SARB Issues New Interest Rate Benchmark, Report on Regulatory Sandbox

The key highlights of the aforementioned updates follow:

• The IFWG report discussed on feedback on the inaugural regulatory sandbox initiative, experience of operating the regulatory sandbox, and the lessons learned as well as insights gained from the test cases accepted into the regulatory sandbox. The regulatory sandbox aims to provide innovators seeking to launch financial products and services in South Africa with a framework that allows testing of new products and services in a controlled and live environment against the existing regulation, with input and oversight from the relevant regulators. In addition, IFWG announced that it has decided to shift from the cohort-based approach to an adjusted rolling-based approach for regulatory sandbox applications. An adjusted rolling-based approach means that the regulatory sandbox will remain open for applications; however, the relevant regulators will provide guidance on their areas of focus, regulatory appetite, and capacity and resource constraints in assessing applications throughout the regulatory sandbox period. It is anticipated that the new approach will enable the IFWG to be more agile in responding to industry innovation and be more expedient in providing feedback to applicants.
• The guidelines on risk management practices concerning proliferation financing risk provide guidance to banks, branches of foreign institutions, and controlling companies, and to inform eligible institutions and auditors of banks or controlling companies, regarding the implementation of corporate governance, risk management, internal controls, policies, processes, and procedures to ensure compliance of banks and adequate risk management of exposure to the financing of proliferation of weapons of mass destruction. The guidelines, in accordance with Regulation 36(17) of the Regulations relating to banks requires that banks’ policies, processes, and procedures should be sufficiently robust to receive relevant information relating to risk exposure incurred by any foreign operation and that every relevant foreign branch, subsidiary, or operation of the bank or controlling company implements and applies anti-money laundering and counter-terrorist financing (AML/CFT) measures consistent with the relevant Financial Action Task Force (FATF) Recommendations.
• SARB announced the publication of a new interest rate benchmark, the South African Rand Overnight Index Average (ZARONIA), which is a financial benchmark that reflects the interest rate at which rand-denominated overnight wholesale funds are obtained by commercial banks. ZARONIA is based on actual transactions and is calculated as a trimmed, volume-weighted mean of interest rates paid on eligible unsecured overnight deposits. The new benchmark ZARONIA shall replace the Johannesburg Interbank Average Rate (Jibar) and will be published together with the South African Rand Interbank Overnight Rate (ZARIBOR), a subset of ZARONIA that focuses on the interbank market segment. SARB notified that market participants should not use ZARONIA and ZARIBOR in financial contracts until the SARB and the Market Practitioners Group (MPG) indicate otherwise. The duration of the observation period will be communicated in due time and may depend on the Market Practitioners Group’s information needs and transition plans as well as the SARB’s decision regarding the cessation date for Jibar and the South African Benchmark Overnight Rate on Deposits (Sabor).

Related Links

• Press Release on Regulatory Sandbox
• Regulatory Sandbox Report (PDF)
• Guidelines on Risk Management Practices (PDF)
• Press Release on New Interest Rate Benchmark

Keywords: Middle East and Africa, South Africa, Banking, Regtech, Regulatory Sandbox, Fintech, IFWG, AML CFT, ML TF Risk, FATF, Interest Rate Benchmark, Zaronia, SARB