Key trends and developments in the South African banking market

As South Africa rolls out major regulatory reforms, spanning market conduct, payment systems and bank resolution, the financial sector is navigating a period of significant change. How institutions respond to these shifts will shape the country’s competitiveness, stability and capacity for innovation in the years ahead.

1. Regulatory intervention

South Africa’s removal from The Financial Action Task Force’s (FATF) greylist in October 2025 marked a pivotal step in restoring market confidence after its February 2023 placement due to deficiencies in its anti-money laundering and counter-terrorism financing (AML/CFT) framework. Since then, the country has steadily addressed several legislative deficiencies, including increased regulatory focus on how groups manage AML risk both locally and internationally.

While delisting has boosted optimism around foreign investment, it does not mean the country is risk-free – it remains firmly on the FATF’s radar. Post-delisting, regulation, especially in the banking industry is an ongoing focus. Regulatory authorities (namely the Financial Intelligence Centre (FIC), the Prudential Authority and the Financial Sector Conduct Authority (FSCA) continue to build the capacity to investigate entities across all industries. These regulators are working together to ensure that financial institutions, including banks, comply with risk management and compliance programmes required in terms of the Financial Intelligence Centre Act, 2001 (FICA). There is a focus on the scope of group-wide risk management and compliance programmes and the implementation of such programmes by large international banks with a presence into South Africa.

Since 2023, the regulators have imposed various penalties, primarily targeting accountable institutions such as banks, insurers, asset managers and financial services providers.

An important ongoing focus is the effective implementation of obligations under FICA, which apply to all accountable institutions, including banks. According to the FIC annual report 2024/2025, 55,262 institutions are registered with the FIC and more than 13,5 million regulatory reports were submitted in the past year. It is evident that the FIC will continue to address financial crime and implement measures to strengthen South Africa’s AML frameworks.

Also key to attaining effective oversight is the draft General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill, 2025, published for public comment on 14 January 2026. This updated version of the 2024 draft expands powers related to non-governmental organisations, including lifestyle audits, and enhanced information-sharing with state entities and extends the period for retaining data and/documents under FICA from five to seven years. Ultimately, the draft bill seeks to strengthen South Africa’s AML/CFT system by addressing the remaining deficiencies identified in the 2021 FATF Mutual Evaluation Report, and during the remedial process leading to delisting.

These measures will better prepare the country for the next FATF Mutual Evaluation, scheduled to begin in mid-2026 and conclude in October 2027.

2. The Conduct of Financial Institutions Bill (COFI) 2026

The Conduct of Financial Institutions Bill (COFI) introduces a major shift in South Africa’s financial services legislation, consolidating various industry specific conduct laws into a single framework focused on market conduct regulation and customer protection.

COFI is a key pillar in the South African government’s “Twin Peaks” regulatory reform together with the Financial Sector Regulation Act, 2017 (the Financial Sector Regulation Act), promulgated in stages from 2018. These pieces of legislation separate supervision into two independent bodies: one for prudential regulation and one for market conduct. COFI aims to entrench better financial customer outcomes by incorporating principles such as Treating Customers Fairly (TCF) and the retail distribution reviews (RDRs).

Following two rounds of public commentary, COFI is expected to be introduced into Cabinet in 2026 and tabled in Parliament later in the year, with promulgation expected in 2026 followed by a transitional period of approximately three years.

Rather than regulating institutions by entity type (banks and/or insurers), COFI will regulate and trigger licensing obligations based on a company’s activities, such as providing a financial product, applying broadly to all financial institutions defined in the Financial Sector Regulation Act and any service or product designated by the FSCA. This includes financial product providers (including banks), financial service providers (including investment management), holding companies of financial conglomerates and any person licensed or required to be licensed under financial sector law. From a Banks Act perspective, banks will therefore be required to be licensed under this regime. COFI extends the definitions of financial instruments and financial products to include foreign financial instruments and/or foreign financial products. It also allows for such products to be designated within the regulatory scope of COFI, which may trigger a licensing obligation.

In addition, COFI now applies to lending beyond retail loans regulated under the National Credit and requires licensing for institutional loans not previously considered financial services under the existing regulatory framework.

Financial institutions offering financial products and financial services under COFI must meet ongoing obligations including ensuring that key persons and representatives satisfy fit and proper requirements; maintaining sound proportional corporate governance standards; implementing appropriate remuneration and conflict of interest policies; and having a transformation policy in place.

While the new framework will require significant preparation, it presents a strategic opportunity for institutions like banks to build trust, improve governance and position themselves for long-term resilience and growth. Early planning and proactive action will be key.

3. Payments landscape

The payments industry is undergoing significant reform in South Africa.

The latest version of COFI includes a licensing obligation for a “payment service”. The review of the national payments system is anticipated to be effected through a standalone Bill rather than through the previously proposed consequential amendments to the National Payments Systems Act, 78 of 1998, under both COFI and the Financial Services Laws General Amendment Bill.

Currently, the National Payment System Act remains in force and empowers the South African Reserve Bank (SARB) to exercise the powers and perform the duties conferred and imposed on it by the NPS.

In the National Payment System Regulation and Oversight Report (1 April 2024 – 31 March 2025) (Report), the SARB confirms its commitment to modernising and broadening access to the national payment system in South Africa.

A key pillar highlighted in the Report is the payments ecosystem modernisation (PEM) programme, which aims to create an environment that supports the adoption of digital payment solutions, enhances security and broadens access to financial services. The Report reiterates the SARB’s vision, first published in 2018, which sets out nine goals to advance South Africa’s national payment system. The nine goals include among others, financial inclusion interoperability and clear, transparent regulatory and governance framework.

The Report also mentions key regulatory documents namely a draft Exemption Notice and an Authorisation Framework Directive, which documents were consequentially published in November 2025. The documents provide clarity on the regulation of payment providers and payment activities and distinguish between banks and non-bank payment providers.

Overall, the Report reflects an enhanced focus on developing a transparent and regulatory governance framework in the payment ecosystem. The Report emphasises the need to facilitate access for non-bank participation in the national payment system and to effectively govern these entities. The next year will be critical in the enhancement and further development of the regulatory framework applicable to payment service providers.

4. South Africa’s transition from JIBAR to ZARONIA

South African financial markets have long relied on the Johannesburg Interbank Average Rate (JIBAR) as the official benchmark rate for pricing loans, bonds, derivatives and other financial instruments.

In line with global efforts to transition away from forward looking bank-quoted benchmark rates, South Africa is reshaping its reference rate landscape. The SARB, together with the Market Practitioners Group, has endorsed the South African Rand Overnight Index Average (ZARONIA) as the country’s new benchmark to replace JIBAR. The SARB has announced that JIBAR will be permanently discontinued immediately after its final publication on 31 December 2026, with all JIBAR tenors ceasing to be provided and considered non-representative as of that date.

Market participants have been encouraged to ensure that all relevant financial contracts incorporate appropriate fallback provisions. Banks and other financial institutions are actively working on the repapering of contracts that reference JIBAR. Importantly, the General Finance Laws (Official Benchmarks and Procurement) Amendment Bill provides mechanisms for the replacement of official benchmarks referenced in legacy contracts. On the designated benchmark cessation date, the designated replacement benchmark, as adjusted by the designated adjustment spread will become the replacement benchmark for legacy contracts that contain no fallback provisions or contain fallback provisions that do not identify a specific replacement benchmark. This legislative intervention ensures that legacy contracts transition to ZARONIA through the operation of law, protecting market stability and continuity.

For derivatives contracts, the relevant fallback protocol provides a mechanism for market participants to adhere to standardised fallback provisions, enabling derivatives contracts to transition to ZARONIA.

5. South Africa’s resolution framework and Flac instruments

Bank resolution refers to the orderly restructuring or winding-up of a failing bank, aimed at maintaining financial stability, protecting depositors and minimising recourse to taxpayer funded bailouts. Since the global financial crisis, resolution frameworks have become a pillar of prudential regulation internationally, most notably through the European Union’s Bank Recovery and Resolution Directive and the United Kingdom’s special resolution regime, which empower authorities to intervene early and impose losses on shareholders and creditors rather than the public purse. Against this global backdrop, South Africa introduced a formal resolution framework with effect from 1 June 2023 through Chapter 12A of the Financial Sector Regulation Act applicable to designated institutions, including banks and systemically important financial institutions. This development marks a significant shift in South Africa’s approach to managing bank financial stability.

Under South Africa’s resolution framework, the SARB acts as the Resolution Authority. Section 166J of the Financial Sector Regulation Act sets out the trigger for resolution: if the SARB is of the opinion that a bank is, or will likely become, unable to meet its obligations (irrespective of whether the institution is insolvent) and if it is necessary to maintain financial stability or protect depositors, the SARB may recommend to the Minister of Finance that the bank be placed in resolution.

In resolution, the SARB is empowered to take resolution action, which includes the power to, among, other things, bail-in most liabilities (excluding protected liabilities) of a bank. The resolution process is guided by key safeguards, including the creditor hierarchy and the no-creditor-worse-off principle.

One of the resolution tools at the SARB’s disposal is a new regulatory instrument introduced under the Financial Sector Regulation Act called a “Flac instrument” (first loss after capital). Flac instruments are a pre-identified tranche of subordinated unsecured loss absorbing debt instruments that designated banks and their bank controlling companies are required to maintain at a specified level. These instruments are intended to increase a bank’s capacity to absorb losses in the event of failure. They are designed to be bailed-in, written off or converted to equity, to recapitalise a failing bank without the use of public funds. Effective 1 January 2026, six banks (namely, Absa Bank, The Standard Bank of South Africa, FirstRand Bank, Nedbank, Investec Bank and Capitec Bank) and their holding companies are required, in terms of Prudential Standard RA03 pertaining to Flac, to hold prescribed levels of Flac instruments, to be phased in over six years.

6. Amendments to the Commercial Paper Regulations

Non-bank issuers rely on the Commercial Paper Regulations (the CP Regulations) under the Banks Act to access South Africa’s debt capital markets. While the CP Regulations have remained unchanged since their introduction in 1994, the framework is now undergoing significant reform, with the Prudential Authority publishing final draft amendments in January 2026 for expected implementation from June 2026.

In the final draft amendments, the Prudential Authority has responded constructively to market feedback, particularly in relation to minimum denomination scope, use-of-proceeds flexibility, auditor engagement requirements, regulatory approval requirements, regulatory capital and flac instrument carve outs, SPI approval and mandatory credit ratings.

While registered banks are not directly subject to the CP Regulations, they make extensive use of special purpose institutions (SPIs), including repack platforms, synthetic risk transfer vehicles and other structured securities conduits, to issue instruments for capital and risk management purposes. Historically, banks could issue through these unlisted structures without much regulatory oversight on the vehicles; however, under the draft amendments, SPIs issuing unlisted instruments will now require upfront approval from the Prudential Authority, with only subsequent issuances under the same programme exempt. An exemption remains for SPIs operating under genuine bilateral arrangements between an issuer and an institutional investor. The Prudential Authority has not provided clarity on prescribed timelines for granting such approvals, creating uncertainty that may slow capital optimisation and risk transfer activities. These delays may also prompt banks to explore alternative structures for capital and risk management outside their SPI-based structured securities platforms.

A welcome aspect of the draft amendments, however, is the explicit exemption of regulatory capital (additional tier 1 and tier 2 qualifying instruments) and Flac-qualifying instruments from the operative provisions of the CP Regulations. By requiring compliance only with the foundational sections, the proposals remove a significant administrative burden and associated cost for bank holding companies issuing these instruments.

Although these draft amendments represent substantial progress and reflect constructive engagement between the Prudential Authority and market participants, this remains a final draft. There are important issues that still require clarification. Market participants therefore await the final version of the amended CP Regulations to assess how these outstanding matters will be addressed.

7. ESG and blue bonds

As South Africa continues to face water challenges, with limited supplies of usable water, compounded by ageing national, provincial and municipal infrastructure and ongoing service delivery pressures, blue bonds can serve as a tool in alleviating these crises.

Blue bonds have emerged as an important subset of green bonds – financial instruments designed to channel capital toward projects that address environmental and climate-related challenges. According to the International Finance Corporation (IFC), blue bonds are debt instruments that finance projects aimed at improving sustainable water management. The IFC explicitly links blue finance to two United Nations Sustainable Development Goals (SDGs): SDG 6 (Clean Water and Sanitation) and SDG 14 (Life Below Water).

Considering that South African banks are currently the majority issuers of green and social bonds, they are well positioned – with access to appropriate assets – to extend their issuance to blue bonds. While issuance of blue bonds is more administratively demanding than traditional green bonds, their environmental and social value often outweighs the additional effort. Blue bonds present a strategic opportunity to mobilise capital and strengthen governance in support of sustainable development. In South Africa, they could play an important role in addressing the water crisis while advancing both SDG and ESG objectives, providing a way for investors to finance the “blue economy” while adhering to sustainability requirements.