South Africa's regulators are preparing sweeping changes to the country’s over-the-counter (OTC) derivatives market in a bid to reduce systemic risk and tighten oversight of non-bank providers.
The Financial Sector Conduct Authority (FSCA) said new capital and clearing requirements could be implemented within the next three years.
Central Clearing on the Horizon
FSCA Commissioner Unathi Kamlana said the regulator plans to require certain OTC products to be cleared through a central counterparty. The move, he noted, is aimed at improving transparency and preventing hidden exposures in a market with an outstanding balance of 44.7 trillion rand ($2.6 trillion).
The products under consideration include interest-rate and foreign-exchange swaps, repurchase agreements, and forwards. “That work is on the way, and it’s going to be consulted on by the industry,” Kamlana said.
The reforms also target non-bank OTC derivatives providers, which will face tougher capital requirements under the new framework. Regulators want to align their treatment with that of banks and reduce incentives for riskier trades to shift outside the banking sector.
The proposals follow a wave of global reviews aimed at preventing destabilising counterparty failures. South Africa began its own process seven years ago, with the FSCA now moving to close gaps identified in earlier studies.
Infrastructure Already in Place
South Africa has reportedly already licensed one central counterparty, JSE Clear, operated by JSE Ltd., and appointed Strate as a transaction repository. Both are expected to play a central role in the new framework, which will strengthen regulators’ ability to monitor systemic risks.
Industry consultation on the proposals is expected to begin soon, with market participants facing a more stringent prudential environment once the rules come into force.
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Meanwhile, South Africa’s financial regulator recently cautioned the public about a fraudulent investment scheme that is using the Johannesburg Stock Exchange name on WhatsApp to entice investors.
The Financial Sector Conduct Authority said Octodec has been falsely presenting itself as connected to the JSE, South Africa’s only licensed securities exchange. The JSE, through its legal representatives, confirmed that no such affiliation exists and distanced itself from the company’s activities.
The regulator warned that this kind of misrepresentation is illegal and urged investors to remain vigilant against schemes that claim ties to licensed exchanges.
