a formal risk assessment is undertaken at least annually; (e) assist the board in identifying and regularly monitoring all key risks and key performance indicators to ensure
that its decisionmaking capability and accuracy of its reporting are maintained at a high level; (f ) facilitate and promote communication, through reporting structures, regarding the matters referred to in paragraph (a) or any other related matter, between the board and the executive officers of the bank; (g) ensure the establishment of an independent risk management function, and in the case where the bank forms part of a group, a group risk management function, the head of which must act as the reference point for all aspects relating to risk management within the bank, including the responsibility to arrange training of members of the board in the different risk areas to which that bank is exposed; (h) introduce such measures as may serve to enhance the adequacy and efficiency of the risk management policies, procedures, practices and controls applied within that bank; (i) coordinate the monitoring of risk management on a globalised basis; and (j) perform such further functions as may be prescribed.7 Directors' affairs committee The board of directors of a bank must establish a directors' affairs committee, consisting only of nonexecutive directors of the bank.8 The functions of the directors' affairs committee are to: (a) a s s i s t t h e b o a r d o f d i r e c t o r s i n i t s d e t e r m i n a t i o n a n d e v a l u a t i o n o f t h e a d e q u a c y , e f f i c i e n c y a n d appropriateness of the corporate governance structure and practices of the bank; (b) establish and maintain a board directorship continuity programme entailing: (i) a review of the performance of and planning for successors to the executive directors; (ii) measures to ensure continuity of nonexecutive directors; (iii) a regular review of the composition of skills, experience and other qualities required for the effectiveness of the board; and (iv) an annual assessment of the board as a whole and of the contribution of each individual director; (c) assist the board in the nomination of successors to the key positions in the bank in order to ensure that a management succession plan is in place; (d) assist the board in determining whether the employment of any director should be terminated; (e) assist the board in ensuring that the bank is at all times in compliance with all applicable laws, regulations and codes of conduct and practices; and (f ) perform such further functions as may be prescribed.9 1 Banks Act 94 of 1990s 64(3). In terms of a proviso to s 64(3) the chairperson of the board of directors of the bank may not be appointed as a member of the audit committee. 2 S 63(1) (3). 3 S 63(4). 4 In terms of the Companies Act 61 of 1973s 288(1). 5 Banks Act 94 of 1990s 64(3). 6 S 64A(1). 7 S 64A(2). 8 S 64B(1). 9 S 64B(2). 2.3.33 Forwarding notices and statements to registrar Banks must forward copies to the registrar of all: (a) notices of meetings, declarations of dividends or reports on activities to shareholders; (b) notices of any intended changes in the situation of the registered address or postal address given to the Registrar of Companies;1 (c) any returns regarding directors;2 and (d) any financial statements furnished to the Registrar of Companies.3 A bank or controlling company must furnish the registrar with copies of the minutes of general meetings of shareholders within 30 days after the meeting has taken place.4 1 In terms of the Companies Act 61 of 1973s 107(2). 2 S 216(2). 3 S 302(4): Banks Act 94 of 1990s 65(1). 4 S 65(2). 2.3.34 Windingup of banks The registrar has the right to apply to court for the windingup of a bank in terms of the Companies Act1 or he or she may oppose such an application by another person.2 Only a person recommended by the registrar may be appointed by the Master of the High Court as the provisional liquidator, or liquidator of such a bank.3 The master must appoint a person designated by the registrar by reason of his or her experience and
knowledge of the banking industry to assist the provisional liquidator, or liquidator. 4 Any such appointment must be made by a letter of appointment containing certain prescribed information; a copy of the letter of appointment must be given to the provisional liquidator, or liquidator concerned.5 During the voluntary windingup of a bank the liquidator must furnish the registrar with such returns or statements which the bank would have been obliged to furnish were it not being wound up, as the registrar may require.6 The suspension, termination or cancellation of the registration of a bank while it is being wound up as a result of the registrar's application, will not affect any order or appointment made, direction issued or thing done in terms of this section or the Companies Act,7 any power exercised, duty to be executed or right to be enforced. The registrar, master, provisional liquidator, or liquidator, will continue to exercise their powers and perform their duties as if the suspension, termination or cancellation had not taken place until the windingup is stayed or set aside by a competent court.8 1 61 of 1973. 2 Banks Act 94 of 1990s 68(1)(a). 3 S 68(1)(b). 4 S 68(1)(c). 5 S 68(1A). 6 S 68(2). 7 61 of 1973. 8 Banks Act 94 of 1990s 68(5). 2.3.35 Appointment of curator If the registrar is of the opinion that any bank will be unable to repay deposits made with it or will probably be unable to meet any other of its obligations, the minister may, if he or she deems it desirable in the public interest, with the written consent of the Chief Executive Officer or chairperson of the board of directors of that bank, appoint a curator to the bank.1 The registrar may appoint a person, not in the employ of the bank under curatorship, who has knowledge and experience of the specific field of activities in which the bank under c u r a t o r s h i p i s e n g a g e d , t o a s s i s t t h e c u r a t o r i n t h e m a n a g e m e n t o f t h e a f f a i r s o f s u c h b a n k .2 T h e p e r s o n s o appointed will receive such remuneration as will be determined by the registrar in consultation with the curator, out of the funds of the bank under curatorship.3 The curator must be appointed by a letter of appointment in which he or she must be granted certain powers4 and the curator must record the nature of and the reasons for each act performed by him or her for examination as part of the normal audit of the affairs of the bank.5 The minister may, at any time, amend or withdraw the directions in the letter of appointment and the powers granted.6 O n t h e appointment of a curator the management of the bank vests in such curator, subject to the supervision of the registrar, and those who until then were vested with its management are divested of it. 7 According to s 69(2A)(a), the curator must recover and take possession of all the assets of the bank: \"the statutory powers are of wide import. Their intention is to clothe the curator with full powers of management. He steps into the shoes of the board of directors, and has all the powers of the directors\".8 Subject to the supervision of the registrar, the curator must manage the bank in such manner as the registrar may deem best to promote the interests of the creditors of the bank and of the banking sector as a whole.9 Among other things, the curator must keep such accounting records, and prepare such annual financial statements as the bank or its directors would have been obliged to keep or prepare had the bank not been placed under curatorship. The curator is also obliged to convene the annual general meeting and any other meeting of members provided for in the Companies Act,10 and in that regard, to comply with all the requirements with which the directors of the bank would have had to comply. The curator is furthermore empowered to bring or defend an action of a civil nature on behalf of the bank and, subject to any law relating to criminal proceedings, any criminal proceedings.11 The curator is also empowered to dispose of the bank's assets in the ordinary course of the bank's business subject to certain exceptions.12 Where the curator is of the opinion that there is no reasonable probability that the continuation of the curatorship will enable the bank to pay its debts or meets its obligations and become a successful concern he or she must inform the registrar forthwith of such an opinion.13 While a bank is under curatorship all actions, legal proceedings and legal process against the bank are stayed and may not be instituted or proceeded with, without the leave of the court.14 The curator must, on a monthly basis, furnish the registrar with a written report containing an exposition of the affairs of the bank and stating whether there is a reasonable probability that the bank will be able to pay its debts or meet its obligations and become a successful concern.15 The registrar must, as soon as is practicable, announce the appointment of a curator and the powers granted to him or her, and any amendment or withdrawal of powers, by notice in the Government Gazette.16 The suspension, termination or cancellation of the registration of a bank while it is under curatorship will not affect: (a) any appointment made, direction issued or thing done in terms of this section; or (b) any power to be exercised or duty to be executed in respect of that bank, and the minister, registrar and curator will continue to exercise their powers and perform their duties as if the suspension, termination or cancellation had not taken place until the curatorship is terminated.17 The minister may of his or her own accord or upon application by the registrar withdraw the appointment of a curator.18 Curatorship will lapse where the minister issues a written notification to that effect to the curator or where the bank is wound up under section 68.19 1 Banks Act 94 of 1990s 69(1)(a). 2 S 69(1)(b). 3 S 69(1)(c). S 69(1)(b) and s 69(1)(c) differ from those of the repealed Banks Act 23 of 1965: see Alpha Bank Bpk v
Registrateur van Banke 1996 1 SA 330 (A) 347. In relation to the powers of a curator see African Bank Ltd v Theron [1996] 4 All SA 156 (SE). 4 Banks Act 94 of 1990s 69(2)(3). 5 S 69(3A). 6 S 69(4). 7 African Bank Ltd v Theron supra 162. 8 S 69(5)(b). 9 S 69(2B)(a) (e). 10 61 of 1973. 11 Banks Act 94 of 1990s 69(2B)(c). 12 S 69(2C)(a). 13 S 69(2D). 14 S 69(6)(a). 15 S 69(6A). 16 S 69(7). 17 S 69(8). 18 S 69(9). See Registrar of Banks v New Republic Bank Ltd [1999] 2 All SA 459 (D). 19 S 69(10). 2.3.36 Investigation of bank under curatorship While a bank is under curatorship the registrar may appoint a commissioner and one or more assistants to such commissioner to investigate the affairs, assets and liabilities of such bank or its associates.1 The registrar must satisfy him or herself as to the impartiality of any person so appointed.2 Any commissioner appointed or any assistant will have powers and duties corresponding with those conferred or imposed under the Inspection of Financial Institutions Act.3 An investigation into the affairs of a bank under curatorship must comply with the provisions of the Inspection of Financial Institutions Act.4 1 Banks Act 94 of 1990s 69A(1)(2). 2 S 69A(3). 3 80 of 1998. 4 S 4(2). See Banks Act 94 of 1990s 69A(4) (5). 2.3.37 Prudential requirements A bank must comply with specified prudential requirements.1 The Banks Act draws a distinction between banks that trade in financial instruments and those that do not. A bank, of which the business does not include trading in financial instruments, must manage its affairs in such a way that the sum of its primary and secondary capital and its primary and secondary unimpaired reserve funds in the Republic does not at any time amount to less than the greater of: (a) 250 million rand; or, in the case of a bank which was, prior to the date of commencement of the Banks Act, registered as a banking institution or building society under a law repealed by the Act, one million rand; or (b) an amount which represents a prescribed percentage of the sum of amounts calculated by multiplying the average of the amounts (as shown in its returns to the registrar)2 of such different categories of assets and other risk exposures as may be prescribed, in the regulations relating to banks, by the risk weights, expressed as percentages, prescribed in respect of such different categories of assets and risk exposures.3 In calculating the aggregate amounts that such bank must maintain, the sum of the bank's primary share capital and primary unimpaired reserved funds and of the secondary capital and secondary unimpaired reserved funds must be calculated by deducting from those amounts such amounts as may be prescribed. The sum of the bank's secondary capital and secondary unimpaired reserve funds must be taken into account to an amount not exceeding the sum of the bank's allocated and qualifying primary share capital and allocated and qualifying primary unimpaired reserve funds.4 A bank that trades solely in financial instruments must manage its affairs in such a way that the sum of its primary and secondary capital, its primary and secondary unimpaired reserved funds and its tertiary capital in the Republic does not at any time amount to less than the greater of: (a) 250 million rand; or (b) an amount which represents the sum of amounts prescribed in the regulations relating to banks' financial instrument trading in respect of such a bank's risk exposures as may be prescribed.5 A bank whose business includes trading in financial instruments must manage its affairs in such a way that the sum of its primary and secondary capital, its primary and secondary unimpaired reserve funds and its tertiary capital in the Republic does not at any time amount to less than the greater of: (a) 250 million rand; or (b) an amount which represents the sum of a prescribed percentage of the sum of amounts calculated by multiplying the average of the a m o u n t s ( a s s h o w n i n t h e r e t u r n s t o t h e r e g i s t r a r )6 o f s u c h d i f f e r e n t c a t e g o r i e s o f a s s e t s ; a n d o t h e r r i s k exposures, as may be prescribed in the regulations relating to banks, by the risk weights, expressed as percentages, in respect of such different categories of assets and other risk exposures; and an amount which represents the sum of amounts prescribed in the regulations relating to banks' financial instrument trading in respect of such a bank's risk exposures in trading in financial instruments as may be prescribed.7 Where the bank concerned trades either solely or as part of its business in financial instruments, in addition to the deductions from the sum of the primary and secondary capital and the unimpaired reserves that may be prescribed, the banks tertiary capital must be calculated as prescribed in calculating such aggregate amount which these banks are obliged to maintain.8 The terms \"allocated capital and reserve funds\" and \"qualifying capital and reserve funds\" are defined in s 70(1). The total amount of allocated and qualifying secondary capital, allocated and qualifying secondary unimpaired reserve funds and tertiary capital must be determined as prescribed in the regulations relating to banks financial instruments trading.9 A controlling company in a banking group, as defined in the Banks Act10, must manage its affairs in such a way that a prescribed aggregate of the respective amounts of minimum capital and reserve funds required to be maintained by the respective entities within the group is maintained.11
In calculating the aggregate amount that the banking group is required to maintain, the sum of the group's capital and reserve funds must be calculated by deducting from that amount such amounts as may be prescribed.12 1 Banks Act 94 of 1990: ss 7075. The corresponding provisions in the Mutual Banks Act 124 of 1993 are ss 4853. 2 Banks Act 94 of 1990s 74. 3 S 75. 4 S 70(2). 5 S 70(2A). 6 S 75. 7 S 70(2B). 8 S 70(2)(b). 9 S 70(2A)(b) and (2B)(b). See also GN R1058 of 1998 as amended by GN R1465 of 22 November 2002. 10 Banks Act 94 of 1990s 1. 11 S 70A(1). 12 S 70A(2). 2.3.38 Minimum reserve balance A bank must maintain an account with the Reserve Bank on which the credit balance must comply with specified minimum requirements.1 The Governor of the Reserve Bank is empowered to determine from time to time a percentage of the total amount of a banks holdings of Reserve Bank notes and subsidiary coin that may be taken into account in calculating the minimum reserve balance that the bank is required to maintain in an account with the Reserve Bank.2 1 See SA Reserve Bank Act 90 of 1989s 10A(1). The corresponding provision in the Mutual Banks Act 124 of 1993 is s 49. 2 SA Reserve Bank Act 90 of 1989s 10A(2). 2.3.39 Minimum liquid assets A bank must hold in the Republic liquid assets to a value amounting to not less than the sum of amounts, calculated as prescribed percentages not exceeding 20%, of such different categories of its liabilities as may be prescribed.1 The amounts of these liquid assets and liabilities must be calculated in the prescribed manner and be determined at the prescribed times.2 A bank may not pledge or encumber any portion of these liquid assets.3 The registrar is empowered to exempt the bank from this prohibition on such conditions and to such an extent and for such a period as the registrar may determine.4 1 Banks Act 94 of 1990s 72. The corresponding provision in the Mutual Banks Act 124 of 1993 is s 50. 2 Banks Act 94 of 1990s 72(2). 3 S 72(3). 4 S 72(3) proviso. 2.3.40 Large exposures Restrictions are imposed on the making of investments with, or granting loans, advances or other credit to, any person, where the transaction results in the bank, controlling company, local branch of a foreign bank and foreign branches of local banks being exposed to that person up to an amount exceeding 10% of such amount of its capital and reserves as may be prescribed.1 For such transactions the permission of the board of directors or of a committee appointed for such purpose must first be obtained.2 Where the exposures exceed 800% of a prescribed amount of the bank's capital and reserves, additional capital and reserve requirements may be imposed.3 A bank, controlling company, local branch of a foreign bank and a foreign branch of a local bank may not without the prior written approval of the registrar commit itself to an exposure of more than 25% of a prescribed amount to a private sector nonbank person.4 Exposures to a person other than a private nonbank person exceeding 25% of a prescribed amount must be reported to the registrar.5 The term \"person\" is defined to include two or more persons (whether natural or juristic persons) where one of them directly or indirectly exercises control over the others, or where they are so interconnected that if one experiences financial difficulties, the others would be likely to experience a lack of liquidity.6 A \"private sector nonbank person\" is a natural or a juristic person but does not include: (a) the central government of other public sector bodies; (b) a bank; (c) a mutual bank; (d) a branch of a bank; (e) a branch; (f ) a foreign institution authorised7 to conduct the business of a bank by means of a branch in the Republic; (g) a controlling company; or (h) any other person designated by the registrar.8 1 Banks Act 94 of 1990s 73(1)(a). The corresponding provision in the Mutual Banks Act 124 of 1993 is s 51. 2 Banks Act 94 of 1990s 73(1)(a) proviso. The composition of the committee requires the approval of the registrar. 3 S 73(1)(b). 4 S 73(2)(a). 5 S 73(2)(b). 6 S 73(3)(a). 7 Under s 18A. 8 S 73(3)(b). 2.3.41 Failure or inability to comply with prudential requirements If a bank fails, or is unable, to comply with the prudential requirements, it must forthwith in writing report its failure or inability to the registrar, stating the reasons therefor.1 The registrar may summarily take action against the bank, or if he or she deems fit, may condone its failure or inability and afford it an opportunity to comply. 2 The registrar may by written notice impose a fine on the bank.3 If the bank fails to pay the fine within the time specified in the notice, the registrar may recover the amount by way of civil action.4 1 Banks Act 94 of 1990s 74; and see SA Reserve Bank Act 90 of 1989s 10A(6)(10). The corresponding provision in the Mutual Banks Act 124 of 1993 is s 52. 2 Banks Act 94 of 1990s 74(2). 3 S 74(3). 4 S 74(4).
2.3.42 Returns furnished to registrar To enable the registrar to determine (a) whether a bank is complying with the prudential requirements, or (b) the nature and amount of its assets, liabilities and contingent liabilities, the bank must furnish the registrar with a return on the prescribed form and in respect of the prescribed period.1 The return must be prepared in conformity with generally accepted accounting practice, and must be furnished in respect of such period and at such times and on such forms as may be prescribed.2 The registrar may require the bank to furnish him or her with a report by the auditor stating whether a return presents its affairs fairly and in conformity with generally accepted accounting practice.3 A bank must at all such times as may be prescribed, furnish the registrar with any such further information as may be prescribed.4 1 Banks Act 94 of 1990s 75(1); see SA Reserve Bank Act 90 of 1989s 10A(11) (12). The corresponding provision in the Mutual Banks Act 124 of 1993 is s 53. 2 Banks Act 94 of 1990s 75(3A). 3 S 75(5). 4 S 75(6). 2.3.43 Restrictions on investments and loans Investment of money by banks in immovable property or in shares or loans to any of its subsidiaries of which the main object is the acquisition of and holding or development of i m m o v a b l e p r o p e r t y i s r e s t r i c t e d .1 L i k e w i s e , i n v e s t m e n t s i n a n d l o a n s o r a d v a n c e s t o c e r t a i n a s s o c i a t e s a r e restricted.2 1 Banks Act 94 of 1990s 76. 2 S 77. 2.3.44 Undesirable practices In terms of section 78 of the Banks Act, a bank may not: (a) hold shares in its holding company (subsection (1)(a)); (b) lend money to any person against security of its own shares or of share's of its controlling company (subsection (1)(b)); (c) grant unsecured loans or loans against inadequate security for the purpose of furthering the sale of its own shares (subsection (1)(c)); (d) hold all its assets in a name other than in its own name (subsection (1)(d)); (e) show the cost of organisation or extension or the purchase of a business, loss or bad debt as an asset in any financial statement or return (subsection (1)(e)); (f ) open any branch or agency or further branch or agency or pay out dividends on its shares until provision has been made therefor out of profits for the items referred to in (e) above (subsection (1)(f)); (g) perform any act in the capacity of an agent directly between a lender and a borrower in order to effect a moneylending transaction (subsection (1)(g));1 (h) record an asset in its accounting records at a value increased by the amount of a loss incurred on the sale of another asset (subsection (1)(h)); (i) conclude a purchase agreement in respect of a fictitious asset or an asset created by a simulated agreement (subsection (1)(i)); (j) purport to have concluded a purchase agreement unless it is substantiated by a written document signed by the other party and the details of the agreement are recorded in the accounts of the bank in the name of such other party (subsection (1)(j)); and (k) without the written approval of the registrar and notwithstanding anything to the contrary contained in any law, pay out dividends from its share capital (subsection (1)(k)). The registrar may notify the institution that a specified practice employed by it is undesirable or may, by notice in the Government Gazette, declare a practice to be undesirable for specified banks.2 Any bank which employs such an undesirable practice as specified is guilty of an offence.3 The registrar may, on written request, require a bank to discontinue the publication or issue of any specified advertisement, brochure, prospectus or similar document which contains incorrect statements of fact or the publication or issue of which is in the opinion of the registrar not in the public interest.4 1 S 78(1)(g) allows for the exception of where the funds to be lent in respect of the moneylending transaction are entrusted to the bank by the lender in accordance with a written agency contract that provides, inter alia, that: (a) the bank is acting as agent for the lender; (b) the lender assumes all risks connected with the placing of the funds by the bank (save for any right of recovery he or she may have in law against the bank) as well as the responsibility to ensure the correct execution of the lenders' written instructions by the bank; and (c) no guarantee, either express or implied, regarding payment of any debt owed by any person to another in consequence of the moneylending transaction is furnished by the bank. 2 S 78(2). 3 Ibid. 4 S 78(3). The corresponding provision in the Mutual Banks Act 124 of 1993 is s 59. 2.3.45 Issue of shares, debentures and negotiable certificates A bank may not in terms of s 79: (a) issue shares of no par value or convert shares into shares of no par value (subsection (1)(a)); (b) issue preference shares or debt instruments, or convert shares into preference shares or debt instruments, or convert its preference shares of one class into preference shares of another class without the written
approval of the registrar (subsection (1)(b)); (c) issue negotiable certificates of deposits except in accordance with the prescribed conditions (subsection (1) (c)); or (d) issue share warrants to bearer (subsection (1)(d)). The aggregate amount of the value of debt instruments and certificates issued by the bank must at no time exceed a prescribed percentage of the aggregate amount of the bank's liabilities in respect of deposits made with it and in respect of such debt instruments and negotiable certificates of deposit.1 Notwithstanding the provisions of the memorandum or articles of association of any bank or controlling company, there may be no differentiation in the voting rights attached to any ordinary shares of the bank or controlling company.2 1 S 79(2). 2 S 79(3)(4). 2.3.46 Limitations on the activities of banks No bank or its associate1 may without the registrar's prior written approval, either jointly or individually hold shares in any registered insurer to the extent that the nominal value of such shares exceeds 49% of the nominal value of all the shares issued by that insurer. 2 Where this ratio is exceeded the bank and its associate may retain the shares but may not acquire further shares in that insurer as long as the ratio is exceeded.3 1 See the Banks Act 94 of 1990s 80(5)(a) for a definition of \"associate\" and s 80(5)(b) for a definition of \"subsubsidiary\". 2 Banks Act 94 of 1990s 80(3). 3 S 80(4). 2.3.47 Control of activities by persons not registered as a bank If the registrar suspects that any person not registered as a bank is likely to conduct, or has conducted, the business of a bank in contravention of section 11(1) or 18A(6) or has contravened the provisions of section 22(4) or (5) of the Banks Act,1 or that such contravention is likely to be continued or repeated, the registrar may apply to court for an order prohibiting: (a) the anticipated contravention; (b) the continuation or repetition of a contravention or prohibiting the person from disposing of or dealing with his, her or its assets while the suspected contravention is being investigated.2 If the facts are proved to the satisfaction of the court it may make the relevant order.3 1 94 of 1990. 2 S 81(1). 3 S 81(2). 2.3.48 Power to require information from unregistered persons The registrar may, on written notice, require any person who is not registered as a bank or authorised in terms of section 18A(1) of the Banks Act1 to carry on the business of a bank, to submit to him or her any document or information relating to that person, which the registrar may specify and which is available to that person.2 Such document or information must be furnished within the time specified in the notice or within such extended period as the registrar may grant.3 Any person who refuses or fails to comply within the time allowed is guilty of an offence.4 1 94 of 1990. 2 S 82(1). 3 S 82(2). 4 S 82(3). 2.3.49 Repayment of money unlawfully obtained If an inspection under the South African Reserve Bank Act1 reveals that a person has obtained money by carrying on the business of a bank while not registered as such, or without being authorised in terms of section 18A(1) of the Banks Act2 to carry on the business of a bank, the registrar may direct that person, in writing, to repay such money, including any interest and other amounts owing by him or her in respect of such money, in accordance with such requirements and in such period as the registrar may specify in such notice.3 Any person who so repays such money before the agreed due date for such repayment will not be liable for any interest or any other amounts which would have been payable in respect of such money for the period from the date of repayment until the due date.4 Any failure to comply with such a direction is an offence and such person will be deemed unable to pay his or her debts and to have committed an act of insolvency; the r e g i s t r a r w i l l b e e n t i t l e d t o a p p l y f o r t h e w i n d i n g u p o r s e q u e s t r a t i o n o f s u c h p e r s o n a s t h e c a s e m a y b e .5 T h e s e provisions do not relieve the person from any criminal liability arising out of the provisions of the Act or any law repealed by the Act.6 Simultaneously with the issue of the written direction, the registrar must appoint a person (described as the manager) to manage and control the repayment of the moneys unlawfully obtained. The appointment is by a letter of appointment signed by the registrar. 7 A copy of the letter must be served on the person subject to the direction.8 The manager must act under the control of the registrar and he or she will be vested with certain powers and duties to perform.9 The manager will be entitled to remuneration for his or her services.10 The manager's remuneration must be paid by the registrar who will be entitled to recover such amounts from the person subject to t h e d i r e c t i o n .11 T h e m a n a g e r w i l l h o l d o f f i c e u n t i l t h e d i r e c t i v e h a s b e e n c o m p l i e d w i t h o r u n t i l h i s o r h e r appointment is withdrawn by the registrar.12 Any person who: (a) when requested to do so by the manager, fails or refuses to take an oath or make an affirmation;
(b) without lawful excuse fails or refuses to answer questions put to him or her by the manager; (c) wilfully furnishes the manager with false information; (d) fails or refuses to comply to the best of his or her ability with a reasonable request of the manager; (e) wilfully hinders the manager; or (f ) commits any other deed designed to obstruct or to enable any person to evade the repayment of moneys in terms of the Act, is guilty of an offence.13 1 90 of 1989s 12. 2 94 of 1990. 3 S 83(1). 4 S 83(2). 5 S 83(3). 6 S 83(4). 7 S 84(1). 8 S 84(2). 9 S 84(3)(5). 10 S 84(6). 11 Ibid. 12 S 84(7). 13 S 84(8). 2.3.50 Certification of returns and documents Any return or other document furnished to the registrar by a bank or controlling company in terms of the Banks Act1 must be certified correct by the Chief Executive Officer and, in the case of a return, also by the chief accounting officer. It must also be indorsed by the Chief Executive Officer with the date on which it was certified.2 1 94 of 1990. 2 S 85. 2.3.51 Inspection, copies and keeping of documents The registrar must keep the following documents for at least ten years1 except where the registration of a bank or controlling company has lapsed or been cancelled, the registrar is not obliged to retain the documents for longer than five years after the lapse or cancellation:2 (a) certificates of provisional or final registration or registration of an alteration to the memorandum or articles of association or of a change of name of banks or controlling companies; (b) memorandum and articles of association of such banks; (c) returns, and copies of notices, reports, returns, statements, or minutes lodged with the registrar excluding those lodged by means of a prescribed form or under cover thereof which is to be treated as confidential and is not to be open to public inspection.3 Upon payment of the prescribed fee, any person may inspect the abovementioned documents, obtain a certificate from the registrar as to the contents or any part of the contents of the documents and obtain a copy of or an extract from any such document.4 Where the registrar is satisfied that any person wishes an inspection, certificate, copy or extract to promote the public interest, he or she may waive the fee.5 1 Banks Act 94 of 1990s 86(2). 2 S 86(3) proviso. 3 S 86(3). 4 S 86(1). 5 S 86(4). 2.3.52 Minors and married women as depositors A minor over the age of 16 years or a married woman may be a depositor with a bank and may, without the guardian's or husband's consent, execute documents and deal with his or her deposit as he or she thinks fit.1 The husband of a married woman is not entitled, without her written consent, to demand or receive from the bank any particulars concerning her deposits with the bank.2 1 Banks Act 94 of 1990s 87(1); cf Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 221 fn 2. 2 S 87(2). This corresponds with the provision relating to mutual banks: Mutual Banks Act 124 of 1993s 88. 2.3.53 Limitation of liability No liability attaches to the Reserve Bank, to any member of its board (either in an official or personal capacity), or any of its officers or employees or the registrar for any loss sustained or damage caused to any person by anything done or omitted by such person in the bona fide performance of his or her functions or duties under the Banks Act.1 1 94 of 1990s 88. 2.3.54 Information furnished by the registrar Notwithstanding the provisions of the South African Reserve Bank Act,1 the registrar may furnish information to any person who requires it for the performance of a function under a law (if the registrar is satisfied that the information is essential for that purpose) or to an authority outside the Republic to enable that authority to perform functions corresponding to those of the registrar under the Banks Act,2 in respect of a bank in such other country.3 1 90 of 1989s 33(1). 2 94 of 1990. 3 S 89.
2.3.55 Regulations The minister may make regulations not inconsistent with the Banks Act,1 prescribing all matters required or permitted to be prescribed by regulation.2 A person who is obliged in terms of the Act to render a return or statement in a prescribed form, will be deemed not to have rendered the return or statement unless he or she has set forth therein all the particulars for which provision is made in the prescribed form.3 A contravention of or failure to comply with a regulation may carry a penalty of a fine not exceeding R2 000 or imprisonment for a period not exceeding six months.4 1 94 of 1990. 2 S 90(1). 3 S 90(2). 4 S 90(3). 2.3.56 Offences and penalties Any person who contravenes the provisions of the Banks Act1 is guilty of an offence and will be liable for the prescribed penalty.2 1 94 of 1990. 2 S 91. 2.3.57 Standing review committee The minister must appoint a committee to review the Banks Act1 from time to time and make recommendations as to amendments which become advisable owing to changed circumstances.2 1 94 of 1990. 2 S 92. This provision applies also to the Mutual Banks Act 124 of 1993s 93. 2.4 Mutual banks 2.4.1 Introduction Mutual banks are governed by the Mutual Banks Act,1 which provides for the regulation and s u p e r v i s i o n o f j u r i s t i c p e r s o n s d o i n g b u s i n e s s a s m u t u a l b a n k s .2 C e r t a i n p r o v i s i o n s o f t h e B a n k s A c t3 a r e m a d e applicable to mutual banks.4 The registrar for the purpose of the administration of the Mutual Banks Act is the Registrar of Banks designated under the Banks Act.5 A mutual bank is defined as a juristic person registered as a mutual bank, and whose members qualify as such by virtue of being shareholders and being entitled to participate in exercising control in a general meeting.6 1 124 of 1993, which repealed the Mutual Building Societies Act 24 of 1965. 2 See the long title of the Mutual Banks Act 124 of 1993. 3 94 of 1990. 4 See the definitions of \"board of appeal\", \"deposit\" and \"liquid assets\" in the Mutual Banks Act 124 of 1993s 1(1) (2); and see the provisions relating to the appointment of a curator in s 81. 5 94 of 1990: Mutual Banks Act 124 of 1993s 1(1). 6 Ibid. See also s 19 relating to juristic personality. 2.4.2 Registration a prerequisite A person who is not registered in terms of the Mutual Banks Act1 may not hold him or herself out to be a mutual bank2 and any person who does so commits an offence.3 The affairs of a person not registered as a mutual bank may be inspected to establish whether the business of a mutual bank is being carried on by that person.4 Provision is made for the registration of institutions that on 3 January 1994 were provisionally or finally registered as permanent mutual building societies to be provisionally or finally registered by the registrar as a mutual bank.5 Registration is preceded by an application for authorisation to establish a mutual bank;6 and an application for registration as a mutual bank.7 Both applications must be made in the prescribed manner and on the prescribed form to the registrar, who may require the applicant to furnish such information as he or she deems necessary. 8 T h e r e g i s t r a r i s e m p o w e r e d t o grant or refuse the application, or to grant it subject to conditions which he or she determines.9 Any person who in connection with any such application furnishes information that to his knowledge is untrue or misleading in a material respect commits an offence.10 If the registrar grants or refuses an application, he or she must give written notice to the applicant.11 1 124 of 1993. 2 S 9(1). 3 S 20. 4 S 30. 5 SA Reserve Bank Act 90 of 1989s 12. 6 Mutual Banks Act 124 of 1993s 10(1). 7 S 13(1) (2). 8 Ss 10(3) 13(3). 9 Ss 11(1) 14 15(1). 10 S 18. 11 Ss 11(3) 14(3). 2.4.3 Application for authorisation An application for authorisation to establish a mutual bank must be made by seven or more persons (known as the founders) who have signed their names to proposed articles of association. It must be made in the prescribed manner and on the prescribed form, and must be accompanied by a statement containing the prescribed information.1 The registrar may require the applicants to supply further information, documents, or the report of a public accountant or other person approved by the registrar.2 The registrar may grant or refuse the application after considering all the information furnished.3 The registrar must
not grant the application unless satisfied that: (a) the proposed mutual bank will not be detrimental to the public interest; (b) the founders will be able to establish it successfully; (c) sufficient financial means will be available; (d) the business will be conducted prudently; (e) fit and proper persons with sufficient management experience will hold office; and (f ) the composition of the board will be appropriate.4 The registrar may grant the application subject to such conditions as he or she may determine, including conditions that the applicants must obtain an undertaking from a bank (known as a guardian bank) to assist them in respect of technological infrastructure, management advice and such other matters as may be prescribed.5 The registrar may at any time prior to the registration revoke the authorisation granted for the establish of such mutual bank if satisfied that: (a) false or misleading information was furnished in the application; or (b) the formation of the proposed mutual bank has not been successful within a period of six months as of the date of granting the authorisation.6 1 Mutual Banks Act 124 of 1993s 10(2). 2 S 10(3). 3 S 11(1). 4 S 11(2). 5 S 11(1). 6 S 12. 2.4.4 Registration as a mutual bank Once authorisation to establish a mutual bank has been granted, the applicant may apply to the registrar in the prescribed manner and on the prescribed form within 12 months from the grant of the authorisation for registration, unless the authorisation has been revoked.1 The application must be accompanied by the prescribed information and documents.2 The registrar may call for such further information or documents as he or she deems necessary. 3 The application and the documents must be signed by the chairperson or Chief Executive Officer of the institution.4 T h e r e g i s t r a r m a y r e f u s e t h e a p p l i c a t i o n o n s p e c i f i e d g r o u n d s ,5 b u t subject to this power, he or she must grant the application if satisfied that according to its articles the institution will be a mutual bank, its methods of conducting its business are not undesirable, and its articles are consistent with the statutory provisions and are not undesirable.6 The registration is subject to the prescribed conditions and to such further conditions, if any, as the registrar may determine.7 In addition to any other condition which the registrar may impose, the registrar may impose a condition requiring the institution concerned to take such steps, within a specified period, as may be necessary to alter its requirements in accordance with the requirements of the registrar.8 If the registrar grants the application, he or she must register the institution and issue a certificate of registration on payment of the prescribed fee.9 The institution may not, however, commence business in that capacity until it has furnished proof that it complies with section 48 of the Mutual Banks Act relating to prudential requirements.10 1 Mutual Banks Act 124 of 1993s 13(1). 2 S 13(2). 3 S 13(3). 4 S 13(4). 5 S 14(2). 6 S 14(1). 7 S 15(1). 8 S 15(2). 9 S 14(5). 10 S 14(6). 2.4.5 Juristic personality and name A mutual bank is a juristic person.1 When a juristic person registered under the Companies Act2 is registered as a mutual bank, the registrar must notify the Registrar of Companies, who must remove its name from the register of companies.3 An institution that is registered as a mutual bank may not use any name other than that under which it is registered, or any translation or abbreviation approved by the registrar.4 It is an offence for any person to use any name or description indicating that that person is a mutual bank while not so registered.5 Every mutual bank must display in easily legible letters on every written document published or issued to any member of the public its name and the fact that it is registered as a mutual bank.6 A mutual bank requires the approval of the registrar to change its name.7 1 Mutual Banks Act 124 of 1993s 19(1). 2 61 of 1973. 3 Mutual Banks Act 124 of 1993s 19(2). 4 S 20(1) (2). 5 S 20(4). 6 S 20(7). 7 S 35.
2.4.6 Cancellation or suspension of registration The registrar may, with the minister's consent and by written notice, cancel, or suspend on such conditions as he or she deems fit, the registration of the institution on certain specified grounds.1 Before such cancellation or suspension, the registrar must by written notice to the chairperson or Chief Executive Officer, inform the institution of his or her intention and the reasons therefor, and call upon it to show cause within 30 days of the notice why the cancellation or suspension should not occur.2 After considering any representations, the registrar may in his or her discretion proceed with the cancellation or s u s p e n s i o n , o r r e f r a i n t h e r e f r o m , a n d m u s t g i v e w r i t t e n n o t i c e o f t h e d e c i s i o n .3 T h e r e g i s t r a r m a y a p p l y t o a competent court for an order of cancellation or suspension, and the court is empowered to grant or refuse the application, and to make such order as to costs as it deems fit.4 In addition to any other grounds, the court may grant an order of cancellation or suspension if it is of the opinion that it is not in the public interest to allow the institution to continue its activities as a mutual bank.5 The registrar must cancel registration if the institution submits a special resolution authorising such cancellation.6 1 Mutual Banks Act 124 of 1993s 21. 2 S 22(1). 3 S 22(2). 4 S 23(1) (2) (3). 5 S 23(4). 6 S 25. 2.4.7 Restriction of activities of mutual bank The registrar may, instead of an application to court, restrict the activities of a registered mutual bank in such respects and on such conditions as the registrar specifies in a written notice to the institution.1 1 Mutual Banks Act 124 of 1993s 24(1). The provisions of s 22 apply mutatis mutandis: s 24(2). 2.4.8 Withdrawal of suspension or restriction The registrar may by written notice withdraw a suspension or restriction if he or she is satisfied that the institution has complied with all the requirements in the conditions of suspension or restriction.1 Application for an order discharging an order of suspension may be made to the court.2 1 Mutual Banks Act 124 of 1993s 26(1). 2 S 26(2). 2.4.9 Publication of information The registrar must publish in the Government Gazette information relating to the registration, cancellation or suspension of registration, restriction on activities, withdrawal of suspension or restriction, and change of name of a mutual bank.1 1 Mutual Banks Act 124 of 1993s 27. 2.4.10 Lapse of registration Registration may lapse,1 in which case the registrar may in writing order the institution to repay all money due by it to members of the public in respect of deposits accepted by it.2 1 Mutual Banks Act 124 of 1993s 28. 2 S 29(1). 2.4.11 Annual licence Every mutual bank must obtain an annual licence from the receiver of revenue of the district in which its head office is situated.1 1 Mutual Banks Act 124 of 1993s 31. 2.4.12 Articles of association Every mutual bank must have articles of association, which must include its name, the situation of its head office, and its principal objects.1 These objects may only confer on it the capacity to carry on business as a mutual bank in accordance with the provisions of the Mutual Banks Act and to carry on such other business as in the registrar's opinion is not inconsistent with the Act.2 The articles may be altered by the mutual bank subject to certain restrictions.3 Copies of any resolution altering the articles must be sent to the registrar with a certificate that the provisions of the articles have been complied with.4 The registrar is empowered to direct a mutual bank to alter its articles in order to remove anomalies or undesirable divergencies in the articles of different mutual banks.5 When registered, the articles are binding on the mutual bank and its members and officers.6 They must be open for inspection by the public during normal business hours.7 1 Mutual Banks Act 124 of 1993s 32(1)(a) (b). 2 S 32(2). 3 S 33(1). 4 S 33(2). 5 S 34(1). 6 S 36(1). 7 S 36(2). 2.4.13 Directors The business of a mutual bank must be managed by a board of directors, which may delegate any of its powers to any person.1 Each director stands in a fiduciary relationship to the bank.2 A director must disclose any interest he or she may have in any contract with the bank.3 A director is elected for a period not exceeding three years but is eligible for reelection.4 Not more than 49% of the directors may be employees of that bank or any of its associates, provided that in respect of any matter put to the vote at a meeting of the board, such directors who are employees of that mutual bank or any of its associates will together not have a vote in excess of 49% of the total vote cast by all the directors present and voting at that meeting.5 The following persons are disqualified from holding office as directors: minors; unrehabilitated insolvents; any
person convicted anywhere of theft, fraud, forgery, issuing forged documents or perjury for which he or she was sentenced to imprisonment without the option of a fine or a fine exceeding R100; any person removed from an office of trust for misconduct; and an auditor of the mutual bank or his or her employee.6 In order to determine whether any person is a fit and proper person to hold office as director or executive officer, the registrar must act7 in accordance with the provisions of section 1(1A) of the Banks Act.8 1 Mutual Banks Act 124 of 1993s 37(1). 2 S 37(2). 3 S 39. 4 S 37(4). 5 S 37(12). 6 S 38. 7 S 1(2). 8 94 of 1990. 2.4.14 Head office and branch offices Every mutual bank must have its head office in the Republic.1 If it moves its head office, it must within 14 days of moving give particulars in writing to the registrar.2 I t m a y i n i t s d i s c r e t i o n e s t a b l i s h o n e o r m o r e b r a n c h o f f i c e s o r a g e n c i e s ,3 a n d m a y p l a c e t h e m u n d e r t h e management of a local board,4 but every local board and every officer in such local branch or agency must be under the control of the board of the mutual bank.5 1 Mutual Banks Act 124 of 1993s 40(1). 2 S 40(2). 3 S 41(1). Definition of \"Agency\": s 1. 4 S 41(2). 5 S 41(3). 2.4.15 Accounting records Every mutual bank must keep accounting records in one of the official languages of the Republic, and must preserve them for at least 15 years. These records must enable the registrar to determine whether the provisions of the Mutual Banks Act1 have been complied with.2 The board must after the end of each financial year prepare in respect of that year the prescribed annual financial statements in the prescribed form.3 Each financial statement must be certified as correct by two directors and the chief accounting officer. 4 The auditor must make a report on the annual financial statement to members of the bank.5 A copy of each financial statement and of the auditor's report must be sent to the registrar within 14 days after the annual general meeting at which they are presented or within four months after the end of the financial year, whichever date is the earlier.6 1 124 of 1993. 2 S 42. 3 S 43(4). 4 S 43(5). 5 S 43(6). 6 S 43(7). 2.4.16 General meetings A general meeting of the members of a mutual bank must be held within four months after the end of the financial year to consider and deal with its financial position, financial statements, auditor's report, and the board report, and to elect directors.1 This is known as the annual general meeting.2 A special general meeting may be called by three directors, and must be called on receipt of a requisition signed by 100 members or where the membership is under 1 000, by onetenth of the members or such smaller number or proportion as the articles prescribe.3 At least 21 days' notice of general meetings4 must be given to members, the registrar and the auditors.5 Minutes of proceedings at general meetings must be kept and a copy certified by the secretary and two directors sent to the registrar within 14 days.6 1 Mutual Banks Act 124 of 1993s 44(1). 2 S 44(2). 3 S 44(3). 4 S 44(6). 5 S 44(5). 6 S 44(8). 2.4.17 Auditors Every mutual bank must have one or more auditors.1 An auditor must be an accountant and auditor registered in terms of the Public Accountants' and Auditors' Act,2 who is engaged in public practice.3 A n officer of a mutual bank or any of its associates or a firm of which such officer is a member or employee may not be appointed as auditor of that mutual bank.4 If a mutual bank or its board fails to appoint an auditor, the registrar must make the appointment.5 The auditor has right of access to the securities, books, accounts and vouchers of the mutual bank, and may require from its officers or agents such information as is necessary to perform his or her duties.6 The auditor must report to the board any material irregularity or undesirable practice in the conduct of the bank's business which has come to his or her notice, and if it is not rectified or discontinued within one month, the auditor must report it to the registrar.7 The auditor is entitled to attend, and make statements at, meetings of members.8 Within 30 days of the auditor's appointment, the mutual bank must apply to the registrar for approval.9 T h e
registrar may without being required to give reasons, refuse to approve an appointment, or withdraw a previous approval, and the auditor must then vacate office as auditor. 10 In order to exercise his or her powers the registrar may call for information in regard to the experience or qualification of the auditor, who must furnish the information in a form directed by the registrar. 11 The auditor must inform the registrar of any matter relating to the affairs of a mutual bank of which the auditor has become aware and which in his or her opinion may be of concern to depositors or members of the mutual bank.12 The furnishing by an auditor of information will not constitute a breach of a code of professional conduct to which the auditor is subject.13 1 Mutual Banks Act 124 of 1993s 45(1)(a). 2 80 of 1991. 3 Mutual Banks Act 124 of 1993s 45(1)(b). 4 Ibid. 5 S 45(11). 6 S 45(13). 7 S 45(14). 8 S 45(17). 9 S 45(18). 10 S 45(19). 11 S 45(21). 12 S 46(1). 13 S 46(4). 2.4.18 Audit committee The board of a mutual bank must appoint at least three of its members to form an audit committee.1 All of the members may be, and the majority must be, persons who are not employees of the mutual bank or any of its associates.2 Its functions3 correspond with those of the audit committee under the Banks Act.4 1 Mutual Banks Act 124 of 1993s 47(1). 2 S 47(3). 3 S 47(2). 4 94 of 1990s 64(2). 2.4.19 Prudential requirements A mutual bank must comply with specified prudential requirements.1 A mutual bank must manage its affairs in such a way that the sum of its issued and secondary share capital and its primary and secondary reserve funds in the Republic does not at any time amount to less than the greater of (a) ten million rand, or (b) an amount which represents a prescribed percentage of the sum of amounts calculated by multiplying the average of the amounts (as shown in its returns to the registrar)2 of such different categories of assets and other risk exposures as may be prescribed, by the risk weights, expressed as percentages, prescribed in respect of such categories of assets and risk exposures.3 A mutual bank that was registered as a permanent mutual building society before the date of commencement of the Act need keep a minimum of one million and not ten million rand. The registrar is given limited power to exempt a mutual bank from these provisions.4 1 Mutual Banks Act 124 of 1993ss 4853; cf Banks Act 94 of 1990ss 7075. 2 Mutual Banks Act 124 of 1993s 53. 3 S 48(2). 4 S 48(7). 2.4.20 Minimum reserve balance The provisions relating to the maintenance by a bank of a minimum reserve balance in an account with the Reserve Bank apply mutatis mutandis to mutual banks.1 1 Mutual Banks Act 124 of 1993s 49. See SA Reserve Bank Act 90 of 1989s 10A. 2.4.21 Minimum liquid assets A mutual bank must hold in the Republic liquid assets to a value amounting to not less than the sum of amounts, calculated as prescribed percentages not exceeding 20%, of such different c a t e g o r i e s o f i t s l i a b i l i t i e s a s m a y b e p r e s c r i b e d .1 T h e a m o u n t s o f t h e s e l i q u i d a s s e t s a n d l i a b i l i t i e s m u s t b e calculated in the prescribed manner and be determined at the prescribed times.2 A mutual bank may not pledge or e n c u m b e r a n y p o r t i o n o f t h e s e l i q u i d a s s e t s .3 T h e r e g i s t r a r i s e m p o w e r e d t o e x e m p t t h e b a n k f r o m t h i s prohibition.4 1 Mutual Banks Act 124 of 1993s 50(1); cf Banks Act 94 of 1990s 72. 2 Mutual Banks Act 124 of 1993s 50(2). 3 S 50(3). 4 S 50(3) proviso. 2.4.22 Large exposures Restrictions are imposed on the making of investments with, or granting loans, advances or other credit to, any person, where the transaction results in the mutual bank being exposed to that person up to an amount exceeding a prescribed percentage of its capital and reserves.1 For such transactions the permission of the board must first be obtained.2 The transaction must be reported to the registrar in the prescribed manner and on the prescribed form.3 The term \"person\" is defined.4 1 Mutual Banks Act 124 of 1993s 51; the marginal note uses the phrase \"large exposures\"; cf Banks Act 94 of 1990s 73. 2 Mutual Banks Act 124 of 1993s 51(1) or of a committee appointed by the board of which at least one member must be a nonexecutive director. 3 S 51(2). 4 S 51(3); this definition corresponds with that in the Banks Act 94 of 1990s 73(3). 2.4.23 Failure or inability to comply with prudential requirements If a mutual bank fails, or is unable, to comply with the prudential requirements, it must forthwith in writing report its failure or inability to the registrar, stating the reasons therefor.1 The registrar may summarily take action against the mutual bank, or if the registrar deems fit, he o r s h e m a y c o n d o n e i t s f a i l u r e o r i n a b i l i t y a n d a f f o r d i t a n o p p o r t u n i t y t o c o m p l y . 2 T h e r e g i s t r a r m a y b y w r i t t e n notice impose a fine on the mutual bank.3 If the mutual bank fails to pay the fine within the time specified in the notice, the registrar may recover the amount by way of civil action.4
1 Mutual Banks Act 124 of 1993s 52(1); corresponding with Banks Act 94 of 1990s 74. 2 Mutual Banks Act 124 of 1993s 52(2). 3 S 52(3). 4 S 52(4). 2.4.24 Returns furnished to registrar T o e n a b l e t h e r e g i s t r a r t o d e t e r m i n e ( a ) w h e t h e r a m u t u a l b a n k i s complying with the prudential requirements, or (b) the nature and amount of its assets, liabilities and contingent liabilities and its liquid asset requirements, the mutual bank must furnish the registrar with a return on the prescribed form and in respect of the prescribed period.1 The registrar may require the mutual bank to furnish him with a report by the auditor stating whether a return presents its affairs fairly and in conformity with generally accepted accounting practice.2 1 Mutual Banks Act 124 of 1993s 53; corresponding with Banks Act 94 of 1990s 75. 2 S 53(4). 2.4.25 Conduct of business of mutual bank A mutual bank may accept deposits, make loans or advances, or extend other credit. This is subject to such directives as the registrar may issue.1 It may not issue negotiable instruments of deposit except in accordance with prescribed conditions.2 Investments in immovable property and shares, or loans and advances to any subsidiaries the main object of which is the acquisition of immovable property, are subject to restrictions.3 The registrar may in writing exempt a mutual bank from these restrictions.4 There are also restrictions on investments with, and loans and advances to certain associates.5 1 Mutual Banks Act 124 of 1993s 54(1). 2 S 54(2). 3 S 55(1). 4 S 55(2). 5 S 56. 2.4.26 Shares and dividends There are restrictions on a mutual bank's power to issue shares. It may only issue shares for an indefinite period, fixed period shares, and permanent interestbearing shares.1 Shares in a bank may be issued to persons who were members of a mutual bank that has been converted into a bank.2 A mutual bank may not issue any share conferring a preferent claim to the assets in the case of windingup.3 Nor may it issue any share which confers on the holder any voting rights more favourable than those conferred by any of the other shares issued by it.4 It may not pay any dividend or bonus on shares issued by it except out of its available profits.5 1 Mutual Banks Act 124 of 1993s 57(1). 2 S 70 read with s 61. 3 S 57(11). 4 S 57(12). 5 S 58(1). 2.4.27 Undesirable practices Certain practices of a mutual bank are stated to be undesirable.1 In addition, the registrar may (a) notify a mutual bank that a practice employed by it and specified in the written notice constitutes an undesirable practice, and (b) by notice in the Government Gazette declare a specified practice to be undesirable for specified mutual banks, or for all mutual banks.2 Except with the registrar's prior written approval, a mutual bank or its associates may not hold shares in a registered insurer to the extent to which the nominal value of those shares exceeds 49% of the nominal value of all the issued shares of that insurer.3 1 Mutual Banks Act 124 of 1993s 59(1); cf Banks Act 94 of 1990s 59. 2 Mutual Banks Act 124 of 1993s 59(2). 3 S 60. 2.4.28 Conversion of a mutual bank into a bank A registered mutual bank may, with the registrar's approval, and on the adoption of a special resolution, be converted into a bank.1 Before convening a meeting to adopt such s p e c i a l r e s o l u t i o n , a p p l i c a t i o n m u s t b e m a d e t o t h e r e g i s t r a r o n t h e p r e s c r i b e d f o r m ,2 a c c o m p a n i e d b y t h e prescribed documents.3 The mutual bank must furnish such further particulars as the registrar requires.4 T h e registrar may not refuse an application without affording the mutual bank a reasonable opportunity to adjust the relevant document in accordance with his requirements.5 After approval by the registrar, a special general meeting must be convened to adopt the necessary special resolution.6 1 Mutual Banks Act 124 of 1993s 62. 2 S 63(1). 3 S 63(2). 4 S 63(3). 5 S 64(2). 6 S 65. 2.4.29 Effect of conversion The effect of the conversion is that the mutual bank will now continue as a juristic person in the form of a registered public company, subject to the provisions of the Banks Act 1 a n d n o t t h e M u t u a l Banks Act.2 Directors of a mutual bank must vacate their office and shareholders and members of that institution will cease to be such.3 Investments in the form of shares, other than permanent interestbearing shares, will be deemed to be fixed deposits and permanent interestbearing shares will be treated as debt instruments issued by the bank.4 Tax benefits accruing to an investment in the form of shares that become fixed deposits will continue for a period of ten years.5 No lawful act of a mutual bank will be affected by the conversion.6 Profits which accrued to a mutual bank before conversion will, to the extent they are used for declaration and payment of dividends to a controlling company registered in terms of section 66 of the Mutual Banks Act, not be regarded as preconversion profits.7 A n y c o n t r o l l i n g c o m p a n y i n r e s p e c t o f a b a n k c r e a t e d b y t h e c o n v e r s i o n m u s t b e r e g i s t e r e d .8 C o n v e r s i o n i s
completed by the registration of the memorandum and articles of association of the public company established by t h e c o n v e r s i o n .9 U p o n p r e s e n t a t i o n o f t h e p r e s c r i b e d d o c u m e n t a t i o n a n d p a y m e n t o f t h e p r e s c r i b e d f e e t h e registrar must give notice of the conversion in the Government Gazette.10 1 94 of 1990. 2 124 of 1993s 69(1)(a)(b). 3 S 69(1)(d)(e). 4 S 69(1)(f )(g). 5 S 69(2). 6 S 69(3). 7 S 69(4). 8 See further s 66. 9 See further s 67. 10 See further s 68. 2.4.30 Amalgamation and transfer of assets Two or more mutual banks may, with the written approval of the registrar, amalgamate and become one mutual bank. 1 A mutual bank may with like approval transfer all or part of its assets and liabilities to another mutual bank or to a bank finally registered under the Banks Act.2 The proposed terms and conditions of the amalgamation or transfer must be submitted in advance to the registrar, who may make such modifications as he or she deems necessary. 3 The provisions of the agreement for amalgamation or transfer must be approved by special resolution of each of the banks concerned.4 1 Mutual Banks Act 124 of 1993s 71(1). 2 94 of 1990. 3 Mutual Banks Act 124 of 1993s 71(2). 4 S 71(3)(c) (4) (5). 2.4.31 Transfer of part of business A m u t u a l b a n k m a y , w i t h t h e w r i t t e n c o n s e n t o f t h e r e g i s t r a r a n d o n conditions determined by the registrar, transfer part of its business to another mutual bank or to any other institution approved by the minister. 1 The part being transferred must constitute a minor portion of its total business.2 1 Mutual Banks Act 124 of 1993s 72(1). 2 Ibid. 2.4.32 Judicial management and windingup A mutual bank may be placed under judicial management,1 or it may be wound up voluntarily if the members decide this by special resolution,2 or it may be wound up by the court.3 The provisions of the Companies Act4 apply mutatis mutandis.5 The court may not make an order for windingup unless it is satisfied that it is not desirable that the mutual bank be placed under judicial management.6 Only a person recommended by the registrar may be appointed as a judicial manager or liquidator.7 The liquidator of a mutual bank that is being wound up voluntarily or by the court, or the judicial manager, may transfer all its assets and liabilities to another mutual bank or a bank.8 The liability of the members on windingup is limited to the amount they are in arrears on shares at the commencement of the windingup.9 No member is entitled to repayment unless all creditors have been paid in full.10 B o r r o w e r s w i l l n o t b e r e q u i r e d t o r e p a y o t h e r w i s e t h a n a s a g r e e d u p o n a t t h e t i m e o f t h e t r a n s a c t i o n .11 A n y surplus that remains after all claims have been satisfied must be distributed to shareholders in accordance with the articles of association, or in the absence of such provision, on a pro rata basis.12 1 Mutual Banks Act 124 of 1993s 73(1). 2 S 74(1). 3 S 75(1). 4 61 of 1973. 5 Mutual Banks Act 124 of 1993ss 73(1) 74(2) 75(1). 6 S 75(4). 7 S 76. 8 S 71(8). 9 S 78. 10 S 78 proviso. 11 S 79. 12 S 80. 2.4.33 Dissolution When the affairs of a mutual bank have been completely wound up, the relevant master of the High Court must issue a certificate to the registrar, who must then cancel the registration of the mutual bank, 1 which will be dissolved with effect from the date of such cancellation.2 1 Mutual Banks Act 124 of 1993s 77(1). 2 S 77(2). 2.4.34 Appointment of curator The provisions of the Banks Act1 relating to the appointment of a curator apply to any mutual bank which in the registrar's opinion is in financial difficulty.2 1 94 of 1990s 69. 2 Mutual Banks Act 124 of 1993s 81. 2.4.35 Inspection Inspection of the affairs of a mutual bank may take place in the following circumstances: (a) The registrar may on the application of at least 100 members appoint an inspector to investigate the affairs of
a m u t u a l b a n k o r b y o n e t e n t h w h e r e t h e r e a r e l e s s t h a n 1 0 0 0 m e m b e r s .1 T h e a p p l i c a t i o n m u s t b e supported by such evidence as the registrar directs.2 The applicants must give security for the costs of the proposed investigation before an inspector is appointed.3 (b) The members may appoint an inspector by special resolution.4 (c) When an application is made for windingup or judicial management, the court may direct the registrar to appoint an inspector.5 (d) The registrar may appoint an inspector on the application of the judicial manager.6 Any person who is or was an officer, auditor, member or agent of a mutual bank whose affairs are being investigated must produce to the inspector all documents in his or her custody and give all information available to him or her that the inspector may require.7 1 Mutual Banks Act 124 of 1993s 82(1). 2 S 82(2). 3 S 82(4). 4 S 83(1). 5 S 82(7). 6 S 82(1). 7 S 84(1). 2.4.36 Members or depositors A person may not become a member of or a depositor with a mutual bank without signing a form applying for shares or for permission to make deposits.1 The provisions dealing with limitation of liability must appear on the form.2 1 Mutual Banks Act 124 of 1993s 85(1). 2 Ss 78 85(2). 2.4.37 Minors and married women A minor over the age of 16 years or a married woman may, without the guardian's or husband's consent, execute documents and deal with his or her share in or deposit with a mutual bank as he or she deems fit.1 The husband of a married woman is not entitled, without her written consent, to demand or receive from a mutual bank particulars concerning her shares or deposits.2 1 Mutual Banks Act 124 of 1993s 88(1). 2 S 88(2); the corresponding section in the Banks Act 94 of 1990 is s 87. 2.4.38 Inspection, copies and keeping of documents The provisions in the Mutual Banks Act1 relating to the inspection, copies and keeping of documents correspond with the provisions in the Banks Act.2 1 124 of 1993s 87. 2 94 of 1990s 86. 2.4.39 Furnishing of documents by registrar The provisions in the Mutual Banks Act1 relating to the furnishing of information by the registrar correspond with the provisions in the Banks Act.2 1 124 of 1993s 90. 2 94 of 1990s 89. 2.4.40 Regulations The minister may make regulations in regard to any matter permitted under the Mutual Banks Act.1 \"Prescribed\" means prescribed by regulation. 1 124 of 1993s 91. 2 s 1. 2.4.41 Offences Any person who contravenes any provision of the Mutual Banks Act1 is guilty of an offence and subject to the penalties prescribed by it.2 1 124 of 1993. 2 S 92. 2.4.42 Review of legislation The standing committee appointed under the Banks Act1 i s e m p o w e r e d t o recommend amendments to the Mutual Banks Act.2 1 94 of 1990s 92. 2 124 of 1993s 93. 2.5 Other banking institutions 2.5.1 The Land Bank The Land and Agricultural Development Bank of South Africa (trading as the Land Bank) is a juristic person1 with one of its objects the promotion of equitable ownership of agricultural land, in particular the increase of ownership of agricultural land by historically disadvantaged persons by providing financial services.2 The Bank is exempt from the provisions of any other law specially governing banks unless such other law expressly provides for its application to the Bank.3 1 Land and Agricultural Development Bank Act 15 of 2002s 2(2). 2 S 3(1)(a). For a list of the objects of the Bank see s 3(1)(a)(k); cf Strydom v Die Land & Landboubank van SA 1972 1 SA 801 (A) 814G. 3 S 2(4). 2.5.2 Postbank The Postbank is operated under the control and management of the postal company. 1 The postal company must undertake such activities as are customary for a financial institution carrying on the business of accepting deposits.2
1 Postal Services Act 124 of 1998s 51(1). 2 S 51(2). 2.5.3 Development Bank of Southern Africa A banking institution known as the Development Bank of Southern Africa was established in 1983. Provision has been made by statute for its continued existence and its reconstitution.1 I t h a s b e e n r e c o n s t i t u t e d a n d i n c o r p o r a t e d a s a j u r i s t i c p e r s o n , a n d i s n o w n a m e d t h e \"Development Bank of Southern Africa Limited\".2 Its function as a development finance institution is the promotion of economic development and growth in the Southern African region within an integrated financial development system which has as its aim the efficient deployment of scarce resources.3 The Minister of Finance4 may by notice in the Government Gazette apply any provision of the Companies Act,5 the Banks Act6 or any other law to the bank.7 Subject to s 21(1)(b), the bank is exempt from the provisions of the Companies Act 61 of 1973.8 1 Development Bank of Southern Africa Act 13 of 1997. 2 S 2. 3 Preamble. Its main objects are set out in s 3(1), and its ancillary objects in s 3(2). 4 S 1 sv \"Minister\"; or the minister acting in his or her stead: ibid. 5 61 of 1973. 6 94 of 1990. 7 Development Bank of Southern Africa Act 13 of 1997 : see Development Bank of Southern Africa Act 13 of 1997 8 s 21(1)(a). 2.5.4 Banking Institutions Act The Banking Institutions Act1 provides that certain banking institutions, to which special Acts apply, may apply to become corporate bodies under the Companies Act 2 w i t h o u t p a y m e n t o f f e e s o r share capital duty. 1 25 of 1946s 3(1). 2 61 of 1973. 3 Business of commercial banking 3.1 Banker and customer 3.1.1 The relationship between banks and their customers As a legal concept, the \"business of banking\" does not necessarily have one meaning that is valid for all purposes and for all kinds of legislation.1 For the purposes of the Bills of Exchange Act,2 the expression \"business of banking\" means the acceptance of deposits on current accounts and the payment and collection of cheques.3 A person cannot be a banker for the purposes of the Bills of Exchange Act unless he or she conducts current accounts, pays cheques drawn on him or her, and collects cheques for customers. 4 The Banks Act5 prohibits any person from conducting the business of a bank unless that person is a public company and is registered as a bank in terms of the Act6 and contravention of this section constitutes an offence.7 The phrase \"the business of a bank\" is defined in the Banks Act and means the acceptance of deposits from the general public as a regular feature of the business8 and also any other activity which the registrar has, after consulting with the governor of the Reserve Bank, declared by notice in the Government Gazette to be the business of a bank.9 Banking is not confined to receiving money from a customer since the lending of money by way of overdraft falls within the compass of a bank's activities.10 A customer of a bank is a person whose money has been accepted by a bank, often on the footing that it u n d e r t a k e s t o h o n o u r c h e q u e s u p t o t h e a m o u n t s t a n d i n g t o t h e c r e d i t o f h i s o r h e r a c c o u n t .11 T h e b a s i c requirement is that a customer must have a banking account.12 The relationship between a bank and its customer is contractual in nature, with authority for the view that the relationship is that of debtor and creditor,13 that it is a contract sui generis14 or a contract of mandate. According to Malan15 the \"bank and customer relationship is based on a comprehensive mandate in terms of which the customer lends money to the bank on current account, the bank undertakes to pay it on demand by honouring cheques drawn on it and to perform certain other services for the customer, such as the collection of cheques and other instruments, and the keeping and accounting of his current account.\"16 The bank thus receives money and collects bills for the account of its customer, borrows the proceeds and undertakes to repay them to the customer on demand.17 When a customer deposits money it becomes that of the bank subject to the bank's obligation to honour cheques validly drawn by its customer. 18 Any money deposited with a bank is not held in trust for the customer but constitutes a loan, without interest, to the bank.19 When a customer's account is overdrawn the relationship is reversed. The customer becomes the debtor and any deposit made by the customer reduces his or h e r i n d e b t e d n e s s t o t h e b a n k .20 T h e r e l a t i o n s h i p b e t w e e n t h e b a n k a n d c u s t o m e r c o m e s i n t o e x i s t e n c e b y agreement between the two and the customer becomes a customer when the bank accepts a deposit and opens an account in his or her name.21 1 Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 304; Gering Handbook on the Law of Negotiable Instruments 84; Cowen and Gering Law of Negotiable Instruments in SA (1966) 358. 2 34 of 1964. 3 Malan 306; Gering 85; Cowen and Gering 360. 4 Except in the case of the South African Reserve Bank, a bank, a mutual bank and the Postbank: Bills of Exchange Act 34 of 1964s 1. 5 94 of 1990. 6 S 11(1). 7 S 11(2). 8 S 1. 9 S 1.
10 Colonial Banking & Trust Co Ltd v Hill's Trustees 1927 AD 488. 11 Standard Bank of SA Ltd v Minister of Bantu Education 1966 1 SA 229 (N) 243. 12 South African Eagle Insurance Co Ltd v NBS Bank Ltd 2002 1 SA 560 (SCA); NBS Bank Ltd v Cape Produce Co (Pty) Ltd 2002 1 SA 397 (SCA); Glofinco v ABSA Bank Ltd t/a United Bank 2002 6 SA 470 (SCA). 13 Cowen and Gering 367368; GS George Consultants & Investments (Pty) Ltd v Datasys (Pty) Ltd 1988 3 SA 726 (W) 735 736; Commissioner of Customs & Excise v Bank of Lisbon International Ltd 1994 1 SA 205 (N) 213214. 14 Estate Ismail v Barclays Bank (DC&O) 1957 4 SA 17 (T) 26; Kircos v Standard Bank of SA Ltd 1958 4 SA 58 (SR) 60; Kearney v Standard Bank of SA Ltd 1961 2 SA 647 (T) 650; S v Kearney 1964 2 SA 495 (A) 502503; S v Kotze 1965 1 SA 118 (A) 124; Big Dutchman (SA) (Pty) Ltd v Barclays National Bank Ltd 1979 3 SA 267 (W); Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd 1995 4 SA 510 (C) 530531; Liebenberg v Absa Bank Ltd t/a Volkskas Bank [1998] 1 All SA 303 (C); ABSA Bank Bpk v Janse van Rensburg 2002 3 SA 701 (SCA) 709AB. 15 Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 336 16 Di Giulio v First National Bank of SA Ltd 2002 6 SA 281 (C) 289G290A. 17 Kircos v Standard Bank of SA Ltd supra 60. 18 S v Kearney supra 503; Alley Cat Clothing (Pty) Ltd v De Lisle Weare Racing [2002] 1 All SA 123 (D). See Randfontein Transitional Local Council v ABSA Bank Ltd 2000 2 SA 1040 (W). 19 Kearney v Standard Bank of SA Ltd supra 650; Ormerod v Deputy Sheriff, Durban 1965 4 SA 670 (D) 673. 20 Kearney v Standard Bank of SA Ltd supra 650; Absa Bank Ltd v Standard Bank of SA Ltd [1997] 4 All SA 673 (SCA) 675de. 21 Standard Bank of SA Ltd v Minister of Bantu Education supra 243. 3.1.2 Opening of banking accounts Banking accounts may be opened by any person or body of persons including married women, minors, partnerships, companies and close corporations. The Banks Act1 and the Mutual Banks Act2 contain provisions specifically relating to married women and minors. A partnership may open a banking account. Each partner is jointly and severally liable for any overdraft facilities accorded to the partnership. Provision is usually made for such joint and several liability in the request to open a partnership account. 3 Companies have certain plenary powers amongst which is the specific power to open and operate banking accounts and to overdraw such accounts.5 Such specific power may be excluded in the memorandum of association.6 A close corporation has the capacity and powers of a natural person of full capacity in so far as a juristic person is capable of having such capacity or of exercising such powers.7 A c c o r d i n g t o t h e F i n a n c i a l I n t e l l i g e n c e C e n t r e A c t8 a n a c c o u n t a b l e i n s t i t u t i o n9 m a y n o t e s t a b l i s h a b u s i n e s s relationship10 or conclude a single transaction with a client unless the accountable institution has taken the prescribed steps to establish and verify the identity of the client. These steps are prescribed in the Money Laundering Control Regulations.11 The regulations distinguish between natural persons who are South African citizens or resident in the Republic,12 natural persons who are foreign nationals and not resident in the Republic,13 South African companies and close corporations,14 foreign companies,15 o t h e r l e g a l p e r s o n s ,16 p a r t n e r s h i p s17 a n d trusts.18 Provision is also made for instances where a person acts on authority of another19 and verification in the absence of a contact person.20 An accountable institution must take reasonable steps to maintain the correctness of particulars which are susceptible to change.21 1 94 of 1990s 87. 2 124 of 1993s 88. 4 Nedbank Ltd v Aldick 1981 3 SA 1007 (D) 10121014. 5 Companies Act 61 of 1973s 34 read with Sch 2(h). 6 S 52(1)(c)(ii). 7 Close Corporations Act 69 of 1984s 2(4). 8 38 of 2001s 21(1)(a). 9 The list of accountable institutions in Sch 1 includes a person who carries on the \"business of a bank\" as defined in the Banks Act 94 of 1990, a mutual bank as defined in the Mutual Banks Act 124 of 1993 and the Postbank as referred to in s 51 of the Postal Services Act 124 of 1998. 10 For the definition of \"business relationship\": s 1. 11 Government Gazette 24176 GN R1595, 20 December 2002. 12 Regs 34. 13 Regs 56. 14 Regs 78. 15 Regs 910. 16 Regs 1112. 17 Regs 1314. 18 Regs 1516. 19 Reg 17. 20 Reg 18. 21 Reg 19. See Commissioner, South African Revenue Service v ABSA Bank Ltd 2003 2 SA 96 (W). 3.1.3 The duties of banker and customer The duties of the bank and customer are often implied terms of the bank and customer contract.1 One of the main duties of a banker towards the banker's customer is to honour his or her cheques up to the amount of the customer's credit balance2 or up to the amount of overdraft facilities accorded to the customer. The balance standing at the customer's credit is in principle only payable at the branch of the bank where the current account is kept.3 Presentment for payment of a cheque must be made at the branch on which the cheque is drawn,4 or a cheque may (provided the requirements of s 43(1), s 43(2)(a)(b) and s 43(3) of the Bills of Exchange Act5 are met) be presented for payment to the drawee by a collecting bank on behalf of the holder (a) at a place designated in the rules of any clearing house of which both the drawee bank and the collecting bank are members; (b) at a place of payment designated by the drawee bank; or (c) by means of data transmitted in terms of an agreement to which both the drawee bank and the collecting bank are party by, or on behalf of, the
collecting bank to the drawee bank, identifying the cheque with reasonable certainty.6Section 43A(2) sets out when a cheque is deemed to be identified with reasonable certainty. According to s 43A(3), \"Where a cheque is presented for payment in terms of this section, the drawee shall not be relieved of any liability to which the drawee would have been subject in relation to the cheque if it had been presented by being exhibited to the drawee.\" A bank is obliged to honour its customer's cheques if funds are available but the customer must see that there is a reasonable lapse of time between the deposit of funds and the withdrawal thereof. The lapse of time is necessary in order to enable the bank's officials to become aware of the deposit.7 What is a reasonable lapse of time depends on the circumstances of each particular case. When a cheque is presented for payment the drawee bank must either honour the cheque or refuse to honour it; it is not entitled to postpone payment in order to make enquiries. A statement \"effects not cleared\" or a request to represent amounts to a dishonour. 8 A bank has no authority to pay w h e r e t h e s i g n a t u r e o f i t s c u s t o m e r ( t h e d r a w e r ) i s f o r g e d o r u n a u t h o r i s e d .9 I f o n t h e f a c e o f a c h e q u e t h e d r a w e r ' s s i g n a t u r e i s i n c o r r e c t a b a n k i s u n d e r n o o b l i g a t i o n t o c a s h t h e c h e q u e .10 I f a b a n k k n o w s t h a t i t s customer (a trustee) is withdrawing money in breach of his or her trust, there is no obligation on the bank to honour his or her cheques.11 There are two elements which must be present before a banker's refusal to honour his or her customer's cheque (the customer being an executor or acting in some other representative capacity) is justified. Firstly there must be some breach of trust intended by the customer and secondly the bank must be privy to this intent.12 Where overdraft facilities have been extended on condition that such facilities are subject to the security provided by a deed of suretyship and the suretyship is withdrawn, a bank is not obliged to honour further cheques.13 I n Penderis v AA Mutual 14 t h e c o u r t r e f e r r e d t o Volkskas v Van Aswegen 15 a n d p o i n t e d o u t t h a t t h e decision was based on the proper interpretation of the overdraft agreement. A customer of a bank is not of right entitled to draw against uncleared effects. The fact that cheques have been credited to a customer's account as cash does not entitle the customer to draw against them unless there is an agreement, express or implied, permitting him or her to draw.16 An inference can be drawn from the course of business between banker and customer that the customer should at once have credit for cheques paid in and be entitled to draw against them.17 The mere agreement between bank and customer, whereby the customer is entitled to draw on uncleared cheques, in itself constitutes value in terms of the Bills of Exchange Act18, with the effect that the bank becomes holder of the cheques. If a customer draws a cheque for a sum in excess of the amount standing to the credit of his or her current account, it is really a request for a loan, and if the cheque is honoured the customer has borrowed money, and the bank is entitled to debit the account.19 Cheques must be in proper form and a bank is entitled to refuse to pay stale cheques, namely cheques dated six months or more before date of presentation.20 A bank must not pay a postdated \"cheque\" before its due date.21 In the absence of an estoppel a bank may reverse credit entries made if cheques are returned unpaid.22 It is an implied term of the contract between banker and customer that the banker is under a qualified duty not to disclose information concerning the customer's affairs.23 As a bank may also not reveal information of a prospective or past customer, contract alone does not provide the foundation of banking secrecy.24 There is a dearth of Roman Dutch authority on banking law and it is accordingly necessary to turn to decisions in the English courts, although one must be wary in reading English cases to do so in their proper perspective in relation to differences between South African law and English law. There have been decided cases where it was assumed, without deciding, that the bank was contractually obliged to maintain secrecy and confidentiality about the customer's affairs.25 A banker may disclose information about his or her customer's affairs (a) where the disclosure is under compulsion of law;26 (b) where there is a duty to the public to disclose; (c) where the interests of the bank require disclosure; and (d) where the disclosure is made by the express or implied consent of the customer.27 A banker owes his or her customer a duty to see that he or she issues duplicate deposit slips which accurately reflect the amount of cash received.28 A duty to provide the customer with bank statements can also be implied.29 A customer must exercise reasonable care in his or her instructions to his or her banker. In drawing a cheque a customer must take the necessary precautions to prevent forgery or the alteration of the amount of the cheque and must notify the bank if he or she became aware of any forgeries.30 A customer's duty to his or her bank is a limited one. Save in respect of drawing documents to be presented to the bank and in warning of known or suspected forgeries, a customer has no duty to the bank to supervise his or her employees, to run his or her business carefully, or, generally, to detect frauds. 31 The \"unsophisticated\" customer also has no duty to the bank to check his or her bank statements.32 However, any person who is required by law to have his or her financial statements audited by a person registered in terms of the Public Accountants' and Auditors' Act33 or by the AuditorGeneral, and any person obliged to appoint an accounting officer in terms of the Close Corporations Act,34 must exercise reasonable care in the custody of cheque forms and in the reconciliation of its bank statements.35 1 Malan Bills of Exchange, Cheques and Promissory Notes 350; Joachimson v Swiss Bank Corporation 1921 3 KB 110 (CA) 117. 2 Witbank District Coal Agency v Barclays Bank 1928 TPD 18 20; Freeman v Standard Bank of SA Ltd 1905 TH 26 30; Eskom v First National Bank of Southern Africa Ltd 1995 2 SA 386 (A) 391; Malan 350 352. 3 Arab Bank v Barclays Bank [1954] 2 All ER 226 (HL) 236G; Joachimson v Swiss Bank Corporation supra; Gering Handbook on the Law of Negotiable Instruments 263. 4 Navidas (Pty) Ltd v Essop 1994 4 SA 141 (A) 147. 5 Bills of Exchange Act 34 of 1964. 6 S 43A(1) of the Bills of Exchange Act. 7 Witbank District Coal Agency v Barclays Bank 1928 TPD 18 20. 8 Freeman v Standard Bank of SA Ltd supra 30. 9 Standard Bank of SA Ltd v Kaplan 1922 CPD 214 217; cf Cowen and Gering Law of Negotiable Instruments in SA (1966) 374; Standard Bank of SA Ltd v ABSA Bank Ltd 1995 2 SA 740 (T). 10 Evans v Richmond 1905 TS 279 281. 11 Yorkshire Insurance Co Ltd v Barclays Bank (DC&O) 1928 WLD 199. 12 See Standard Bank v Estate Van Rhyn 1925 AD 266 278. 13 Volkskas Bpk v Van Aswegen 1961 1 SA 493 (A). See Malan 342; Gering Handbook on the Law of Negotiable Instruments
268 fn 730. 14 1992 4 SA 836 (A). 15 Supra. 16 SA Stocks & Shares Ltd v Standard Bank of SA Ltd 1927 WLD 227; R v Bester 1961 2 SA 52 (FC) 55. 17 Freeman v Standard Bank of SA Ltd supra 32. In Haynes Industries (Pty) Ltd v North Coast Industries (Pty) Ltd 1978 1 SA 1087 (D). 18 Bills of Exchange Act 34 of 1964. 19 ABSA Bank Ltd v IW Blumberg & Wilkinson 1997 3 SA 669 (SCA) 676; [1997] 2 All SA 307 (SCA). 20 See Cowen and Gering (1966) 370; Malan 299302; Gering 200. 21 Ibid. 22 Malan 336 fn 2; ABSA Bank Ltd v Blumberg & Wilkinson 1995 4 SA 403 (W); ABSA Bank Ltd v Blumberg & Wilkinson [1997] 2 All SA 307 (SCA); 1997 3 SA 669 (SCA) 677F; ABSA Bank Ltd v De Klerk [1998] 4 All SA 674 (W); 1999 1 SA 861 (W); Standard Bank of SA Ltd v Sarwan [2002] 3 All SA 49 (W). 23 Tournier v National Provincial & Union Bank of England [1924] 1 KB 461; Sunderland v Barclays Bank Ltd The Times 1938 5 LDB 163; GS George Consultants & Investments (Pty) Ltd v Datasys (Pty) Ltd 1988 3 SA 726 (W) 736. 24 Malan 380. 25 See Standard Bank of SA Ltd v Minister of Bantu Education 1966 1 SA 229 (N) 237; Densam (Pty) Ltd v Cywilnat (Pty) Ltd 1991 1 SA 100 (A) 109110 in Tournier v National Provincial & Union Bank of England supra. See also Schulze (2002) SA Merc LJ 438. 26 See Optimprops 1030 CC v First National Bank of Southern Africa Ltd [2001] 2 All SA 24 (D) 29. 27 Tournier v National Provincial & Union Bank of England supra 473. For examples of Acts influencing banking secrecy see the Criminal Procedure Act 51 of 1977s 236(4); Civil Proceedings Evidence Act 25 of 1965s 31; Attorneys Act 53 of 1979 s 78(13); South African Reserve Bank Act 90 of 1989s 33; I n c o m e T a x A c t 58 of 1962s 74A; B a n k s A c t 9 4 o f 1 9 9 0s 87(2); Financial Intelligence Centre Act 38 of 2002 s 37; Promotion of Access to Information Act 2 of 2000ss 64(1) 65. See also Investigating Directorate: Serious Economic Offences v Hyundai Motor Distributors (Pty) Ltd: In re Hyundai Motor Distributors (Pty) Ltd v Smit 2000 10 BCLR 1079 (CC) 2001 1 SA 545 (CC); Schulze (2001) 13 SA Merc LJ 601. 28 Kircos v Standard Bank of SA Ltd 1958 4 SA 58 (SR) 62. 29 Malan 351. S 72B of the Bills of Exchange Act 34 of 1964 supports this implication: ibid. 30 Standard Bank of SA Ltd v Kaplan supra 223; Union Government v National Bank of SA Ltd 1921 AD 121 128; OK Bazaars (1929) Ltd v Universal Stores Ltd 1973 2 SA 281 (C) 288. 31 Big Dutchman (SA) (Pty) Ltd v Barclays National Bank Ltd 1979 3 SA 267 (W) 283; Holzman v Standard Bank Ltd 1985 1 SA 360 (W) 363; Columbus Joint Venture v ABSA Bank Ltd 2000 2 SA 482 (W) 514CD; Malan 353358. 32 Big Dutchman (SA) (Pty) Ltd v Barclays National Bank Ltd. 33 80 of 1991 s 14. 34 69 of 1984s 59. 35 Bills of Exchange Act 34 of 1964s 72B. For a list of the customers subject to s 72B see Malan 358359. 3.1.4 Wrongful dishonour If it can be established that a customer's occupation is such that credit is an essential element in the conduct of his or her business, a bank which refuses to honour cheques when funds are available or overdraft facilities are arranged, is liable in damages without proof of actual loss.1 The improper or wrongful dishonour of a cheque damages the credit of a businessperson and can result in an injury which is nonetheless g r e a t b e c a u s e i t c a n n o t b e e s t i m a t e d w i t h c e r t a i n t y . 2 T h e d e c i s i o n i n Barclays Bank v Giles3 w a s f o l l o w e d w i t h reluctance in Van Aswegen v Volkskas Bpk4, Roberts AJ finding it strange that the somewhat artificial rules of English law should be applied in connection with damages in regard to dishonoured cheques. In Klopper v Volkskas Bpk5, Viljoen J regretted that he was obliged to follow the full bench decision in Witbank District Coal Agency v Barclays Bank.6 Where no damage is proved the customer is entitled to some reward but the damages should be temperate and such as would be reasonable compensation for any injury that has been sustained.7 1 Witbank District Coal Agency v Barclays Bank 1928 TPD 18 23; Barclays Bank v Giles 1931 TPD 31 35. 2 Freeman v Standard Bank of SA Ltd 1905 TH 26 34. . See Cowen and Gering Law of Negotiable Instruments in SA (1966) 394 et seq; Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 374378. 3 Supra. 4 1960 3 SA 81 (T) at 82. 5 1964 2 SA 421 (T) 425. 6 Supra. 7 Wells v Barclays Bank Ltd (DC&O) 1927 SR 132 134; Klopper v Volkskas Bpk 1963 1 SA 930 (T) 933. In First National Bank of SA v Budree 1996 1 SA 971 (N) 980981, Page J stated that the approach of Viljoen J in Klopper v Volkskas Bpk 1964 2 SA 421 (T) was correct. 3.1.5 Safe custody of valuables As subsidiary to their main business of banking, bankers render various other services for their customers such as, inter alia, the safe custody of valuables, the making of payments in terms of stop orders signed by a customer, the administration of deceased estates and the provision of credit card facilities. T h e s a f e c u s t o d y o f v a l u a b l e s i s a f o r m o f t h e c o n t r a c t o f depositum. Depositum i s a c o n t r a c t i n t e r m s o f w h i c h a person hands over a movable thing to another to keep for him or her gratuitously. 1 Where a banker takes property for safe custody and charges no fee, the banker is liable for damages only if he or she was grossly negligent or guilty of fraud.2 Where a banker charges a fee the contract between banker and customer is not one of depositum but one of hire of services and the banker is liable for any degree of negligence.3 1 Voet Commentarius 16 3 1 (Gane's Translation 3 174). 2 Rama Narotam v Natha Dullabh 1914 NPD 227. 3 Daniel (Pty) Ltd v Camps Bay Service Station 1954 3 SA 309 (C) 313; Mensky v ABSA Bank Ltd t/a Trust Bank [1997] 4 All SA 280 (W); First National Bank of Southern Africa Ltd v Rosenblum [2001] 4 All SA 355 (A); ABSA Bank Ltd v Fouche [2002] 4 All SA 245 (SCA); 2003 1 SA 176 (SCA). 3.1.6 Banking facilities One of the banking facilities most frequently granted by a bank to its customers is an overdraft. Where the bank grants an overdraft to a customer, it becomes obliged to pay the customer's cheques within the limits of the overdraft.1 The granting of overdraft facilities is a moneylending transaction.2 I n t h e absence of any express agreement on the point, a customer who requests and obtains overdraft facilities from his or her bank tacitly agrees to be bound by the practice of the bank in regard to the debiting of accrued but unpaid interest to capital account.3
It is the practice of bankers to debit interest to the customer's current account at monthly intervals.4 Bankers charge compound interest on the amount of the overdraft.5 The interest is reckoned on the monthly balance and the interest of the previous month is added to the monthly balance.6 The practice of \"capitalisation\" of interest by bankers does not result in the interest losing its character as such for the purposes of the in duplum rule.7 The in duplum rule provides that interest stops running when the unpaid interest equals the outstanding capital. When due to payment interest drops below the outstanding capital, interest again begins to run until it once again equals that amount. The rule is based on public policy; as such it cannot be waived and it cannot be altered by banking practice. When interest is compounded it remains interest.8 A clause in an overdraft agreement or mortgage bond conferring on the banker the right to vary the interest rate unilaterally is valid in principle.9 A further way of giving a person banking facilities is to discount any paper he or she may bring to the bank.10 W h e n a bank discounts a bill it in effect buys it, the purchase price being the face value of the bill less the amount of the discount.11 1 Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 341342. 2 Malan 344. 3 Senekal v Trust Bank of Africa Ltd 1978 3 SA 375 (A) 384; ABSA Bank Bpk h/a Volkskas Bank v Retief [1999] 1 All SA 68 (NC); 1999 3 SA 322 (NC) 339I340C; Malan 349350. 4 Volkskas Bpk v Meyer 1966 2 SA 379 (T) 380; Senekal v Trust Bank of Africa Ltd supra; ABSA Bank Bpk v Saunders 1997 2 SA 192 (NC). 5 The National Bank of SA v Graaf (1904) 21 SC 457 461; Barclays Bank International Ltd v Smallman 1977 1 SA 401 (R) 402. 6 The National Bank of SA v Graaf supra 461. 7 See LTA Construction Bpk v Administrateur Tvl 1992 1 SA 473 (A); Commercial Bank of Zimbabwe Ltd v MM Builders & Suppliers (Pvt) Ltd 1997 2 SA 285 (ZH); L e e c h v A B S A B a n k L t d [1997] 3 All SA 308 (W); Standard Bank of SA Ltd v Oneanate Investments 1995 4 SA 510 ( C ) ; Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd (in Liquidation) [1998] 1 All SA 413 (A); 1998 1 SA 811 ( S C A ) ; Georgias v Standard Chartered Finance Zimbabwe Ltd 2 0 0 0 1 S A 1 2 6 (Z); Commissioner for SA Revenue Service v Woulidge [1999] 4 All SA 519 (C); 2000 1 SA 600 ( C ) ; Sanlam Life Assurance Ltd v South African Breweries Ltd [2000] 1 All SA 563 (W); 2000 2 SA 647 (W). 8 See Standard Bank of SA Ltd v Oneanate supra 572; Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd (in Liquidation) supra 828829. 9 NBS Boland Bank Ltd v One Berg River Drive CC [1999] 4 All SA 183 (A); 1999 4 SA 928 (SCA); Nedbank Ltd v Capital Refrigerated Truck Bodies (Pty) Ltd 1988 4 SA 73 (N); Boland Bank Bpk v Steele 1994 1 SA 259 (T); Investec Bank (Pty) Ltd v GVN Properties CC 1999 3 SA 490 (W). See the discussion by Otto 1998 TSAR 603, (2000) 117 SALJ 1; Malan 348 349.] 10 Standard Bank v Fisher's Trustee 1919 TPD 83 91. 11 Malan 4; Tucker v Ginsberg 1962 2 SA 58 (W) 62; Naidoo v von Gerard & Chapman 1931 AD 374 379; Moser v Meiring 1931 OPD 74 7778; New York Shipping Co (Pty) Ltd v EMMI Equipment (Pty) Ltd 1968 1 SA 355 (SWA) 365. 3.1.7 Liability of collecting bank A collecting bank may be held liable in delict under the extended lex Aquilia for negligence to the true owner provided all the requirements of Aquilian liability are met.1 The plaintiff must establish that: (a) the collecting banker received payment of the cheque on behalf of someone who was not entitled thereto; (b) in receiving such payment the collecting banker acted: (i) negligently; and (ii) unlawfully; (c) the conduct of the true owner caused the true owner to sustain loss; and (d) the damages claimed represent proper compensation for such loss.2 In First National Bank of SA Ltd v Quality Tyres (1970) (Pty) Ltd 3 it was pointed out with reference to the expression \"true owner\" used in Indac Electronics (Pty) Ltd v Volkskas Bank Ltd 4 that the word \"true\" is strictly unnecessary in the context of liability under the lex Aquilia, whereas in the context of of the Bills of Exchange Act5 the expression bears a specialised meaning. Today decisions often focus on the element of negligence, although all the requirements of Aquilian liability must be satisfied.6 On the standard of care applicable, the question to be answered is: what reasonable, practical and affordable steps would the reasonable prudent collecting banker have taken in order to prevent the harm which resulted to the plaintiff?7 When opening a new account \"[t]he very least that is required of a bank is to properly consider all the documentation that is placed before it and to apply their minds thereto, instead of merely ensuring that the required documents were furnished.\"8 Where a new client or \"stranger\" requests that an account be opened the circumstances are different from those when an existing client applies.9 The Supreme Court of Appeal explained that the reason for the distinction between new and existing clients is \"because existing customers generally have verified identities and confirmed work and residential contact details . . . and should the account be used for fraud, the customer can be traced and brought to book. In addition, the location of the customer's assets may be known or traceable through the details furnished . . . There exists then a significant disincentive to fraudulent use of the account, which is absent in the case of a new customer whose identity and location and other details have not been verified.\"10 The court further stated that \"[i]f circumstances should put a bank on inquiry in extending new facilities to an existing customer or creating facilities for a new customer, the necessary inquiries must be made, and fear of offending the customer cannot inhibit performance of that duty.\"11
A c o l l e c t i n g b a n k m u s t a l s o e x e r c i s e r e a s o n a b l e c a r e i n t h e c o l l e c t i o n o f c h e q u e s .12S e c t i o n 7 5 A o f t h e B i l l s o f Exchange Act13 provides for a socalled \"institutional\" nontransferable cheque where a cheque bears boldly across its face the words \"not transferable\" or \"non transferable\", either with or without the word \"only\" after the payee's name. A bank is not negligent by reason only of its failure to concern itself with (a) an indorsement intended to prevent transfer of the cheque; or (b) words prohibiting transfer, or indicating an intention that it is not transferable, other than in the manner provided for in section 75A.14 1 Indac Electronics (Pty) Ltd v Volkskas Bank Ltd 1992 1 SA 783 (A) 797A; Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 439440. See also Zimbabwe Banking Corporation Ltd v Pyramid Motor Corporation (Pvt) Ltd 1985 4 SA 553 (ZS). 2 Indac Electronics (Pty) Ltd v Volkskas Bank Ltd supra 797CD; Volkskas Bank Bpk v Bonitas Medical Aid Fund 1993 3 SA 779 (A) 785GH; Powell v ABSA Bank Ltd t/a Volkskas Bank [1997] 4 All SA 231 (SE) 238hi; 1998 2 SA 807 (SE); Columbus Joint Venture v ABSA Bank Ltd 2000 2 SA 491 (W) 504EF; Energy Measurements (Pty) Ltd v First National Bank of SA Ltd [2000] 2 All SA 396 (W); 2001 3 SA 132 (W) 139DE. 3 1995 3 SA 556 (A) 567I568F. 4 Supra. 5 Bills of Exchange Act 34 of 1964: s 81. 6 Pretorius (2002) 14 SA Merc LJ 93. In ABSA Bank Bpk v ONS Beleggings 2000 4 SA 27 (SCA) the plaintiff failed to prove that it suffered damages. 7 KwaMashu Bakery Ltd v Standard Bank of SA Ltd 1995 1 SA 377 (D) 395H; Malan 450452; Powell v ABSA Bank Ltd t/a Volkskas Bank [1997] 4 All SA 231 (SE) 242243; Energy Measurements (Pty) Ltd v First National Bank of SA Ltd [2000] 2 All SA 396 (W); 2001 3 SA 132 (W) 160H168F; African Life Assurance Co Ltd v NBS Bank Ltd [2000] 1 All SA 545 (W); 2001 1 SA 432 (W) 445I446A 447I448B; Durr v ABSA Bank Ltd [1997] 3 All SA 1 (SCA); 1997 3 SA 448 (SCA) 460H 461B. 8 Energy Measurements (Pty) Ltd v First National Bank of SA Ltd 2001 3 SA 132 (W) par 134.4; Columbus Joint Venture v ABSA Bank Ltd [2002] 1 All SA 105 (SCA); 2002 1 SA 90 (SCA). 9 Columbus Joint Venture v ABSA Bank Ltd 2000 2 SA 491 (W) 510FG; Powell v ABSA Bank Ltd t/a Volkskas Bank [1997] 4 All SA 231 (SE) 243244. 10 Columbus Joint Venture v ABSA Bank Ltd [2002] 1 All SA 105 (SCA); 2002 1 SA 90 (SCA) par 9. 11 Columbus Joint Venture v ABSA Bank Ltd 2002 1 SA 90 (SCA) par 25. 12 Malan 456459. See eg Rhostar (Pvt) Ltd v Netherlands Bank of Rhodesia Ltd 1972 2 SA 703 (R); Volkskas Bank Bpk v Bonitas Medical Aid Fund 1993 3 SA 779 (A); African Life Assurance Co Ltd v NBS Bank Ltd supra; ABSA Bank Bpk v ONS Beleggings BK [2000] 3 All SA 199 (SCA); 2000 4 SA 27 ( S C A ) ; Standard Bank of SA Ltd v Harris [2002] 4 All SA 164 (SCA); ABSA Bank Ltd v Mutual & Federal Insurance Co Ltd 2003 1 SA 635 (W). 13 34 of 1964s 75A(1); Malan 431432. 14 S 75A(2); Malan 432434. 3.2 Statutory protection of bankers in regard to the payment and collection of cheques 3.2.1 Cheques A cheque means a bill of exchange drawn on a bank payable on demand.1 The holder of a cheque m e a n s t h e p a y e e o r i n d o r s e e o f t h a t c h e q u e w h o i s i n p o s s e s s i o n o f i t , o r t h e b e a r e r t h e r e o f . 2 T h e b e a r e r o f a cheque is the person on possession of a cheque payable to bearer.3 It is the duty of a banker to pay the amount of a cheque in terms of its customer's mandate.4 A banker must pay the amount of a cheque to the holder and so, if a cheque is drawn to the order of a specified payee the bank is under a duty to pay the payee or the holder who presents the cheque with the payee's indorsement on it.5 1 Bills of Exchange Act 34 of 1964s 1 sv \"cheque\". 2 S 1 sv \"holder\". 3 S 1 sv \"bearer\". 4 Stapelberg v Barclays Bank, D C & O 1963 3 SA 120 ( T ) 1 2 4 ; Eskom v First National Bank of Southern Africa Ltd 1995 2 SA 386 (A) 391F. 5 Stapelberg v Barclays Bank DC&O supra 124; Eskom v First National Bank of Southern Africa Ltd supra 391F; Edward & John Burke Ltd v Standard Bank of SA Ltd 1905 TH 123 127; cf Cowen and Gering Law of Negotiable Instruments in SA (1966) 375. 3.2.2 Protection of drawee bank At common law a bank which paid a cheque to a person who took that cheque under a forged indorsement was precluded from debiting its customer's account with the amount of the cheque since the bank had not paid the cheque in terms of its mandate.1 Provision has accordingly been made for the protection of banks paying cheques under such circumstances. If a bank pays a cheque payable to order in good faith and in the ordinary course of business it is not incumbent on the bank to show that the payee's or any subsequent indorsement was made by or under the authority of the person whose indorsement it purports to be, and the bank is deemed to have paid the bill in due course although such indorsement has been forged or is unauthorised.2 The indorsement must not purport to be that of a person who is a customer of the bank at the branch on which the cheque is drawn.3 A signature on the back of a cheque is not necessarily an indorsement but may merely serve as a receipt or means of identification.4 A bank is afforded protection only where the signature which has been forged was placed thereon with the intention of effecting the negotiation of the cheque.5 A bank is protected where the signature is an indorsement in the strict sense of the word and not where it serves as a receipt or identification. The bank must pay the cheque in good faith and in the ordinary course of business in order to qualify for protection. A thing is deemed to have been done in good faith if it is in fact done honestly, whether it is done negligently or not.6 A bank can act negligently and nevertheless be acting in the ordinary course of business, that is to say in the recognised or customary course of business of the banking community at large.7 1 Cowen and Gering Law of Negotiable Instruments in SA (1966) 375. 2 Bills of Exchange Act 34 of 1964s 58. 3 S 58 proviso; Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 359 fn 107; Gering Handbook on the Law of Negotiable Instruments 242. 4 National Bank v Paterson 1909 TS 322 327; Stapelberg v Barclays Bank, DC&O 1963 3 SA 120 (T) 124. 5 National Bank v Paterson supra 326. 6 S 94. 7 Worshipful Co of Carpenters of the City of London v British Mutual Banking Co Ltd [1937] 3 All ER 811 821; Stapelberg v
Barclays Bank, DC&O supra; cf Cowen and Gering 381. 3.2.3 Raising of the amount of a cheque A customer owes his or her bank a duty to draw his or her cheques with reasonable care.1 Where a customer has given the opportunity for the alteration of a cheque by the customer's own negligence in drawing it, he or she must bear the loss if the cheque is fraudulently altered and then paid by his or her bank.2 Where a cheque is drawn in such a way that words can be inserted to raise the amount of the cheque and the bank without negligence pays the cheque it cannot be held liable.3 Should the inserted words be telescoped together the bank must be on its guard since there could be a reasonable possibility that the words could have been written in at a later stage.4 Although the negligence of the drawer of a cheque constitutes a condition sine qua non for the fraudulent raising of the amount of the cheque, this is not sufficient to prevent the negligence of the bank, if the alteration is apparent, from being the causa causans of the loss.5 1 Union Government v National Bank of SA Ltd 1921 AD 121 128; Standard Bank of SA Ltd v Kaplan 1922 CPD 214 223 224; OK Bazaars (1929) Ltd v Universal Stores Ltd 1973 2 SA 281 (C) 288; Holzman v Standard Bank Ltd 1985 1 SA 360 (W). 2 Union Government v National Bank of SA Ltd supra 146. 3 Young v Grote (1827) 4 Bing 253; 130 ER 764. 4 Barclays Bank DCO v Straw 1965 2 SA 93 (O) 98. 5 Barclays Bank DCO v Straw supra. See Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 459460. Cf Greater Johannesburg Transitional Metropolitan Council v ABSA Bank Ltd t/a Volkskas Bank [1996] 4 All SA 278 (W) 290. 3.2.4 Crossing of cheques The Bills of Exchange Act1 provides for two types of crossings, namely general crossings and special crossings. A general crossing consists of two parallel transverse lines either with or without the words \"not negotiable\".2 A nontransferable cheque in terms of section 75A is deemed to be crossed generally, unless it is crossed specially. 3 A s p e c i a l c r o s s i n g c o n s i s t s o f t h e a d d i t i o n o f t h e n a m e o f a b a n k e i t h e r w i t h o r without the words \"not negotiable\" or \"and Company\" or any abbreviation thereof.4 The drawer or a collecting bank may cross a cheque either generally or specially. 5 A h o l d e r o f a c h e q u e h a s t h e s a m e p o w e r s6 a n d h e o r s h e m a y c o n v e r t a g e n e r a l c r o s s i n g i n t o a s p e c i a l c r o s s i n g7 a n d a d d t h e w o r d s \" n o t negotiable\".8 A b a n k t o w h i c h a c h e q u e i s c r o s s e d s p e c i a l l y m a y a g a i n c r o s s i t s p e c i a l l y t o a n o t h e r b a n k f o r collection.9 A crossing authorised by the Act is a material part of the cheque and it is not lawful for any person to obliterate, cancel or (except as authorised by the Act) add to or alter such a crossing.10 The provisions of the Act in regard to crossed cheques apply also to warrants for the payment of dividends, coupons for payment of interest and postal and money orders.11 If a cheque is crossed generally, the bank on which it is drawn must not pay it to any person other than a bank.12 If a cheque is crossed specially, the bank on which it is drawn must not pay it to any person other than the bank to which it is crossed or the latter's agent for collection, if it is a bank.13 If a cheque is crossed specially to more than one bank, the bank on which it is drawn must refuse to pay unless the cheque is crossed to two banks, one of which is an agent for collection of the other.14 The effect of crossing a cheque is to give a direction to the drawee bank to deal with the cheque in a particular manner on its presentation for payment, namely to pay it only to a bank.15Section 79 applies where one bank acts as both collecting bank and paying bank, whether in one branch or several branches.16 If the crossing in a cheque is accompanied by an order to pay a specified person only, then the drawee bank must pay only that person or his or her collecting bank, and not any collecting bank.17 This direction imposes on the drawee bank the duty of dealing with it only in the particular manner indicated.18 The reason for the provision that the drawee bank must pay to no person other than a bank is to protect the true owner of the cheque.19 If the drawee bank pays a cheque which is crossed specially to more than one bank, or pays a cheque which is crossed generally to any person other than a bank, or pays a cheque which is crossed specially to any person other than the bank to which it is crossed or that bank's agent for collection provided it is a bank, it is liable for any loss that the true owner of the cheque may sustain owing to the cheque having been so paid.20 If a cheque when it is presented for payment does not appear to be crossed or if the crossing has been obliterated or added to or altered otherwise than as authorised by the Act, the bank paying the cheque in good faith and without negligence does not incur any liability.21 1 34 of 1964. 2 S 75(1). 3 S 75A(1)(b). 4 S 75(2). See Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 392 fn 15 regarding the reference to \"and Company\". 5 S 76(1). 6 S 76(2). 7 S 76(3). 8 S 76(4). 9 S 76(5). 10 S 77. See Malan 393 fn 18; Mobeni Supersave v Suleman 1992 3 SA 660 (N). 11 S 99. 12 S 78(1); Eskom v First National Bank of Southern Africa Ltd 1995 2 SA 386 (A). 13 S 78(2). 14 S 78(3). 15 Discounting & Shipping Co (Pty) Ltd v Franskraalstrand (Pty) Ltd 1962 2 SA 559 (W) 562; Standard Bank v Sham Magazine Centre 1977 1 SA 484 (A) 504D; Eskom v First National Bank of Southern Africa Ltd supra 391G. 16 Eskom v First National Bank of Southern Africa Ltd supra 394397; Standard Bank of SA Ltd v Nair (Bissessur & another, Third Parties) 2001 1 SA 998 (D) 1005. 17 Eskom v First National Bank of Southern Africa Ltd supra. 18 Volkskas Bpk v Johnson 1979 4 SA 775 (C). 19 Volkskas Bpk v Johnson supra; Gering Handbook on the Law of Negotiable Instruments 275276. 20 S 78(4). 21 S 78(4) proviso. 3.2.5 Protection of the drawee bank and the drawer of a crossed cheque If the bank on which a crossed
cheque is drawn pays it in good faith and without negligence, in accordance with its crossing, it will be entitled to the same rights and be placed in the same position as if payment of the cheque had been made to the true owner thereof.1 The onus of proving, for the purposes of section 79 of the Bills of Exchange Act, that payment was made in good faith and without negligence lies on the drawee bank.2Section 79 applies also to crossed cheques that are nontransferable,3 i n c l u d i n g n o n t r a n s f e r a b l e c h e q u e s i n t e r m s o f s e c t i o n 7 5 A w h i c h a r e d e e m e d t o b e c r o s s e d generally, unless crossed specially.4 If the cheque has come into the hands of the payee the drawer will be similarly protected.5 The phrase \"has come into the hands of the payee\" means that the cheque has been delivered to the payee.6 1 Bills of Exchange Act 34 of 1964s 79; Eskom v First National Bank of Southern Africa Ltd 1995 2 SA 386 (A). For the position under the common law, see Leal & Co v Williams 1906 TS 554. 2 Eskom v First National Bank of Southern Africa Ltd supra 394; Volkskas Bank Bpk v Bonitas Medical Aid Fund 1993 3 SA 779 (A); APA Network Consultants v Absa Bank 1996 1 SA 1159 (W) 1165. 3 Eskom v First National Bank of Southern Africa Ltd supra 400; Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 423428. 4 S 75A(1)(b). 5 S 79; Malan 397. 6 Malan 398; Gering Handbook on the Law of Negotiable Instruments 284. 3.2.6 The effect of crossing with the addition of the words \"not negotiable\" A person who takes a cheque crossed \"not negotiable\" does not have and is not capable of giving a better title to that cheque than that which the person from whom he or she took it had.1 A person who takes such a cheque from the payee should know that the payee may not have title to it.2 Although a cheque crossed \"not negotiable\" may be negotiated, no transferee may become a holder in due course of the cheque. If a cheque crossed \"not negotiable\" was stolen or lost and was paid by the drawee bank under circumstances which would entitle it to protection under section 79 of the Bills of Exchange Act, the true owner may, if he or she has suffered any loss as a result of the theft or loss of the cheque, recover from any person who was a possessor3 of the cheque after the theft or loss and who either gave a consideration therefor or took it as a donee, an amount equal to the true owner's loss or the amount of the cheque, whichever is the lesser. 4 The giving of consideration includes the receiving of any such cheque in reduction or settlement of any debt or liability.5 The term \"true owner\" has not been defined6 but would seem to mean the person entitled to the possession of the cheque and to the rights embodied in it.7 As the expression is used in s 81, it bears a specialised meaning derived from the context of the legislation and its historical origins.8 The drawer of a cheque can be the true owner thereof and is entitled to the remedy provided by this section.9 Where a drawer of a cheque sends it through the post to the payee at the latter's request, the drawer is considered to have discharged his or her debt as soon as he deposits the cheque in the post,10 subject to the condition that the cheque is paid. A contract on a cheque is incomplete and revocable until delivery of the cheque and the section relating to cheques crossed \"not negotiable\" relates to cheques as such and not merely cheques which, having been delivered, evidence a complete and irrevocable contract.11 If a person has after the theft or loss of a cheque paid such cheque into his or her bank account after having paid the amount of the cheque or part thereof to the person from whom he received it, he or she is deemed to have been a possessor of the cheque and to have given consideration therefor. 12 T h e s e provisions do not apply to a collecting bank employing another bank as its agent for collection of such a cheque.13 A person who was in possession of a cheque after the theft or loss and does not furnish the true owner, at the owner's request, with any information at his or her disposal in connection with the cheque, is deemed to have been a possessor of the cheque and is deemed to have given consideration therefor or to have taken it as donee.14 Every possessor of any such cheque is, until the contrary is proved, deemed either to have given consideration for it or to have taken it as donee.15 A collecting bank of such a cheque is protected inasmuch as it is not regarded as giving a consideration therefor because it has in its own books credited its customer's account with the amount of the cheque before receiving payment thereof or because any such payment is applied towards the reduction or settlement of any debt owed by the customer to the bank.16 If such a bank exceeds its function as a collecting bank and becomes a transferee of the cheque by giving cash for it over the counter or by agreeing that the customer can draw against it at once, it loses its protection.17 A person who proves that when he or she became possessor of the cheque, it did not appear to be crossed or to have had a crossing which had been obliterated, and to bear on it the words \"not negotiable\", or to have borne on it any words which might have been the words \"not negotiable\" and had been obliterated, is exempted from liability provided he or she furnishes the true owner with any information at his or her disposal regarding the cheque.18 A person who discharged his or her liability under section 81(1) and who took the cheque in good faith and without notice of any defect in the transferor's title, has the rights conferred upon a true owner by section 81(1) against any prior possessor of the cheque, who became a possessor thereof after the theft or loss and either gave consideration or took as a donee.19 The provisions of the Act relating to the crossing of cheques apply to any document which (a) was issued on behalf of the state; (b) is drawn on or addressed to a servant of the state (hereafter called the drawee); and (c) is intended to enable any person to obtain payment on demand of the sum mentioned in the document from the drawee or from or through a bank, but such documents do not become negotiable instruments.20 The provisions of the Act relating to crossed cheques also apply to warrants for the payment of dividends, coupons for payment of interest and to postal and money orders.21 1 Bills of Exchange Act 34 of 1964s 80. 2 Universal Stores Ltd v OK Bazaars (1929) Ltd 1973 4 SA 747 (A) 760; cf Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 399. 3 See Van Hulsteyns Attorneys v Government of the Republic of SA [2002] 3 All SA 64 (SCA); 2002 2 SA 295 (SCA). 4 S 81(1). 5 S 81(8). 6 See Barclays National Bank Ltd v Wall 1983 1 SA 149 (A). 7 Malan 404; Cowen and Gering Law of Negotiable Instruments in SA (1996) 437; The Godfather v Commissioner for
Inland Revenue 1993 2 SA 426 (N) 430. 8 First National Bank of SA Ltd v Quality Tyres (1970) (Pty) Ltd 1995 3 SA 556 (A) 567568; ABSA Bank Bpk v Coetzee [1998] 1 All SA 1 (SCA) 3; Malan 403405; Gering Handbook on the Law of Negotiable Instruments 290292. 9 Dadoo & Sons Ltd v Administrator Tvl 1954 2 SA 442 (T) 445. 10 Dadoo & Sons Ltd v Administrator Tvl supra; Barclays National Bank Ltd v Wall supra 159; Mannesmann Demag (Pty) Ltd v Romatex Ltd 1988 4 SA 383 (D) 389. 11 SAR&H v Outfitters (Pty) L t d 1 9 5 2 4 S A 4 8 8 ( N ) 4 9 2 ; Standard Bank of SA Ltd v Minister of Bantu Education 1966 1 SA 229 (N) 233. 12 S 81(2). 13 S 81(2) proviso. See Van Hulsteyns Attorneys v Government of the Republic of SA supra. 14 S 81(3); Optimprops 1030 CC v First National Bank of Southern Africa Ltd [2001] 2 All SA 24 (D). 15 S 81(4). 16 S 81(5). 17 Gordon v Capital & Counties Bank 1903 AC 240 246. 18 S 81(6). 19 S 81(7)(a). 20 S 82. 21 S 99. 3.2.7 Unindorsed or irregularly indorsed instruments If a bank on which a cheque is drawn in good faith and in the ordinary course of business credits the account of its customer with or pays the amount of a cheque to another bank it does not incur any liability by reason only of the absence of or irregularity in indorsement thereof and the cheque will be discharged by such crediting or payment.1 This provision applies to certain other documents enumerated in the section2 such as drafts. It also applies to any document which was issued on behalf of the state, is drawn on or addressed to a servant of the state (hereafter called the drawee), and is intended to enable any person to obtain payment on demand of the sum mentioned in such document from the drawee or from or through a bank, as if that document were a cheque and the drawee were a bank and the state his or her customer.3 If a cheque, draft or other document referred to in section 83 of the Bills of Exchange Act which is payable to order is delivered by the holder thereof to a bank for collection and such document is not indorsed or irregularly indorsed by the holder, the bank will have such rights as it would have had if, upon such delivery, the holder had indorsed it in blank.4 Where a nontransferable cheque referred to in section 75A is delivered by the holder thereof to a bank for collection and the holder is indebted to the bank, the bank will be deemed to be the holder thereof taking the cheque in pledge for such indebtedness with the same rights and subject to the same liabilities as the holder had.5 If an unindorsed or irregularly indorsed cheque, draft or other document referred to in section 83 has been paid by t h e b a n k o n w h i c h i t i s d r a w n , s u c h p a y m e n t i s prima facie e v i d e n c e o f t h e r e c e i p t b y t h e p a y e e o f t h e s u m mentioned in such cheque, draft or document.6 1 Bills of Exchange Act 34 of 1964s 83(1); Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 410412; Gering Handbook on the Law of Negotiable Instruments 302. 2 S 83(1)(b)(c). 3 S 83(2). 4 S 84(1). S e e Trust Bank van Afrika Bpk v Bendor Properties Ltd 1977 2 SA 632 ( T ) 6 3 4 ; Nedbank Ltd v Aldick 1981 3 SA 1007 (D) 1013; Bloems Timber Kilns (Pty) L t d v V o l k s k a s B p k 1976 4 SA 677 (A); Malan 412414. See the criticism of First National Bank of SA Ltd v Richards Bay Taxi Centre (Pty) Ltd 1999 2 All SA 533 (N) in Malan 414 fn 137. 5 S 84(2); Malan 414415. 6 S 85. 3.3 Transmission of funds 3.3.1 Transmission of funds Apart from negotiable instruments, postal and money orders, funds may be transmitted by drafts, letters of credit, telegraphic transfers and travellers' cheques. 3.3.2 Bank cheques and bank drafts A bank cheque is a document in the form of a cheque drawn by a bank on itself, whether at the same branch or another branch.1 Such an instrument is not a cheque, not being drawn by one person on another person as the definition requires, but in terms of section 3(2) of the Bills of Exchange Act2 t h e holder of the instrument could treat it, at his or her option, either as a bill of exchange or a promissory note.3 Branches of a bank are not separate legal entities.4 However, section 71(2) now provides that notwithstanding the provisions of section 3(2), the provisions of the Act applicable to a cheque apply to a bill drawn by a bank on itself and payable on demand, and the option given by section 3(2) no longer applies to bank cheques.5 A bank draft is a draft drawn by one bank on another bank;6 in contrast to a bank cheque it qualifies as a cheque.7 1 Cowen and Gering Law of Negotiable Instruments in SA (1985) 220; Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 50 316. 2 34 of 1964. 3 Orlando Fine Foods (Pty) Ltd v Sun International (Bophuthatswana) Ltd 1994 2 SA 249 (B); Powell v Absa Bank Ltd [1997] 4 All SA 231 (SE) 234. 4 Estate Kootcher v Commissioner for Inland Revenue 1941 AD 256 260; Union Government v Vianini FerroConcrete Pipes (Pty) Ltd 1941 AD 43 52; Netherlands Bank of SA v Stern 1955 1 SA 667 ( W ) ; Rosen v Barclays National Bank 1984 3 SA 974 (W) 978; Firstrand Bank Ltd (formerly First National Bank of SA Ltd) v ABSA Bank Ltd [2001] 1 All SA 92 (W); 2001 1 SA 803 (W); Malan 50; Gering Handbook on the Law of Negotiable Instruments 103. 5 Malan 302 316. 6 Cowen and Gering 232. 7 Ibid. 3.3.3 Telegraphic or cable transfers Funds can be transmitted by banks by means of telegraph or cable. The person wishing to send funds in this manner completes a form which usually includes a clause in terms of which he or she agrees that the bank will not be liable for errors or delays in transmission.1 The advantage of this mode of
transmitting funds is the saving of time in transit.2 1 Cowen and Gering Law of Negotiable Instruments in SA (1985) 281. 2 Ibid. 3.3.4 Stop orders and debit orders Customers who have to make recurrent and periodic payments such as instalments due under a hirepurchase agreement or insurance premiums, frequently make use of stop orders or debit orders authorising their bankers to debit their accounts with the required amounts at the required times for the credit of a specified person. Stop orders are used to effect payment of a fixed amount, whereas debit orders also allow for the payment of fluctuating amounts.1 T h i s s e r v i c e b y b a n k e r s s a v e s t h e i r c u s t o m e r s t h e inconvenience which might result from forgetting to make the required payment on due date. 1 Schulze (1992) 4 SA Merc LJ 53 54 56; Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 332333; Fourie The Banker and the Law 6. 3.3.5 Credit cards Various facilities are offered by banks to holders of credit cards1 but in summary there are three agreements in the case of a tripartite credit card scheme.2 Firstly, the card issuer (often a bank) agrees with the cardholder to issue to the holder a card on certain stated conditions. Armed with a credit card the holder is able to purchase goods or obtain services from suppliers appointed by the card issuer. Secondly, the card issuer enters into an agreement with different suppliers in terms of which the supplier will sell goods or render services to the cardholder. Thirdly, there is an agreement between the cardholder and the supplier for the purchase of goods from or the rendering of services by him or her. The card may be used only by the holder who, in addition to signing the card, must usually sign a sales voucher on each occasion the card is used, although a credit card may also be used to make payment over the internet.3 The cardholder may also use the card to withdraw cash. The card issuer will pay the supplier concerned after deducting a commission and despatch at monthly intervals a statement of account to the cardholder. A further facility available to a cardholder is the financing of certain purchases. In essence the cardholder is accorded credit facilities which enable him or her to purchase articles at specified suppliers at normal retail prices. The bank pays the supplier the retail price less a discount and agrees with the cardholder that he or she may repay the debt to the bank in stated monthly instalments. The bank is entitled, in terms of its agreement with the cardholder, to cancel the card at any time on notice to the holder. A charge card scheme \"is usually seen as a credit card scheme in terms of which the card holder must settle his debt in one amount within a certain time limit\",4 and in the case of a debit card scheme the cardholder's account is debited immediately with the relevant amount, provided funds are available. 1 See generally Otto 1997 TSAR 216; Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 330332; Cowen and Gering Law of Negotiable Instruments in SA (1985) 265270; Western Bank Ltd v Registrar of Financial Institutions 1975 4 SA 37 (T); Usury Act 73 of 1968 s 1 sv \"credit card scheme\"; Diners Club SA (Pty) Ltd v Thorburn 1990 2 SA 870 (C); Diners Club SA (Pty) Ltd v Livingstone 1995 4 SA 493 (W); Re Charge Card Services [1988] 3 All ER 702 (CA). 2 On a two party or bipartite credit card scheme see Otto 217218. 3 See Lawack (1998) 10 SA Merc LJ 233235. 4 Otto 217. 3.3.6 Travellers' cheques Travellers' cheques may assume several different forms. The amount of the traveller's cheque is prominently printed on the face thereof and blank spaces are left for the insertion of the date when payment is made and for the signature of the traveller under a notice reading \"Countersign here in the presence of the person cashing\" or other words of similar import. The traveller will already have signed the travellers' cheques in the presence of the issuing institution when he or she purchased the cheques. A measure of safety is ensured in that the double signature of the traveller is required, the first being placed on the instrument in the presence of the issuing institution and the second in the presence of the person cashing the cheque who will satisfy him or herself that the two signatures correspond.1 In the USA the Supreme Court of Appeals of the district of Columbia decided that travellers' cheques were negotiable instruments.2 A traveller's cheque with the order \"When countersigned below with this signature . . . Pay this cheque to the order of . . . \" is not a bill of exchange, as the order is conditional.3 A countersignature does not cure the defect.4 1 See Cowen and Gering Law of Negotiable Instruments in SA (1985) 295313; Malan Bills of Exchange, Cheques and Promissory Notes in SA Law 1011 4647; S v Katsikaris 1980 3 SA 580 (A). 2 See Emerson v American Express Co 1952 90 Atlantic Report 2d series 236. 3 S v Katsikaris supra; Bills of Exchange Act 34 of 1964s 2(1). 4 S 9(2). 3.4 National payment system 3.4.1 Introduction The National Payment System Act1 provides for the management, administration, operation, regulation and supervision of the payment, clearing and settlement systems in South Africa. It regulates the activities of participants within three distinct areas the payments system, which enables payments to be effected b e t w e e n a p a y e r a n d a b e n e f i c i a r y , 2 the clearing system, which involves the exchange of payment instructions,3 and the settlement system, which is a system established and operated by the South African Reserve Bank for the d i s c h a r g e o f p a y m e n t a n d s e t t l e m e n t o b l i g a t i o n s b e t w e e n s y s t e m p a r t i c i p a n t s .4 A \" s y s t e m p a r t i c i p a n t \" i s a \"member of a payment system management body\".5 A \"payment obligation\" connotes \"an indebtedness that is owed by one system participant to another as a result of the clearing of one or more payment instructions\"6 and a \"settlement obligation\" is defined as \"an indebtedness that is owed by one system participant to another as a result of one or more settlement instructions\".7 Settlement and payment obligations between system participants are settled by means of \"settlement instructions\" given by either the system participant or the clearing house.8 1 78 of 1998. 2 S 1(xii). 3 S 1(vi).
4 S 1(xviii). 5 S 1(xxi). 6 S 1(xi). 7 S 1(xvi). 8 S 1(xvi). 3.4.2 Power and duties of the Reserve Bank The South African Reserve Bank is entrusted with the powers and duties conferred and imposed by the National Payment System Act.1 The board of directors of the Reserve Bank is empowered to delegate to any officer of the bank any power conferred on the bank, and to authorise any such officer to perform any duty imposed on the bank.2 1 78 of 1998s 2. 2 S 2(2). 3.4.3 Payment system management body The Reserve Bank is empowered to recognise a payment system management body. The objective of this body is to organise, manage and regulate the participation of its members in the payment system.1 The bank in recognising such a body must be satisfied that: (a) it fairly represents the interests of all banks, mutual banks, and branches of foreign institutions participating in the system; (b) the deed of establishment or constitution and the rules of the body are fair and equitable; and (c) it will be able to oversee the affairs of the payment system management body and its members adequately in the discharge of its responsibilities in terms of the South African Reserve Bank Act.2 Only the Reserve Bank, a bank, mutual bank or branch of a foreign institution that complies with the entrance and other requirements laid down in the rules of a payment system management body may be members of the payment system management body.3 No body, member of that body or any other person may participate in the settlement system unless, in the case of that body, the body is recognised by the Reserve Bank as a payment system management body, or the person is a member of the payment system body.4 1 National Payment System Act 78 of 1998s 3(1). 2 90 of 1989: National Payment System Act 78 of 1998s 3(2). 3 S 3(3). 4 S 3(4). 3.4.4 Objects and rules of payment system management body The objects of the payment system management body are to manage and control all matters affecting payment obligations and in connection with these objects to: (a) provide a forum for the consideration of policy matters and mutual interest of its members; (b) liaise with government, the Reserve Bank, the Registrar of Banks, the Registrar of Financial Institutions, financial institutions, the general public and other private associations and institutions; and (c) deal with and promote matters of interest to its members and foster cooperation between them.1 The rules of the payment system management body, must, inter alia, empower it to admit members and to regulate control, and terminate membership and to determine criteria subject to which a person is to be authorised to act as a system operator to provide services to members of the payment system management body or to act on behalf of those members.2 1 National Payment System Act 78 of 1998s 4(1). 2 S 4(2). 3.4.5 Settlement provisions The discharge of settlement obligations between system participants must be effected in money or by means of entries passed through the settlement system.1 Such settlement is a final and irrevocable settlement that cannot be reversed or set a side.2 The Reserve Bank may, in consultation with the payment system management body, prescribe by notice in the Government Gazette s u c h c o n d i t i o n s , r u l e s a n d p r o c e d u r e s a s i t c o n s i d e r s n e c e s s a r y r e g a r d i n g t h e i s s u e o f settlement instructions and discharge of settlement obligations.3 1 National Payment System Act 78 of 1998s 5(2). 2 S 5(3)(4). 3 S 5(7). 3.4.6 Windingup When a system participant is woundup a copy of the application for windingup as well as the s u b s e q u e n t w i n d i n g u p o r d e r m u s t b e l o d g e d w i t h t h e R e s e r v e B a n k .1 A w i n d i n g u p o r d e r d o e s n o t , d e s p i t e sections 341(2) and 348 of the Companies Act,2 affect any settlement that has become final and irrevocable prior to lodging a copy of that order with the bank.3 1 National Payment System Act 78 of 1998 s 5(5). 2 61 of 1973. 3 National Payment System Act 78 of 1998 s 5(6). 3.4.7 Clearing Only a system participant may clear payment instructions.1 1 National Payment System Act 78 of 1998s 6. \"Payment instruction\" means an \"instruction to a system participant to transfer funds or make a payment\": s 1.
3.4.8 Payment intermediation The National Payment System Act1 also regulates payment intermediation by prohibiting a person from accepting instructions from any other person as a regular feature of his or her business for the purpose of making payment on behalf of that person to third persons to whom that payment is due.2 Contravention of the provision carries a maximum penalty of one million rand, or imprisonment not exceeding five years, or both.3 System participants, a person introduced by a system participant in accordance with the criteria set out in section 4(2)(d), and a postal company as defined in the Post Office Act,4 or the Post Office Savings Bank, are exempt from this prohibition. The prohibition does not apply to the acceptance of money or payment instructions by an agent of the person to whom the money is due, or within a holding company subsidiary relationship, or for the purpose of effecting a money lending transaction by an agent or a mandatory as defined in the \"business of a bank\" in section 1 of the Banks Act.5 The Minister of Finance may, in addition, exempt any person or category of person from this prohibition if satisfied that such exemption will be in the public interest and not expose the payment system to undue risk.6 1 78 of 1998. 2 S 7(2). 3 S 14(a). 4 44 of 1958; see now the Postal Services Act 124 of 1998. 5 94 of 1990: National Payment System Act 78 of 1998 s 7(3). 6 S 7(4). 3.4.9 Netting Netting means the determination of the nett payment obligations between two or more system participants within a payment clearinghouse or the determination of the nett settlement obligations between two or more system participants within the payment system.1 A liquidator, judicial manager and curator who has been appointed to a system participant is bound by a netting agreement or netting rules applicable to system participants within the settlement system where the payment or settlement obligation has been determined prior to the issue of a final windingup order. 2 These provisions apply despite anything to the contrary in the law relating to insolvency or in the Banks Act3 or the Mutual Banks Act.4 1 National Payment System Act 78 of 1998 s 1(viii). 2 S 8(2). 3 94 of 1990. 4 124 of 1993. 13.4.10 Assets provided as security System participants are required either to prefund their settlement obligations or to provide adequate security for such settlement. Despite anything to the contrary in the law relating to insolvency, any asset given as security prior to the date of any order for the windingup of a system participant can be utilised by either the clearing house or the Reserve Bank for the system participant's payment or settlement obligations.1 1 National Payment System Act 78 of 1998s 9. 13.4.11 Access to Information The Reserve Bank has access to any information pertaining to the volumes or values of payment and settlement instructions or obligations within the payment system, and system participants must on request provide such information to the Reserve Bank.1 Such information is confidential and may not be disclosed to any person, other than an officer of the Reserve Bank who requires that information for the execution of his or her statutory duties. The Reserve Bank may disclose this (and any other information) where such d i s c l o s u r e i s n e c e s s a r y t o p r o t e c t t h e i n t e g r i t y , e f f e c t i v e n e s s o r s e c u r i t y o f t h e p a y m e n t s y s t e m . 2 D i s c l o s u r e otherwise than in accordance with the National Payment System Act constitutes an offence.3 1 National Payment System Act 78 of 1998s 10(1). 2 S 10(2) (3). 3 S 10(4). 13.4.12 Settlement of disputes Where a system participant is aggrieved by a decision taken by the Reserve Bank, the matter will be deemed to be a dispute which must be settled through a process of consensual settlement or mediation, or, as a last resort, arbitration.1 1 National Payment System Act 78 of 1998s 11. 13.4.13 Directives issued by the Reserve Bank The Reserve Bank is empowered, if reasonable grounds exist, to issue directives to any person who is engaging in or is about to engage in any act, or course of conduct relating to the payment system that results or is likely to result in systemic risk,1 or will be contrary to the public interest, to refrain from such conduct or to perform such acts as are necessary to remedy the situation, or to provide the Reserve Bank with such information or documents relating to the matter, as specified in the directive. 2 \"Systemic risk\" is defined as the \"risk that the failure of one or more system participants, for whatever reason, to meet their payment obligations within the payment system or their settlement obligations within the settlement system, may result in any or all of the other system participants being unable to meet their respective payment or settlement obligations\". Failure to comply with a directive constitutes an offence and the Reserve Bank is empowered to apply to the High Court directing the person concerned to comply with a directive it has issued.3 1 National Payment System Act 78 of 1998s 12(1). 2 S 12(2). 3 S 12(3)(4). 13.4.14 Recordkeeping The Reserve Bank and system participants are obliged to retain their records relating to the settlement system for a period of five years. These records may be retained by way of computer entries.1 1 National Payment System Act 78 of 1998s 13.
1 3 . 4 . 1 5 R e v i e w o f t h e A c t T h e R e s e r v e B a n k i s o b l i g e d , w i t h t h e c o o p e r a t i o n o f t h e p a y m e n t s y s t e m management body, to establish a standing committee to review the National Payment System Act 1 periodically and to make recommendations to the Minister of Finance with regard to amendments which in its view have become desirable owing to changed circumstances, or the administration of the Act has shown to be advisable.2 1 78 of 1998. 2 S 15. 13.4.16 Offences and penalties The National Payment System Act1 makes provision for the following offences: (a) the clearing of payment instructions by a person who is not a system participant;2 (b) accepting money or payment instructions from any other person for the purposes of making payment on behalf of that other person to a third person as a regular feature of that person's business other than in the circumstances set out in the Act;3 (c) failing, refusing or neglecting to comply with a directive issued by the Reserve Bank;4 and (d) disclosing information relating to the volumes of values of payment and settlement instructions or obligations other than in accordance with the Act.5 The penalty for conviction of one of the offences set out in paragraphs (a), (b) and (c) above is a fine not exceeding one million rand or imprisonment for a period not exceeding five years or both.6 A person who is convicted for disclosing information other than in accordance with the Act will be liable to a fine not exceeding one thousand rand or to imprisonment for a period not exceeding six months or to both.7 1 78 of 1998. 2 S 6(2). 3 S 7(2). 4 S 12(3). 5 S 10(4). 6 S 14(a). 7 S 14(b). 3.5 Documentary credits 3.5.1 Introduction A documentary credit (also termed a \"documentary letter of credit\", \"commercial letter of credit\", \"commercial credit\", \"bankers' commercial credit\", \"letter of credit\" or simply a \"credit\"1 is \"essentially an independent undertaking by a bank, acting as mandatory of its customer (for example a local buyer), to pay the beneficiary (for example a foreign seller) a stipulated sum of money against the presentation of stipulated documents (for example the bills of lading, commercial invoices and insurance documents).\"2 The object of letters of credit is to facilitate dealings between merchants in different countries3 by ensuring payment to the seller on the one hand and delivery to the buyer of the contract goods on the other. 4 A letter of credit comes into being as the result of a formal written application by the applicant.5 There are usually four parties concerned in the transactions involved in the issuing and payment of credits, namely the applicant (usually the buyer/importer), the issuing bank, the advising or notifying bank (which may bind itself as confirming bank) and the beneficiary (usually the seller/exporter).6 A body of rules called the Uniform Customs and Practice for Documentary Credits (\"the UCP\") was first published by the International Chamber of Commerce (ICC) in 1933. Revised versions were issued in 1951, 1962, 1974 and 1983. The current revision was adopted and published in 1993, and came into effect on 1 January 1994.7 I n international trade almost all documentary credits are expressed to be subject to the UCP. 8 A documentary credit9 is defined by the UCP as any arrangement, however named or described, whereby a bank (the \"issuing bank\") acting at the request and on the instructions of a customer (the \"applicant\") or on its own behalf: (a) is to make a payment to or to the order of a third party (the \"beneficiary\"), or is to accept and pay bills of exchange (or drafts)10 drawn by the beneficiary; or (b) authorises another bank to effect such payment, or to accept and pay such bills of exchange; or (c) authorises another bank to negotiate, against stipulated documents, provided that the terms and conditions of the credit are complied with.11 In terms of this definition a credit may take one of three forms: it may entitle the beneficiary to collect payment on presentation of documents (sight payment credit), to present with the documents a draft for acceptance and payment at maturity (acceptance credit), or to negotiate a draft and documents to an authorised bank, which then becomes the beneficiary (negotiation credit).12 All credits must clearly indicate whether they are available by sight payment, by deferred payment, by acceptance or by negotiation.13 In documentary credit operations, all parties concerned deal with documents, and not with goods, services or other performances to which the documents may relate.14 Credits by their nature are separate transactions from the sales or other contracts on which they may be based.15 The banks are in no way concerned with or bound by such contracts even if a reference to such contracts is included in the credit.16 A beneficiary cannot avail him or herself of the contractual relationships existing between the banks or between the applicant and the issuing bank.17 1 See Hugo The Law Relating to Documentary Credits from a South African Perspective with Special Reference to the Legal Position of Issuing and Confirming Banks (1997) 1012. 2 Hugo (2000) 117 SALJ 224. See generally Oelofse The Law of Documentary Letters of Credit in Comparative Perspective (1997); Hugo The Law Relating to Documentary Credits from a South African Perspective with Special Reference to the Legal Position of Issuing and Confirming Banks; Van Niekerk and Schulze The South African Law of International Trade:
Selected Topics (2000) 210257; Jack, Malek and Quest Documentary Credits 3 ed (2001); Goode Commercial Law 2 ed (1995) 9621023. 3 Although documentary credits are increasingly used in domestic transactions: Van Niekerk and Schulze 211. 4 Gutteridge and Megrah Bankers' Commercial Credits 7 ed (1984) 1. For a description of the operation of letters of credit see Guaranty Trust Co of New York v Hannay & Co 1918 2 KB 623 659660. 5 For an example of the form used see Van Niekerk and Schulze 337340; Oelofse 613616. 6 Van Niekerk and Schulze 212 215216; Oelofse 2324. For an explanation of the terms \"opening bank\", \"presenting bank\", \"collecting bank\" and \"paying or nominated bank\" see Van Niekerk and Schulze 213214 215216; Oelofse 2426; Hugo 1216. 7 The 1993 revision was published as ICC Publication No 500 and thus called the \"UCP 500\"; references herein are references to the 1993 revision as contained in that publication. 8 Van der Merwe and Schulze 218 219; Goode 962; Paget Law of Banking 11 ed (1996) 653; Cowen and Gering Law of Negotiable Instruments in SA 5 ed (1985) 275. 9 The word \"credit\" is used in the UCP as an abbreviation for \"documentary credit\": UCP art 2. 10 Chalmers and Guest Bills of Exchange, Cheques and Promissory Notes 15 ed (1998) 19; Cowen and Gering Law of Negotiable Instruments in SA 4 ed (1966) 35 fn 1. 11 Art 2. 12 Goode 965 13 Art 10(a). 14 Art 4; Goode 991; Paget 657. 15 Art 3(a). 16 Ibid. 17 Art 3(b). Branches of a bank in different countries are considered another bank: art 2; Goode 1004. 3.5.2 Completeness and precision Instructions for the issue of a credit, the credit itself, instructions to amend a credit, and the amendment itself, must be complete and precise. 1 All instructions for the issuance of a credit, the credit itself, and (where applicable) all instructions for an amendment thereto, and the amendment itself, must state p r e c i s e l y t h e d o c u m e n t s a g a i n s t w h i c h p a y m e n t , a c c e p t a n c e o r n e g o t i a t i o n i s t o b e m a d e .2 I n o r d e r t o g u a r d against confusion and misunderstanding, banks should discourage attempts to include excessive detail in a credit or any amendment thereto,3 or to give instructions to issue, advise or confirm a credit by reference to a credit previously issued where such previous credit has been subject to amendments (whether accepted or unaccepted).4 As a credit may be either revocable or irrevocable,5 the credit should clearly state whether it is revocable or irrevocable.6 In the absence of such indication, the credit is deemed to be irrevocable.7 1 UCP art 5(a). 2 Art 5(b). 3 Art 5(a)(i). 4 Art 5(a)(ii). 5 Art 6(a). 6 Art 6(b). 7 Art 6(c). 3.5.3 Incomplete or unclear instructions If incomplete or unclear instructions are received to advise, confirm or amend a credit, the bank requested to act on these instructions may give preliminary notification to the beneficiary for information only and without responsibility. This notification should state clearly that it is provided only for information and without the responsibility of the advising bank. The advising bank must inform the issuing bank of the action taken and request it to provide the necessary information. The issuing bank must provide the necessary information without delay. The credit will be advised, confirmed or amended only when complete and clear instructions have been received and if the advising bank is then prepared to act on the instructions.1 1 UCP art 12. 3.5.4 Kinds of credits All credits must clearly indicate whether they are available by sight payment, by deferred payment, by acceptance or by negotiation.1 Unless the credit stipulates that it is available only with the issuing bank, all credits must nominate the bank (the \"nominated bank\") which is authorised to pay, to incur a deferred payment undertaking, to accept bills of exchange or to negotiate.2 In a freely negotiable credit, any bank is a nominated bank.3 Presentation of documents must be made to the issuing or confirming bank, if any, or any other nominated bank.4 Negotiation means the giving of value for documents by the bank authorised to negotiate.5 Mere examination of the documents without giving of value does not constitute a negotiation.6 Unless the nominated bank is the confirming bank, nomination by the issuing bank does not constitute an undertaking by the nominated b a n k t o p a y , t o i n c u r a d e f e r r e d p a y m e n t u n d e r t a k i n g , t o a c c e p t b i l l s , o r t o n e g o t i a t e . 7 E x c e p t w h e r e e x p r e s s l y agreed to by the nominated bank and so communicated to the beneficiary, the nominated bank's receipt or examination or forwarding of documents does not make that bank liable to pay, to incur a deferred payment undertaking, to accept bills, or to negotiate.8 By nominating another bank, or by allowing negotiation by any bank, or by authorising or requesting another bank to add its confirmation, the issuing bank authorises such bank to pay, accept bills, or negotiate, against documents which appear on their face to be in compliance with the terms and conditions of the credit, and undertakes to reimburse such bank in accordance with the provisions of the UCP.9 1 UCP art 10(a). 2 Art 10(b)(i). 3 Ibid. 4 Ibid. 5 Art 10(b)(ii). 6 Ibid. 7 Art 10(c). 8 Ibid. 9 Art 10(d). 3.5.5 Revocable documentary credits Credits may be either revocable or irrevocable.1 All credits should clearly
indicate whether they are revocable or irrevocable.2 If there is no such indication, the credit is deemed to be irrevocable.3 A revocable credit does not constitute a legally binding undertaking between the bank concerned and the beneficiary because such a credit may be modified or cancelled without notice to the beneficiary. 4 However, the issuing bank must reimburse another bank with which a revocable credit has been made available for sight payment, acceptance or negotiation where, prior to receipt by it of notification of amendment or cancellation, that bank has made payment, acceptance or negotiation against documents which appear on their face to be in compliance with the terms and conditions of the credit. The issuing bank must also reimburse another bank with which a revocable credit has been made available for deferred payment, if such a bank has, prior to receipt by it of notice of amendment or cancellation, taken up documents which appear on their face to be in compliance with the terms and conditions of the credit.5 Since revocable credits may be cancelled or amended at any time without notice to the beneficiary, they are little used at the present time.6 1 UCP art 6(a). See Total South Africa (Pty) Ltd v Nedcor Bank Ltd [1997] 3 All SA 562 (W); Rosen v Ekon [2000] 3 All SA 24 (W), 2001 1 SA 199 (W). 2 Art 6(b). 3 Art 6(c); Goode Commercial Law 971. 4 Art 8(a). 5 Art 8(b). 6 Paget Law of Banking 657; Goode 969. 3.5.6 Irrevocable documentary credits The system of irrevocable documentary credits is widely used for international trade both in the Republic and abroad. Its essential feature is the establishment of a contractual obligation on the part of a bank to pay the beneficiary under the credit (the seller) which is wholly independent of the underlying contract of sale between the buyer and the seller and which assures the seller of payment of the purchase price before he or she parts with the goods forming the subject matter of the sale. The unique value of a documentary credit is that whatever disputes may subsequently arise between the issuing bank's customer (the buyer) and the beneficiary under the credit (the seller) in relation to the performance or even the existence of the underlying contract, by issuing or confirming the credit, the bank undertakes to pay the beneficiary provided only that the conditions specified in the credit are met. The liability of the bank to the beneficiary to honour the credit arises upon presentment to the bank of the documents specified in the credit, including typically a set of bills of lading, which on their face conform strictly to the requirements of the credit. In the event of the documents specified i n t h e c r e d i t b e i n g s o p r e s e n t e d , t h e b a n k w i l l e s c a p e l i a b i l i t y o n l y u p o n p r o o f o f f r a u d b y t h e b e n e f i c i a r y . 1 T h e autonomous nature of the obligation owed by the bank has been stressed by courts in South Africa and overseas.2 An interdict restraining a bank from paying in terms of a credit will not be granted save in the most exceptional circumstances.3 It is however well established that a court will grant an interdict restraining a bank from paying a beneficiary in the event of it being established that the beneficiary was a party to fraud in relation to the documents p r e s e n t e d t o t h e b a n k f o r p a y m e n t .4 T h e f r a u d o f t h e b e n e f i c i a r y m u s t b e c l e a r l y e s t a b l i s h e d .5 M e r e e r r o r , misunderstanding or oversight, however unreasonable, cannot amount to fraud.6 1 Loomcraft Fabrics CC v Nedbank Ltd 1996 1 SA 812 (A) 815. See also Union Carriage & Wagon Co Ltd v Nedbank Ltd 1996 CLR 724 (W); Vereins und Westbank AG v Veren Investments 2000 4 SA 238 (W); Vereinsund Westbank v Veren Investments 2002 4 SA 421 (SCA) (though dealing mainly with what constitutes payment). 2 Loomcraft Fabrics CC v Nedbank Ltd supra 816C; Phillips v Standard Bank of SA Ltd 1985 3 SA 301 (W); Ex parte Sapan Trading (Pty) Ltd 1995 1 SA 218 (W); Vereins und Westbank AG v Veren Investments 2000 4 SA 238 (W). 3 Loomcraft Fabrics CC v Nedbank Ltd supra 816D. 4 Loomcraft Fabrics CC v Nedbank Ltd supra 817E. 5 Loomcraft Fabrics CC v Nedbank Ltd supra 817G. 6 Loomcraft Fabrics CC v Nedbank Ltd supra 822H; R v Myers 1948 1 SA 375 (A) 383. 3.5.7 Liability of advising bank A credit may be advised to a beneficiary through another bank (the \"advising bank\") without engagement on the part of the advising bank. If however it elects to advise the credit, it must take reasonable care to check the credit's apparent authenticity. If it elects not to advise the credit, it must inform the i s s u i n g b a n k w i t h o u t d e l a y . 1 I f t h e a d v i s i n g b a n k c a n n o t e s t a b l i s h s u c h a p p a r e n t a u t h e n t i c i t y i t m u s t , w i t h o u t delay, inform the bank from which the instructions appear to have been received. If it elects nonetheless to advise the credit, it must inform the beneficiary that it has not been able to establish the credit's authenticity.2 1 UCP art 7(a). 2 Art 7(b). 3.5.8 Liability of issuing and confirming banks An irrevocable credit constitutes a definite undertaking of the issuing bank, provided that the stipulated documents are presented to the nominated bank or to the issuing bank and that the terms and conditions of the credit are complied with.1 A confirmation of an irrevocable credit by another bank (the \"confirming bank\") on the authorisation or request of the issuing bank, constitutes a definite undertaking of the confirming bank in addition to that of the issuing bank provided that the stipulated documents are presented to the confirming bank or any other nominated bank and that the terms and conditions of the credit are complied with.2 If the credit provides for sight payment, the undertaking is to pay at sight.3 If the credit provides for deferred payment, the undertaking is to pay on the maturity dates determinable in accordance with the stipulations of the credit.4 If the credit provides for acceptance by the issuing bank (or the confirming bank), the undertaking is to accept drafts drawn by the beneficiary on the issuing bank (or the confirming bank) and to pay them at maturity.5 If the credit provides for acceptance by another drawee bank, and the drawee bank stipulated in the credit does not accept, the undertaking is to accept and pay at maturity drafts drawn by the beneficiary on the issuing bank (or the confirming bank).6 If the drafts have been accepted by the drawee bank but not paid by it at maturity, the undertaking is to pay the bill. 7 If the credit provides for negotiation, the undertaking is for the issuing bank to pay without recourse, and the confirming bank to negotiate without recourse, to drawers or bona fide holders, drafts drawn by the beneficiary or documents presented under the credit.8 If another bank is authorised or requested by the issuing bank to add its confirmation to a credit but is not prepared to do so, it must inform the issuing bank without delay. 9 Unless the issuing bank specifies otherwise in its
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