Big changes coming to South Africa’s financial markets

South Africa is getting closer to publishing long-awaited changes to its financial rules and has earmarked over-the-counter derivatives for greater scrutiny, alongside unlisted financial market activity.

Regulators have been undertaking a financial market review for several years and “are at the point where we are able to put through some of those recommendations,” said Financial Sector Conduct Authority Executive Director Olano Makhubela.

“The plan is for those to be published this year,” he said on the sidelines of an Investec South Africa Markets Surveillance Conference in Johannesburg last week.

A lack of transparency in the OTC market made managing risk in the financial system much harder, while the growing role of private equity and debt investors warrants more supervision and regulation, according to Makhubela.

G-20 commitment

Members of the Group of 20 nations, which South Africa will chair next year, have committed to reforming their over-the-counter derivatives markets to reduce the risk of a damaging counter-party failure.

Bank for International Settlements data shows the notional value of outstanding OTC derivatives jumped 8% in 2023 to $667 trillion, the biggest annual increase since 2017. 

The review process in South Africa started in 2018. At the time, a banking study found the outstanding balance of the country’s OTC derivatives market stood at R44.7 trillion ($2.4 trillion) as of June 2018.

Unlisted markets

Proposals include putting the oversight of unlisted market activity on the same footing as listed activity to improve transparency, protect participants and reduce market risk, Makhubela said.

The FSCA is also weighing more monitoring of OTC activity in foreign exchange, repurchase agreements, forwards and swaps, he said. It has already introduced regulations for margin rules, and is now focusing on a capital framework regime for non-bank derivative providers.

“Some of our on-site visits have picked up a few issues, which we think would easily be addressed by a framework dedicated to the non-bank over-the-counter derivative providers,”  he said. 

Central counterparty clearing would also strengthen the system and a trade repository — which would keep track of derivatives trades and help regulators monitor systemic risk — is in the pipeline and could happen before the end of the year, he added.