South African 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.
Expect ongoing updates as this story evolves.
This article was written by Jared Kirui at www.financemagnates.com.
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