Legislation News South Africa

Comment submissions on Financial Markets Act due end-August

Comments on the third draft of ministerial regulations to the Financial Markets Act (FMA) Regulations (Regulations) must be submitted by 31 August 2016. Comments on the draft criteria for authorisation as an Over-the-Counter (OTC) derivative provider (Criteria) and a draft code of conduct for authorized OTC derivative providers (Code) are due at the same time.
Comment submissions on Financial Markets Act due end-August
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The requirements and duties for trade repositories (TR Requirements), setting out the criteria for authorisation as a trade repository as well as the ongoing obligations proposed to be imposed on licensed trade repositories, were also published alongside the Regulations, the Criteria and the Code.

According to Kirsten Kern, partner in Bowman Gilfillan Africa Group's Banking & Financial Services Regulatory practice, "The Regulations, the Criteria and the Code are aimed at supporting the objectives of the FMA and at ensuring that South Africa meets its international commitments to making regulatory and legislative reforms to the OTC derivatives market in alignment with international standards. In its explanatory memorandum, Treasury explains that the implementation of the reforms to the OTC derivatives market is likely to continue beyond 2018."

Langelihle Mnyandu, associate in the Banking & Financial Services Regulatory practice, explains that the Regulations have been compiled following the latest comments from the public and stakeholders, and are aimed at extending the scope of regulatory oversight to the OTC derivatives market and its participants, among other things.

Mnyandu notes that the Regulations confirm that a person who, as a regular feature of business and transacting as principal, originates, issues, sells or makes a market in an OTC derivative is to be designated as an OTC derivative provider (ODP), and so as a ‘regulated person’ for the purposes of the FMA.

"In order to be authorised as an ODP, comprehensive requirements will need to be met, as outlined in the Criteria. The applicant will need to be financially sound in terms of prescribed fit and proper requirements, and the competency of the applicant’s directors and senior managers to discharge the applicant’s duties and functions will need to be demonstrated. Operational ability will also need to be proven.

Kern explains, "For these reasons and others, the regulation of OTC derivatives under the FMA heralds a new era in South African financial services regulation. Once finalised, the Regulations will impact parties, including foreign parties, seeking to enter into principal-to-principal OTC derivatives trades with South African counterparties (noting, in the case of foreign parties, that deference to foreign regulators may take place in certain instances).

"Apart from the initial authorization requirement, ODPs, once authorised, will also be faced with a host of ongoing compliance obligations imposed under the Code. The current draft of the Code intends to impose on ODPs the duty to (amongst others) ensure that adequate levels of financial and operational resources are maintained in order to minimise potential losses to clients and other financial market participants. The ODPs will also have to enter into written agreements governing trading relationships with clients or counterparties; and ensure the timely confirmation of non-centrally cleared OTC derivatives transactions after execution," Kern adds.

It is anticipated that ODP authorisation will begin six months after the coming into force of the Regulations.

To access the abovementioned documents, click here.

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