There are few subjects as dry as banking law, but the arena has seen more action than SA's cricket and rugby teams combined (well, particularly the latter). New laws, driven by apocalyptic visions of terrorists financing their operations through SA's banking system and shady financial advisers wanting to strip you of your savings, have shaken the industry.
Much of the legislation has come from the treasury under finance minister Trevor Manuel, who wants SA to be a respected and efficient financial services provider. The industry has not been operating in a vacuum, so it has become more important for it not to become an accessory to crime.
Banking has always been highly regulated; it relies on the public being able to trust it with its money. This trust depends on regulators with the time and resources to monitor banks carefully. Without that, disaster will strike - in the worst case, an entire banking system can collapse if the public loses trust in it.
That's why banking has its own supervision department - the banking registrar's department of the SA Reserve Bank - tasked with maintaining the overall health of the banking system. It also has other regulators watching it - the Financial Services Board gets involved where banking and insurance intersect and where the banks interact with financial markets. The SA Revenue Service keeps a keen eye on banks' structured finance dealings, which have always targeted tax-efficiency in any transaction. The newly created Financial Intelligence Centre collects data on banks' dealings with their clients to counter money laundering, organised crime and terrorism. Changes in the application and interpretation of foreign exchange rules have made banks' work more difficult. Furthermore, legislation such as the Financial Advisers & Intermediary Services Act (FAIS) will govern the cosy chats between clients and financial advisers. The foreign exchange amnesty, which allows SA citizens to legitimise "grey money" held offshore, has added to the list of tasks banks must perform.
Those are the most recent in a range of legislation affecting the industry. Investec compliance officer Jeff Cook estimates that there are now 50 separate acts that require banks to file compliance information with a regulatory body. Another 70 or so acts are also relevant to the banks.
Standard Bank head of risk Paul Smith says the resources dedicated to regulatory compliance have multiplied five-fold over the past five years. Standard Bank, similar to the other big banks, now employs about 70 people in its compliance division.
No-one has calculated the cost to the banks of the new legislation, though lawyers and bankers say costs have been enormous. But the net effect is unclear. "Through a proper fraud detection and prevention system you are actually saving money," says Smith. Those systems come with compliance with the Financial Intelligence Centre Act (Fica).
The legislative regime does provide banks with other benefits: it adds credibility to the SA legislative environment and hence the industry as a whole.
"There certainly has to be confidence in your regulatory system to regulate market conduct. Once you've got that, you have the basis of a decent financial system," says Cook.
That matters particularly in the international context. SA is one of the 31 signed-up members of the Financial Action Task Force (FATF) - an international body that deals with money laundering. The FATF publishes a list of countries that have insufficient legal obstacles to prevent money laundering. Making an appearance on the list would be a disaster for SA's financial services industry, as Nigeria and Egypt, which make the list, have learnt. Fica and the Prevention of Organised Crime Act ensure SA doesn't meet the same fate.
When it comes to banks' relationships with clients, much has changed. "Banks are certainly more nervous about who they give money to," says Patrick Daly of law firm Daly Incorporated.
The "know your client" provisions of Fica have made it more difficult to open a bank account. The provisions require banks to verify the identity of new clients, so they ask for rates bills, birth certificates and other documents in addition to the standard ID book. Some banks have reported less new account openings as a result.
The banks have been hard at work creating the new systems and training front-line staff to deal with the new legal requirements, particularly FICA. "It's a matter of putting the systems in place, so you can get the information upfront. The systems must tell you, if you are opening an account, what information to get upfront, so if the Financial Intelligence Centre arrives, you can hand over the information and indicate your compliance," says Werksmans director Neil Kirby.
Consumers are still assessing how their interaction with banks will be affected (see "Scant recourse for Average Joe") and bank employees are grappling with new responsibilities that carry strict penalties for getting things wrong.
