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lml4807 exam pack 2021

Banking Law and Usage (University of South Africa)

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LML4807

EXAM PACK

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UNIVERSITY EXAMINATIONS

May/June 2020 Examination

LML4807

BANKING LAW AND USAGE

100 Marks

Duration: 24 Hours

The examination question paper consists of 7 pages.

INSTRUCTIONS FOR A PORTFOLIO WITH ASSESSMENT INFO TOOL ON MYUNISA

PLEASE READ THE FOLLOWING INSTRUCTIONS CAREFULLY BEFORE

ANSWERING THE EXAMINATION QUESTIONS.

1. The examination question paper counts 100 marks.

2. Please read the following instructions carefully as you answer different sections
depending on whether you are a supplementary/aegrotat student or not:

• ALL STUDENTS: You must answer SECTION A.

• SUPPLEMENTARY AND AEGROTAT STUDENTS: You must answer SECTION A
and SECTION B. You must NOT answer SECTION C.
• 2020 REGISTERED STUDENTS: You must answer SECTION A and SECTION C.
You must NOT answer SECTION B.
• Indicate clearly on your answer sheet whether you answered SECTION B or
SECTION C.

3. The duration of the examination is 24 hours. Your portfolio answer must be

submitted via myUnisa on 1 July 2020 on or before 15:00 noon (Central African
Time).

4. This is an open-book examination. You may consult your prescribed study material
during the examination.

5. Your answer to this portfolio examination must be submitted online on myUnisa.

6. The steps to upload your answer to the portfolio examination are as follows:

6.1 On the landing page for myUnisa, before login, go back to the link where you
downloaded your examination paper: Login and download my Exam Question
Paper for May/June 2020.

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6.2 Login using your student number and myUnisa password.

6.3 On the next screen, find the module code for which you want to submit a portfolio
answer file. Click on the link to “submit answer file”. This link will only display if
the examination session is still open for submissions.

6.4 A new screen will open that will guide you through the steps to upload your answer
file.

Step 1: Load assessment file from your device to myUnisa

• Click on the Browse button next to File Name

• In the Choose File dialog box, select the file you want to upload, and then click OK
• Select the correct programme format from the File Format drop-down list.
• Most modules only allow PDF formatted files to be uploaded.
• Read the Honesty Declaration statement, then click the check box to
acknowledge that you have the statement.
• If you agree with the Honesty Declaration statement, type I AGREE in the text
• box. You cannot continue with the submission process if you do not complete
• the requirements of the declaration.
• Click on the Continue button.

Step 2: Verify the file details for final submission of your answer file

• Use this step to verify that you are uploading the correct portfolio answer file to the
correct course and assessment number.
• Click on the Continue button to submit your answer file. If you do not click
Continue, no submission action will take place.
• Large files will take longer to upload than smaller files. Please be patient after
you’ve clicked Continue.
• If the wrong details, e.g. file name, appear on the screen, click Back to restart the
file upload process.

Step 3: Assessment submission report

This is your proof that your portfolio answer file was submitted. It is advisable to print
this page or make a screen capture for record purposes. A copy of this page will also be
emailed to your myLife email account.

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7 Alternative Submission Process

7.1 Login to myUnisa using your student number and myUnisa password

7.2 Click on the “myAdmin” tab in the top navigation

7.3 In the “Assessments” submenu, click on the “Assessment Info” tool in the
drop-down list

• A list of all available assessments will display

• Locate the section for May/June Online Exams at the bottom of the list
• Find the corresponding module code
• Click on the Open in New Window link and follow the steps as described above.

8. The cover page to your portfolio must include your name, student number and the
module code.

9. It is preferred that your portfolio is typed, however, handwritten submissions will

also be accepted. Follow the detailed submission instructions provided in the
Student Guide: Unisa Portfolio Submission. If the portfolio is typed, the maximum
length is 27 pages (which includes the cover page and the bibliography). If the
portfolio is handwritten, the maximum length is 35 pages (which includes the cover
page and the bibliography). If your answer exceeds the prescribed length, we will
stop marking when your answer reaches the page limit.

10. Whether your answers are typed or handwritten, your submission on myUnisa must
be made in the form of one PDF document. Note that you should NOT password-
protect your PDF portfolio answer file and virus infected files will NOT be marked.

11. If your answers are typed, ensure that the following requirements are adhered to.

11.1 The text must be typed in Arial font, size 12 with single line spacing within the
paragraph, and double line spacing after the paragraph.

11.2 The text must be justified.

11.3 All of the pages must be numbered in the bottom right hand corner of the page.

11.4 All margins must be 2.5cm, but the left margin must be 3cm.

11.5 South African English and not American English should be used. For example, the
correct spelling is “Labour” and not “Labor”.

11.6 Do NOT use abbreviations or SMS language.

11.7 Use quotations very sparingly. In this portfolio, a maximum of 5% of the text may be
quoted.

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11.8 All quotes that are two lines long (or less), must form part of the main text, be typed
in italics, and be bracketed by quotation marks. Where a quotation is longer than
two lines, it must be typed in a separate paragraph in italics in size 11 font and must
be indented by 1 cm. No quotation marks are required when the quotations stand
alone.

12. When answering the portfolio questions, remember that an open-book exam is a
test at a higher level than the usual type of exam, where memory is tested as much
as insight. In an open-book exam, you need not memorise any information. You are
expected to prove that you can use information, rather than merely repeat it. In brief,
what is being tested is factual knowledge, understanding and the correct application
thereof, not memory skills. For this reason, you do not earn marks by merely
detailing a list of all the information that you think might be relevant to a particular
question. This gives no indication that you know what statutory or other provisions
are applicable in a specific context. You are expected to identify precisely what
information applies, and then explain why you think so. Also, because you have the
prescribed study material available when answering questions, we do not give marks
for direct quotations. You are therefore assessed on your level of understanding of
the legal principles by looking at how well you applied the principles to the questions.
PLEASE DO NOT CUT AND PASTE ANSWERS FROM THE PRESCRIBED
MATERIALS (OR ANY OTHER SOURCE).

13. The arguments that you make and your critical application must be logical, well-
structured and substantiated by all of the relevant legal principles. You are
given 24 hours to complete the portfolio. Use the time given wisely.

13.1 Ensure that you give reasons for each answer. Substantiate your answers by
referring to ALL of the relevant authorities, e.g. sections from relevant legislation
and/or court cases and/or other prescribed materials in the text or in your footnotes.

13.2 You are required to have read and summarised the prescribed cases and/or
prescribed case notes yourself. When using case law to support your answer,
please include complete references to the relevant cases in your footnotes. This
means that you must not only include the name of the case but also the exact page
and section and/or paragraph where the information can be found. The same applies
to articles and books used.

13.3 A number of students lose marks because they do not approach problem-type
questions correctly. When answering such questions, it is important to first clarify
for yourself the area of work where the answer must be sought. Once you have done
this, set out the relevant legal principles. Deal only with those principles that relate
to the given facts. Next, apply these principles to the facts. This is where most of the
students lose marks - they set out the law in some detail, but then do not illustrate
how it applies to the factual situation they have been asked to solve. Finally, state
your conclusion.

14. Number your answers correctly. No marks will be awarded for incorrectly
numbered answers. Questions that consist of clearly indicated sub-questions must

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be answered accordingly. Marks will be deducted if answers to sub-questions are

lumped together in a single answer.

15. Each student must write and submit his or her own individual portfolio. In other
words, you must submit your own work in your own words and you must reference
the sources that you have used properly. You cannot submit work that you have
done as part of a group, even if you do change some of the wording or switch around
some of the sentences and/or paragraphs. We reserve the right to submit your work
to an electronic program to check whether the answers submitted have been copied
from internet sources and/or from other students. If it is found to be so, your portfolio
will be awarded a mark of 0%. Furthermore, you may be subjected to disciplinary
proceedings by the University. To ensure that you don’t fall foul of the rules
prohibiting student misconduct you are referred to the UNISA Students’ Charter of
Rights and Responsibilities and the Students’ Disciplinary Code.

16. Include an Academic Integrity Declaration similar to the one below in the front of
your portfolio answer. If you fail to include the declaration, it will result in a mark of
0%.

I, [type in student name] declare that this portfolio submitted towards the
examination for the module LML4807, is my own work and has not been submitted
before to any institution for assessment purposes. Further, all sources that I have
used or quoted have been indicated and acknowledged by means of complete
references.

PLEASE NOTE:

If you experience technical problems, of any kind, on the day of the examination and
your examination answers are not submitted by the cut-off time, you will be marked
as absent and automatically deferred to the October/November 2020. No other type
of submission of your examination answers will be accepted.

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Page 1 of 7
CONFIDENTIAL
LML4807
May/June 2020

SECTION A: ALL STUDENTS MUST ANSWER THIS SECTION

QUESTION 1

Briefly explain or discuss the following:

1.1 Bank-customer relationship (3)

1.2 Mutuum (3)

1.3 The operation of tripartite credit cards (4)

[10]
(Your answer must not exceed a page)

QUESTION 2
2.1 Joseph is upset with Rocket Bank. The bank requested that he (Joseph) cedes
the claims he has against the debtors of his business to Rocket Bank. The
cession serves as security for an overdraft, which Joseph secured with Rocket
Bank. Rocket Bank then ceded these claims to Community Bank. Because of
the cession to Community Bank, personal information, regarding Joseph’s
financial affairs, was disclosed to Community Bank without his permission.

Community Bank wants to publish the details of Joseph’s financial affairs in its
(that is, Community Bank’s) monthly newsletter, which is distributed to all of
Community Bank’s employees. Discuss whether Rocket Bank will be
successful in its application to interdict Community Bank from publishing
Joseph’s information. Refer to relevant case law in your answer. (10)

(Your answer must not exceed a page)

2.2 Lerato inherited valuable jewellery that she stores in a safe-deposit box at
Rocket Bank. Considering modern banking practice, briefly discuss the legal
nature of the relationship that exists between Rocket Bank and Lerato relating
to the safe-keeping of her jewellery. (5)
(Your answer must not exceed half a page)

[15]

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Page 2 of 7
CONFIDENTIAL
LML4807
May/June 2020

QUESTION 3
In terms of the National Credit Act 34 of 2005 (as amended) certain parties must
register with the National Credit Regulator. Write a short memorandum in which you
address the following aspects concerning this registration obligation :
3.1 Registration of credit providers in the past (the position before the amendment of
the National Credit Act 34 of 2005). (1)
(Your answer must not exceed 2 lines)

3.2 Registration of credit providers under the National Credit Act 34 of 2005 (as
amended). (5)
(Your answer must not exceed half a page)

3.3 Grounds disqualifying natural persons from registering as a credit provider under
the National Credit Act 34 of 2005 (as amended). (4)
(Your answer must not exceed 5 lines)

3.4 The sanction when a credit agreement is concluded by a credit provider who is
required to be registered as a credit provider, but who is NOT registered as such.
(4)
(Your answer must not exceed 5 lines)

3.5 Cancellation of the registration of credit providers. (6)

(Your answer must not exceed half a page)

3.6 Other parties that must also register with the National Credit Act 34 of 2005 (as
amended). (5)
(Your answer must not exceed half a page)

[25]

QUESTION 4
At present, electronic funds transfers (“EFTs”) are probably the most common type of
payment method used. Answer the following questions in relation to electronic fund
transfers:

4.1 Briefly explain what is meant by an electronic fund transfer (“EFT”). (5)
(Your answer must not exceed half a page)

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Page 3 of 7
CONFIDENTIAL
LML4807
May/June 2020

4.2 The decision in Nedbank v Pestana 2002 (2) SA 189 (SCA) relates to the
reversal of an electronic funds transfer (“EFT”). Answer the following questions
with reference to this decision of the Supreme Court of Appeal:

(a) Briefly discuss this case by referring to the facts, the legal issues at hand
and the judgment of the court (not including a critical comment of the
decision). (10)
(Your answer must not exceed a page)

(b) Critically comment on the decision of the Supreme Court of Appeal. (5)
(Your answer must not exceed half a page)

[20]

SUB-TOTAL FOR SECTION A: 70 MARKS

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Page 4 of 7
CONFIDENTIAL
LML4807
May/June 2020
SECTION B: ONLY SUPPLEMENTARY AND AEGROTAT STUDENTS
ANSWER THIS SECTION
QUESTION 5
You are the compliance officer for LML Bank Ltd (“LML”), a registered bank. It is one
of your duties to ensure that LML complies with its obligations in terms of the Financial
Intelligence Centre Act 38 of 2001 (“FICA”).

You need to answer the following questions with reference to the obligations imposed
on LML in terms of FICA.

5.1 Explain whether LML is an accountable institution or a reporting institution, as

intended under FICA. (2)
(Your answer must not exceed 4 lines)

5.2 The Financial Intelligence Centre must monitor accountable institutions’

compliance with FICA, but the Centre does not fulfil a supervisory function.
Schedule 2 to FICA lists specific supervisory bodies. List three (3) of these
supervisory bodies. (3)
(Your answer must not exceed 6 lines)

5.3 Provide the definitions for a “business relationship” and a “single transaction”,
included in section 1 of FICA. (3)
(Your answer must not exceed 6 lines)

5.4 As soon as a business relationship as defined in FICA is present, LML would

have to keep a record of specific information in terms of section 22 of FICA
concerning this business relationship. List the specific information LML should
keep a record of in terms of section 22. (3)
(Your answer must not exceed 6 lines)

5.5 List four (4) aspects that LML could include as part of its Risk Management
Compliance Programme (“RMCP”). Your answer should not include a definition
of a RMCP. (4)
(Your answer must not exceed half a page)

[15]

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Page 5 of 7
CONFIDENTIAL
LML4807
May/June 2020

QUESTION 6
Section 17(2)(e) of the Banks Act 94 of 1990 empowers the Registrar of Banks (now
the Prudential Authority) to refuse registration of a proposed name of a bank. Identify
four (4) of the instances under which the Registrar (now the Prudential Authority) may
refuse to register a proposed name of a bank in terms of this section.
(5)
(Your answer must not exceed half a page)

[5]
QUESTION 7
Answer the following questions concerning the South African Reserve Bank.

7.1 Provide a short discussion on the provisions of the Constitution of the Republic
of South African, 1996 that directly relate to the South African Reserve Bank.
(7)
(Your answer must not exceed a page)

7.2 Some of the provisions of the South African Reserve Bank Act 90 of 1989 contain
restrictions associated with the shares and the nature of the shareholding of
South African Reserve Bank-shares. Discuss two of these provisions of the Act.
(3)
(Your answer must not exceed 6 lines)
[10]
SUBTOTAL FOR SECTION B: 30 MARKS

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Page 6 of 7
CONFIDENTIAL
LML4807
May/June 2020

SECTION C: ONLY STUDENTS WHO ARE REGISTERED IN 2020

(NON-SUPPLEMENTARY OR AEGROTAT STUDENTS) ANSWER
SECTION C
QUESTION 5
Lesego stays in an informal settlement where she does not have electricity connected
to her house. Because of this, she does not receive a utility bill. She secured work at
UNISA as a cleaner so that she can pay for her LLB studies. Lesego requires a bank
account into which UNISA can pay her monthly salary. She went to a branch of a bank,
but was sent away because she was unable to provide the bank with a utility bill, which
will enable the bank to comply with its identification and verification obligation under
FICA.

Please answer the following questions that have reference to the above scenario:

5.1 Provide a basic definition of financial inclusion. (3)

(Your answer must not exceed 6 lines)

5.2 Discuss the inherent nature of the trade-off between financial inclusion and
maintaining financial integrity in the above scenario. (4)
(Your answer must not exceed 8 lines)

5.3 Briefly explain how the application of the risk-based approach should influence
the documents the bank can request from Lesego to enable the bank to conduct
the identification and verification duty imposed on it by FICA. Your answer must
include an explanation of your understanding of the ‘risk-based approach’ to
combat money laundering. (5)
(Your answer must not exceed half a page)

5.4 Explain whether a bank is regarded as an accountable institution or a reporting

institution in terms of FICA. Subtantiate your answer. (3)
(Your answer must not exceed 6 lines)
[15]
QUESTION 6
6.1 What is meant by a “Twin peaks model” of financial regulation? Briefly discuss.
(5)
(Your answer must not exceed half a page)

6.2 Explain how the Twin peaks model differs from South Africa’s previous model
of financial regulation. (5)
(Your answer must not exceed half a page)

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Page 7 of 7
CONFIDENTIAL
LML4807
May/June 2020

6.3 The SARB should assess the stability of the financial system at least every six
months. This assessment is known as a “financial stability review’’. Briefly
discuss what this financial stability review should entail. (5)
(Your answer must not exceed half a page)

[15]

SUBTOTAL FOR SECTION C: 30 MARKS

TOTAL FOR THE EXAMINATION PAPER: 100 MARKS

EXAMINERS:
FIRST: DR MM KOEKEMOER
SECOND: PROF PN STOOP
EXTERNAL: PROF H COETZEE (UNIVERSITY OF PRETORIA)
©
2019
UNISA

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SECTION A

Question 1

1.1. Bank-Customer Relationship

A Relationship between a bank and its customer is based on a mutual contract of

mandate. The contract is based on the client being the mandator the bank being the
mandatory. In other words, the contract will be based on the customer giving mandate
to the bank based on their contractual agreement to carry out certain tasks on the
customer’s behalf which are within the bank’s obligations as legal person.

This relationship does not involve an element of agency, this means in acting on behalf
of the customer, the bank does not bind the customer. In the case of Joint Stock
Varvarinskoye v Absa Bank Ltd 2008 (4) SA 287 (SCA) the court held that a
relationship between bank and customer is based on contract. It involves a debtor and
creditor relationship, subject to its obligation to its customer to pay cheques drawn on
it.

1.2. Mutuum

Where the customer deposits money with the bank, or where the customer has a credit
balance in his or her current account, the relations involves the contract of Mutuum
(loan for use)1. The bank becomes the owner of the money so deposited with the bank
and the client has a claim against the bank for the similar amount of money when the
client requires the funds. The contract of mutuum clearly indicates the relationship
between the bank and customer to be one of a debtor and creditor. Where the bank
being the debtor owes a certain amount to its customer/client being the creditor.

1.3. The operation of tripartite credit cards2

In tripartite credit cards, the bank issues a credit card to the customer, who becomes
the card holder. The bank acts as a payment intermediary between the card holder
and the supplier (seller of goods to the cardholder).

In this case, the bank is usually bound to pay the supplier as per contractual agreement
between them (bank and cardholder). Based on this contractual agreement, there are
three relationships involved: 1) The relationship between the issuer of the card and
the card holder (Bank and customer; 2) The relationship between the issuer of the
card and the supplier (Bank and third parties selling goods to the card holder); and 3)
The relationship between the card holder and supplier ( Credit card holder and the
seller of goods). This is known as a three-party credit cards issued by a financial
institution (bank).

1
Schulze WG Prof et al Banking Law and Usage Only Study Guide for LML4807 University of South
Africa 2020 - 76
2
Schulze WG Prof et al Banking Law and Usage 125.

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Question 2

2.1. The bank’s duty of confidentiality

Common Law: The purpose of bank secrecy/confidentiality is meant to prevent

disclosure between one entity in a group and another entity (within the same group).
The customers of the bank have a right to expect their dealings with the bank to be
confidential based on three reasons: 1) They expect a right to privacy; 2) based on the
contractual relationship between the bank and customer; and 3) supported by statutory
provisions governing banking confidentiality. The duty of the bank’s confidentiality
begins the moment the relationship between the bank and the customer has been
established through a contractual agreement and this relationship extends well after
the customer’s death, this pertains to any information relating to the customer’s
account. We may consider that this duty is not absolute, a bank may violate a
customer’s confidentiality only when: 1) The bank is authorised by law; 2) When the
bank is acting in the public’s interest; 3) or, it is in the bank’s interest; and based on
the consent of the customer.

Case Law: In Tournier v National Provincial and Union Bank of England [1924] 1 KB
461, It was decided in this case that the duty not to disclose confidential information is
an implied term of the contractual agreement between the bank and its customer. in
Densam (Pty) Ltd v Cywilnat (Pty) Ltd 1991 (1) SA 100 (A), the decision in Tournier
was upheld, as Botha JA stated: “ I must make it plain, that the bank that the bank was
contractually obliged to maintain secrecy and confidentiality of its customers affairs.

In FirstRand Bank Ltd v Chaucer Publications Pty (Ltd) 2008 (2) SA 592 (C), the court
accepted that the relationship between a bank and its customer is of confidential
nature, therefore the duty not to disclose rests with the bank, while the privilege not
to have their details disclosed, belongs to the client. There are examples in legislation
where a duty to disclose confidential information is protected.

Statutory Law: Bank secrecy/confidentiality may be recognized in two ways: 1) by

imposing a duty of confidentiality on a certain bank official; and/or 2) by imposing a
duty of disclosure on that bank. The legislation which South African law recognizes
bank secrecy/confidentiality is as follows: 1) The South African Reserve Bank Act 90
of 1989, more importantly section 33(1)(a) which prohibits any disclosure about
customers by an official of the bank, information may only be disclosed with the written
permission of the minister of finance and the governor of the bank and only after
consulting with the customer. 2) Criminal Procedure Act 51 of 1977, section 236(4)
prohibits disclosure of written information in a court, except where the bank is ordered
by the court. The Prevention of Organised Crime Act 121 of 1998 and the Financial
Intelligence Centre Act 38 of 2001 overturned the secrecy obligation of banks. There
is no longer a statutory obligation or common law obligations on the disclosure of
suspicious account information.

Application of facts: in terms of the FirstRand Bank Ltd v Chaucer Publications Pty
(Ltd) 2008 (2) SA 592 (C) case, it was held that the duty to disclose rests with the bank
whilst the privilege to not have their details disclosed rests with the customer, the bank
will not be able to succeed with the interdict as that right rests with the customer and
he may apply to court to hold rocket bank liable for infringing on his privacy and also
interdict community bank on releasing his personal information without his consent.

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2.2. Safe-Deposit Box as a means for Safekeeping

In the past it happened that a person may leave his or her valuables (monetary or
items worth a substantial monetary value) for safekeeping with the bank and the bank
may return the same articles on request, this is called true depositum and the
relationship was governed by a contract between the parties. In modern day banking,
banks have deviated from the “depositum” relationship and now banks have
undertaken to rent out small lockers on their premises for the safekeeping of their
client’s valuables, in this case the bank does not act as a depositary, furthermore, the
bank would not be liable as a depositary for the safety of the valuables, because now
the relations between the customer and the bank will be governed by a rental
agreement.

In Mensky v Absa Bank Limited t/a Trust Bank [1997] 4 All SA 280 (W), the client had
concluded a written agreement in which the plaintiff (Mensky) had rented a safety
deposit locker at one of the bank’s branches. The client deposited Jewellery and
foreign currency in the locker, the safety locker was then misplaced by the defendant
(ABSA Bank) during a relocation to new premises. The plaintiff held that the exception
clause could not be used by the defendant as the loss occurred whilst the defendant
was moving premises. The court reasoned that the provision of the locker did warrant
an undertaking by the bank, the court further held that the bank did not breach any
obligations, as the bank made the client aware of the relocation and that the agreement
to store the client’s possessions would cease. The court decided that the bank had
acted reasonably.

Application of facts: Lerato’s relationship with the bank will be that of a rental
agreement as she stores her valuables at the safety deposit box held at the premises
of Rocket Bank. Considering modern banking practice, Lerato would need to
understand that she holds responsibility for the Jewellery she undertakes to safekeep
with the bank as a bank would not accept liability for the contents a safekeeping box
should they go missing or are damaged. Lerato may be requested to insure the
contents of the box themselves. The case of Mensky is to be considered as the court
stated that the provision of a locker/safekeeping did nit warrant an undertaking by the
bank. Therefore, Lerato would need to make sure she insures her valuable as she
stores them at the bank.

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Question 3

3.1. Registration of credit providers in the past

In terms of Section 40(1) (a) (b) of the NCA not everyone who was involved in the
business of lending money was required to register as a credit provider.

3.2. Registration of credit providers under the National Credit Act 34 of 2005 (as
amended)

The National Credit Act 34 of 2005, now requires that the Minister of trade and industry
must determine a threshold for the purpose of determining whether or not a credit
provider is required to be registered with the National Credit Regulator (hereafter
“NCR”). The Act provides that a person must register as a Credit provider with the
NCR if he or she provides credit and the total outstanding debt owed to him or her by
all the debtors exceeds the threshold amount determined by the Minister of Trade and
industry. The amended section 40(1)(a) was no longer concerned with the number of
credit agreements concluded.

On November 2016, the minister determined the required threshold amount to be NIL
(R0), previously this threshold was set at R500 000. This newly determined threshold
would mean that any person or entity that trade as a credit provider, not taking into
consideration the size of the loan, must register with the NCR to be recognized as
credit providers.

Once registered, the credit provider will be issued with a certificate of registration. The
credit provider must grant the NCR access to its place of business and comply with
legislation, including the Financial Intelligence Centre Act 38 of 2001.

3.3. Grounds disqualifying natural persons from registering as a credit provider

under the National Credit Act 34 of 2005 (as amended)

Natural and juristic persons may register as a credit provider. However, a number of
grounds disqualify a natural person from registering as a credit provider: insolvency
(an unrehabilitated insolvent may not register), age - must be 18 or older, and conduct
- a person removed from an office of trust on account of fraud or the misappropriation
of money, or convicted of theft, fraud or forgery or a crime involving violence and who
has been sentenced to imprisonment without the option of a fine.

3.4. The sanction when a credit agreement is concluded by a credit provider who
is required to be registered as a credit provider, but who is NOT registered as
such

In terms of section 42(3) and (4) read with section 89(2)(d) of the NCA, failure to
register means that the agreement will be void. If an agreement is unlawful the NCA
provides that a court must make an order that such an agreement is just and equitable.

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If a credit provider is not registered with the NCR, the court may order the credit
provider to only recover the capital amount provided to the consumer, but not interest
or any other fees charged by such a credit provider.

3.5. Cancellation of the registration of credit providers

The Tribunal reserves the right to cancel the registration of a credit provider at the
request of the National Credit Regulator, If the credit provider repeatedly:

a) Fails to comply with any condition of the registration

- This may arise in an instance where the credit provider fails to pay
registration fees or did not adhere to the regulations set by the NCR.
b) Contravenes the Act
- Where the credit provider carries out its business outside of the regulations
provided for by the National credit Act 34 of 2005
- Where the credit provider sets aside any provision of the Act, in effect
waiving consumers rights under the Act, Avoiding a credit provider’s
obligation under the Act.
c) Lastly, where the credit provider fails to meet a Black Economic Empowerment
of an over indebtedness reduction commitment.
- This allows for empowerment of the black community and makes sure there
is no marginalization in carrying out the duties of a credit provider.

3.6. Other parties that must also register with the National Credit Act 34 of 2005
(as amended)

The National Credit Act applies to every credit agreement with consumers who are
individuals as well as entities (Close corporations, companies, partnerships and trusts)
whose asset value or annual turnover is below a prescribed threshold.

There are usually two parties in a credit agreement, the debtor or money lender, such
as a bank or a microlender and the consumer or creditor who borrows the money to
be repaid back to the money lender.

The other parties that are recognized as credit providers by the NCA are as follows3:

- A party who supplies goods or services under a discount transaction,

incidental agreements or instalment agreement.
- The party who advances money or credit under a pawn transaction
- The party who extends credit under a credit facility
- The lender under a secured loan
- The lessor under a lease agreement
- A party to whom assurance is given under a credit guarantee
- The party who advances money or credit to another under any credit
agreement.
- Any other person who acquires rights of a credit provider under a credit
agreement entered into, including person who have not personally or
directly concluded the credit agreement with the consumer.

3
Schulze WG Prof et al Banking Law and Usage 157.

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Question 4

4.1. An electronic fund transfer (“EFT”)

Electronic Funds Transfers (“EFT”) is a payment of debt or a purchase that is initiated

through an electronic terminal, this may be a computer chip. EFTs are processed and
cleared on an account number only.

South African law has not enacted any laws specifically dealing with EFTs, in the
absence of such specific legislation, the legal relationship between the parties involved
in a EFT transaction are regulated by the general principles of the law of contract,
including implied and/ or express terms of their agreement.

EFTs can be divided into two groups: 1) Credit transfer – where a party who wishes to
make payment instructs the bank to transfer the to the account of the beneficiary; 2)
Debit transfer – where the person to whom the payment must be made claims the
money from a financial institution which holds the debtors account.

There are different EFT systems, namely; Customer activated systems which
comprise of: 1) ATM – an electronic vault that allows customers to withdraw of deposit
money or obtain banking services; 2) EFTPOS – this is a point of sale terminal
connected to a merchant cash register and pays electronically for goods purchased;
3) lastly; Home or internet banking – where you may initiate EFTs remotely from your
home using electronic gadgets such as a laptop or phone to transact. Banks also have
their own activated systems facilitating EFTs between banks and to send financial
messages to clients.

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4.2. Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA)

Facts of the case: Nedbank’s head office in Rivonia was appointed by the South
African Revenue Services (“SARS”) as an agent in terms of section 99 of the income
Tax Act 58 of 1962 (“the Act”)4. Section 99 of the Act provides for the appointment of
an agent for the paying over of Tax monies over which are due to SARS. Pestana (“the
first Pestana) owed SARS in excess of R340m. The first Pestana had an account with
Nedbank and the account had a credit balance of R496 540,40 this was at the time
when Nedbank had been appointed as an agent for paying over of Tax money owed
to SARS by the first Pestana.

On the 4th of February 2004, the first Pestana instructed a Nedbank employee at
Carletonville to transfer a sum of R480 000 to that of the respondent, also called
Pestana (“the second Pestana”). At the time of the instructed transaction the Nedbank
employee was unaware of the appointment of the bank as an agent in terms of section
99 of the Act5. The transaction was effected through Nedbank’s internal credit system
as the first and second Pestana were both clients of Nedbank, this was an in-house
payment. Upon discovery of this error, Nedbank reversed the credit which has been
passed on to the respondent and paid the sum of R490 000 from the second Pestana’s
account to SARS in compliance with Section 99 notice. The second Pestana instituted
an action against the Nedbank on the basis that the Bank had acted without his
express instruction and or authority when it reversed the transaction.

Issue before the court: Was Nedbank, and having regard to its appointment in terms
of section 99 of the Act, entitled to reverse the payment without authority from the
plaintiff?

Decision of the court: The respondent sued Nedbank in the Johannesburg High
Court for payment of the amount of R 480 000, but the claim was dismissed by the
court of first instance. On appeal to the full court in Johannesburg, the claim
succeeded. Further appeal to the Supreme Court of Appeal by the Applicant, the court
held, that, until such time as the branch received actual notice of the bank's
appointment as agent in terms of s 99 of the Act, it was entitled to continue its ordinary,
everyday banking functions. Thus, it was entitled to accept a valid and lawful mandate
from its customer to transfer money from his account to that of the respondent. In
executing that mandate in the ordinary course of its business, the branch clearly
intended to pay on behalf of its customer and to accept payment on behalf of the
plaintiff. The decision to pay was not 'erroneous'. The fact that the branch
subsequently changed its mind did not undo the validity of the completed transaction.
The SCA accordingly dismissed the appeal and ordered Nedbank to pay the costs of
the respondent, including the costs of two counsels.

4
WG Schulze “Electronic Fund Transfers and the Bank’s Right to Reverse a Credit Transfer: One Big
Step (Backwards) for Banking Law, One Huge Leap (Forward) for Potential Fraud. Pestana v
Nedbank (Act One Scene Two) (2008) 20 SA Merc LJ 290
5
WG Schulze “Electronic Fund Transfers and the Bank’s Right to Reverse a Credit Transfer 292

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4.3. Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA)

A critical comment on the decision of the court: In considering the facts of the
case, we have first had to ascertain the relationship between the bank and Pestana.
The relationship is based on a contractual agreement where the client is the mandator
and the bank being the one that acts on their client’s mandate, taking regard to the
monies they are transacting with through the bank. Although the bank acted under the
obligation of a statutory provision surely, they understand they simultaneously
breaching their relationship with the client and may result in a lawsuit. To avoid this
type of situation Nedbank may consider in future to include an express term in their
contract with their clients which will include the right to unilaterally reverse a credit
transfer and may not include where the client made the payment through an Internet
banking or through an ATM6.

I am in agreement with the decision made in the Supreme court of Appeal as the bank
has no right to reverse any funds which are believed to have been made in good (In
Absence of substantial evidence) by the client, this breaches the contractual
relationship and if this was the inherent regulations of bank’s society would think twice
before they save their moneys with banks. Section 99 although its well within its
obligations to give notices, to a certain extend it infringes on a person’s right to
freedom, there are other measures that may be implemented to make sure Tax monies
are recovered.

6
WG Schulze “Electronic Fund Transfers and the Bank’s Right to Reverse a Credit Transfer 297.

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Section C

Question 5

5.1. Financial Inclusion

Financial inclusion is defined as a process that ensures the ease of access, availability
usage of formal financial services by all members of the community. The example of
these financial services include access to formal loans, remittance facilities, access to
credit, pension and insurance. Financial inclusion tries to eradicate dimensions such
as geographical proximity to a financial service provider and along with socio-
economic aspects such as cost prohibitive fees or document requirements which are
preconditions to accessing such financial products7.

5.2. Trade-off between financial inclusion and maintaining financial integrity

The trade-off in the given scenario lies between the objective of the financial inclusion
for Lesego by the financial sector (Bank). The bank seeks to protect itself against
financial crimes and other abuse. The international policies and regulations on anti-
money laundering and combating the financing of terrorism (AML/CFT) focus on the
protection against these financial crimes by emphasising the mandatory disclosure of
client and transaction information through the know-your-client (KYC) principle. These
mandatory disclosures are at times onerous and low-income household who ae unable
to produce required documents and thus the Risk-based approach has been
developed to help customers such as Lesego whilst the bank maintains its integrity.

5.3. The application of the risk-based approach

The risk-based approach enables accountable institutions to assess the money

laundering risks of certain combinations of client profiles, product types and
transactions. In this regard the Financial intelligence Centre advises as follows: “The
balance between the accuracy of the verification required on the one hand, and the
level of effort invested in the means to obtain such verification on the other, has to be
commensurate with the nature of the risk involved in a given business relationship or
transaction”.

After the 2017 amendment of FICA, accountable financial institutions must establish
and verify the client’s identity in accordance to its Risk Management Compliance
programme (“or RMCP). Accountable institutions must use a risk-based approach
when carrying out Customer Due Diligence (CDD) measures, this simply means that
the institution decides on which CDD measures to use in case of the specific type of
money laundering they may have identified when conducting a risk assessment in
terms of the RMCP. Where there is a high risk of money laundering the institution will
use enhanced measures of the CDD and where there is low risk, simplified measures

7
Schulze WG Prof et al Banking Law and Usage 64.

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will be used, this is meant to alleviate the “one size fits all” approach and allow flexibility
improved financial inclusion for the customer8.

Taking the facts provided into consideration, and based on the risk-based approach
and CDD, the bank may be allowed to be lenient with their rules for identification and
verification when a client poses low risk of money laundering, this is the case with
Lesego, who is financially excluded based on her geographical proximity which does
not enable her to produce a utility bill.

5.4. Is a bank regarded as an accountable institution or a reporting institution in

terms of FICA?

A bank is regarded as an Accountable institution in terms of section 1 of FICA.

Reporting institutions are listed under Section 3 of FICA, at present only Motor vehicle
dealers and Krugerrands dealers are listed under section 3 as reporting institutions.

Section 29 of FICA imposes obligations on bank’s as accountable institutions to report

transaction to the centre which may be suspicious and unusual transactions. The value
of this obligation is twofold, it helps with the screening and subsequent reporting of
certain transactions that help control money laundering activities, secondly
accountable institution keeps record of information in documented manner which is
crucial for prosecutorial purposes.

8
Schulze WG Prof et al Banking Law and Usage 204.

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Question 6

6.1. What is meant by a “Twin peaks model” of financial regulation?

The Twin peaks model of the financial regulator entails the establishment of two
primary financial regulators (“Peaks”). A prudential regulator is regarded as a peak
and the market regulator is regarded as another peak. This model is meant to address
the issues that arise from in the conflict between the business interests of financial
institutions and the interests of consumers9. The prudential regulator is meant to
address the soundness and solvency of financial institution and the market regulator
is meant to oversee the consumer protection by protecting consumers of/within
financial services. The twin peaks model in South Africa has two fundamental
objectives, and those objectives are: 1) To Strengthen consumer protection and
market conduct in the financial sector; and 2) To create a more resilient financial
system in South Africa.

The South African Twin Peaks model will operate under the administration of the South
African Reserve Bank (SARB), the role of the SARB will be that of a prudential
regulator, enhancing soundness and solvency of the regulated financial services. The
Financial Sector Authority is the market conduct regulator who protects consumers of
financial service whilst instilling confidence in the financial system.

6.2. Twin peaks model Vs South Africa’s previous model of financial regulation.

This new model is meant to address the problems of the previous fragmented financial
system in South Africa, where financial markets were regulated by different regulators.
For example Banks were regulated by the Banking Regulation supervision Department
of the SARB and non-banking institutions were regulated by the Financial Services
Board (FSB), whilst other regulators were regulated by various sectors of the financial
markets and hence the need for a model such the twin peaks model.

A shift away from the fragmented model reduces the possibility of regulatory arbitrage
- this means the to allow financial institutions to act beyond their reach of regulators
which may allow them to use loopholes in the system or forum shopping, where
complaints go through a forum that they believe will be lenient in favour of their own
complaint regarding a certain matter, and would close the gaps in the financial
regulatory system.

In contrast with the previous model which was more of a “Silo Approach” of a
fragmented model, The twin peak model establishes two regulators: a prudential
regulator meant to address the problems within financial institutions and a market
regulator which seeks to consumers within the financial sector. This model is seen as
a more effective model as it aims to simplify and streamline the South African
regulatory structure within the financial system.

9
Schulze WG Prof et al Banking Law and Usage 225.

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6.3. Financial stability review

One of the powers bestowed on the SARB is to protect and enhance financial stability.
At least every six months, the SARB should assess the stability of the financial system,
this assessment is known as the “financial stability review”

The following are the elements the review will comprise of10:

- The SARB’s assessment of financial stability in the period under review

- The SARB’s identification and assessment of the risks to financial stability
in at least the next 12 months
- An overview of the steps taken by the SARB and the financial sector
regulators to identify and manage risks, weaknesses or disruptions in the
financial system, during the period under review and the action envisaged
to be taken during the next 12 months
- Lastly, an overview of the recommendations made by the SARB and the
financial stability oversight committee during the period under review and
the progress that has been made in implementing such recommendations.

The financial stability committee should deviate from publishing material that may
cause a systematic event/s if published. A copy of each review must be submitted to
the Minister of finance and financial oversight committee, for their information and
comment thereof, after taking any recommendations or comments into account, only
then may the SARB publish the review.

10
Schulze WG Prof et al Banking Law and Usage 228.

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LML4807

BANKING LAW AND USAGE

MAY/JUNE 2019

QUESTION 1

Briefly explain the following concepts

1.1. E-money

Definition: Electronic purse is a card with an embedded computer chip containing real
value in the form of electronic money which was paid in advance, some of which can be
reloaded with further funds and which can be used for a range of purposes. Rights and
obligations between parties are determined by written terms and conditions of contract
and in the absence of dedicated legislation, card issuers unilaterally determine such
terms.

1.2. M-money
“M” stands for mobile. Entails an e-money transfer service that uses a mobile
handset. Customers do not require a conventional bank account. Funds will be
kept in an offshore-account and customers will be able to make numerous kinds
of transactions much like a credit card.

1.3. Safekeeping
A person may leave his or her (valuable) articles with a bank for safe custody on
the understanding that the bank will return the same articles on request. (It is a
true depositum and the relationship between the parties will be governed by a
contract of deposit).
It must be noted that the bank is not liable as a depositary for the safety of such
valuables because the legal relationship between the parties is governed by a
rental agreement. The terms of the rental agreement are usually contained in a

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standard printed contract, which expressly excludes the bank’s liability for loss
and damage.
1.4. Stop Order
The stop order is a payment mechanism employed in conjunction with a current
or transmission account. It contains a written instruction from the account holder
to the bank to pay a fixed amount on a regular basis (eg monthly) to a specified
third party and to debit the customer’s account with the amount. It is used for
reasons of convenience to effect regular payments of a fixed amount such as
rent, insurance premiums, hire purchase payments and loan payments.

The stop order is thus a payment instruction the bank performs on behalf of the
account holder to effect regular fixed payments to a specified 3rd party and debit
the holders account with the amount. Eg rent, repayment of loan 2. The legal
relationship is founded on mandatum, and the banks obligation as mandatory to
perform the payment instruction is conditional on the availability of sufficient
funds in the holders account, or the holder has made an agreement to pay.

QUESTION 2

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Solution

The legal relationship between a bank and its customer is based on contract.
More specifically, it is based on the contract of mandate in terms of which the
client is the mandator and the bank the mandatory.

Where he customer deposits money with the bank, or where the customer has a
credit balance in his or her current account, the relationship also involves the
contract of mutuum (loan for use). The bank then becomes the owner of the
money so deposited with the bank, and the client has a claim against the bank
for a similar amount of money at a later stage.

In the case of Joint Stock Varvarinskoye, the court held that a relationship
between bank and customer is based on contract. It involves a debtor and
creditor relationship, in terms of which the bank becomes owner of money
deposited on the client’s account, subject to its obligation to its customer to pay
cheques drawn on it. In this case, Absa Bank merely acted as the appellant’s
agent to warehouse the money for that specified purpose. It therefore follows that
there could be no set-off against money in that account. In the case of Joint
Stock, the court held that it is incorrect to assume that only an account holder
may assert a claim to money deposited in its account with a bank. Such money
belongs to the bank. However, depending on the circumstances another may
have a valid claim to such money. In this case the bank was aware of the
purpose of the account from the beginning.

In the given set of facts, the money deposited in Shannon’s account held at Elite
Bank becomes the money of the Bank. Shannon holds a personal claim against
the Bank for repayment of a similar amount. Such money belongs to the Bank
and the bank has the right to set-off against the balance of Shannon’s current
account. John will likely not be successful in preventing Elite bank from applying
its right to set-off.

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(also apply the decision of Standard Bank of SA v Oneanate Investments

(Pty) Ltd).

2.2.

Solution

Relationship and repayment: A fixed deposit is an investment account that

consists of a single deposit, for a fixed term at a guaranteed fixed rate of interest.
FD is a loan to a bank who is obligated to repay on or after its maturity date,
usually bearing interest. The nature of the contract is one of loan for consumption
(mutuum), and the fixed deposit receipt is merely evidence that the loan has
been received and confirmation of some of the terms of the contract.

Since the parties agreed expressly on the maturity date, the bank will be under
an obligation to repay the fixed deposit on or after maturity only.

Advances against fixed deposits: If the customer requests the fixed deposit
before the maturity date and the bank refuses to accommodate the request, the
customer may apply for a loan using the fixed deposit as security. This can take
place in 2 ways:

1. Pledging of the right against the bank as security for the loan.

2. Mere agreement that the bank may deduct any outstanding amount from the
loan when the fixed deposit becomes repayable. A complete cession of the
customer's personal right, coupled with a reverse cession of that right when the

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loan is repaid, does not seem to be a possibility because that would lead to a
merger of debts (confusio) - the bank would become its own debtor.

Transferability of fixed deposits: if the depositor's rights may indeed be ceded,

the delivery of the deposit receipt is not a requirement for the cession of the
depositor's rights against the bank. In Botha v Fick the question whether it is an
additional requirement for the valid cession of a personal right that the document
evidencing the right must be delivered to the cessionary was explained as
follows:

1. As a general rule, mere agreement between the cedent and the cessionary to
transfer and receive the right is sufficient to cede a personal right. Accordingly, if
the right is evidenced by a document, delivery of the document is not required for
the cession of the right.

2. Only if the right is of such a nature that it cannot exist independently of the
document in which it is embodied, as in the case of a negotiable instrument, is
delivery of the document indeed a requirement for cession of the right.

3. Although a shareholder's rights are evidenced by his or her share certificate,

those rights exist independently of the share certificate. Accordingly, delivery of
the share certificate is not a requirement for the cession of his or her rights,
although the company has to acknowledge the cessionary as a member only
after registration of the transfer.

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QUESTION 3

3.1.

Two-party credit cards

Two-party credit cards are usually issued to their clients by large chain stores
where the card issuer and the supplier are the same entity and the issuer and the
cardholder are the only two parties involved. The card holder pays the
issuer/supplier at the end of the month or after whatever time they agree on.

The operation of tripartite credit cards:

Three-party credit cards issued by a financial institution such as a bank to its

client, who use the card to effect purchases from the suppliers who enter into
contract concluded by the issuer in terms of which the supplier agrees to accept
payment in the future. The bank (issuer) acts as payment intermediary between
the card holder and the supplier.

Three contractual relationships are involved:

a) issuer and card holder

b) issuer and supplier
c) supplier and card holder.

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3.2.

Customer receives card and PIN and ATM instructed to inter alia, pay out an amount in
cash, to transfer an amount from one account to another, to accept a deposit or request
statements. The risk of an unauthorised deposit depends on the type of deposit and
contractual terms.

2. With respect to unauthorised withdrawals the question is whether the customer may
be debited with such amount. Generally there is a contractual agreement that the client
will bear the risk unless the bank is informed prior to the withdrawal in which case client
does not have to accept the debit. It is reasonable to assume client consents to risk by
virtue of the way ATM‟s operate where the identity of person using card and pin cannot
be verified. If client disputes such risk the onus would rest on the client to prove that the
thief obtained the PIN either from one of the bank's employees, or that the thief obtained
the PIN through the negligence of the bank or one of its employees

3. Although bank can debit clients account only if payment is made to client or
according client‟s instructions there is a possible tacit term that the customer would
carry the risk of an unauthorised withdrawal. Van den Berg v Tenner the court referred
to the topic of tacit terms and ruled that the surrounding circumstances on conclusion of
the contract, play an important role when determining the intention of the parties.

4. SA courts have no precedent where there is no agreement on the allocation of risk

for unauthorised withdrawals. In such a case the general principles of South African law
will probably dictate that the client will bear the loss of any withdrawal made by means
of the card and PIN.

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Jack should have kept his pin to himself, he was negligent with his card information. He
is liable for the withdrawal that took place before notifying the bank.

QUESTION 4

QUESTION 5

In the past not everyone who was involved in the business of money lending needed to
register as a credit provider. The Act now provides that the Minister of Trade and
Industry must determine a threshold, for the purpose of determining whether or not a
credit provider is required to be registered with the National Credit Regulator. In other
words, the Act provides that a person must register as a credit provider with the NCR if
he or she provides credit and the total outstanding debt owed to him or her by all the
debtors if such amount exceeds the threshold amount determined by the Minister. On
11 November 2016 the Minister determined the amount as NIL (R0). The R0 threshold
determined by the Minister means that any person or entity that trades as a credit
provider, irrespective of the size of the loan must register as credit provider with the
NCR.

On registration, the credit provider will be issued with a certificate of registration. The
credit provider must grant the NCR access to its place of business and comply with
legislation, including the Financial Intelligence Centre Act 38 of 2001 (“FICA”).

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Natural and juristic persons may register as a credit provider. However, a number of
grounds disqualify a natural person from registering as a credit provider: insolvency (an
unrehabilitated insolvent may not register), age (must be 18 or older), and conduct (a
person removed from an office of trust on account of fraud or the misappropriation of
money, or convicted of theft, fraud or forgery or a crime involving violence and who has
been sentenced to imprisonment without the option of a fine).

What is the sanction where a credit agreement is concluded by a credit provider who is
required to be registered, but who is not, in fact, registered? Any such agreement is
unlawful and therefore void retrospectively. If an agreement is unlawful, the Act provides
that a court must make an order that is just and equitable. If a credit provider is, for
example, not registered with the NCR, a court may order that the credit provider may
only recover the capital amount granted to the consumer, but not any interest or other
fees charged to the consumer.

The Tribunal will cancel the registration of a credit provider at the request of the NCR if
the credit provider repeatedly:
fails to comply with any condition of its registration;
contravenes the Act; or
fails to meet a Black Economic Empowerment commitment or an over-indebtedness
reduction commitment.

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The National Credit Act 34 is the first credit enactment in South Africa that made an
assessment of affordability compulsory before credit is extended to the consumer.
However, until recently the Act did not contain direct prescriptions on how this
assessment should be conducted. A credit provider was therefore allowed to determine
its own evaluative mechanisms or models and procedures to be used in meeting its
assessment obligations. The only requirement was that the credit provider conducts a
fair and objective assessment.

The position changed when the National Credit Amendment Act 19 of 2014 became
effective. Credit providers are still free to use their own evaluative mechanisms, subject
thereto that a fair and objective assessment is conducted. However, there is now the
additional requirement that such mechanisms must not be inconsistent with the
Affordability Assessment Regulations made by the Minister of Trade and Industry.

In the past many consumers were under-declaring their expenses in order to qualify for
credit causing many consumers to be over-indebted. Furthermore, the Affordability
Assessment Regulations now set a minimum expenses norm per income category. In
terms of the Affordability Assessment Regulations a consumer’s income needs to be
verified. The aim of the Affordability Assessment Regulations is to prevent over-
indebtedness of consumers and to prevent reckless credit granting.

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QUESTION 6

The guidance notes further recommend utilisation of a “risk-based approach” in terms

of which information needs to be verified. This approach entails that the greater the
perceived risk of money laundering is thought to be, “the higher the level of verification,
and the more secure the methods of verification used, should be”

The risk-based approach also enables accountable institutions to assess the money
laundering risks of certain combinations of client profiles, product types and
transactions. In this regard the Centre advises as follows: The balance between the
accuracy of the verification required on the one hand, and the level of effort invested in
the means to obtain such verification on the other, has to be commensurate with the
nature of the risk involved in a given business relationship or transaction.

S22 (1) determines that whenever an accountable institution establishes a business

relationship or concludes a transaction with a client, it must keep a record, among other
things, of the following:

Client‟s identity or the person on whose behalf the client is acting

Manner in which the identities were verified

Nature of the business relationship or transaction

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Amount involved and the parties to a transaction

All accounts involved in transactions concluded for a client

Documents utilised to verify the client’s identity

QUESTION 7

S13 (2) the registrar must be satisfied concerning certain aspects before granting an
application for the authorisation. The most important are:

That the establishment of the proposed bank will be in the public interest

That the proposed business of a bank will be conducted in the capacity of a public
company incorporated under the companies act

That the applicant will be able to establish itself successfully as a bank

That the applicant will have the financial means to comply with the financial
requirements of the banks act

That the proposed business as a bank will be conducted in a prudent manner

That every person who is to be an executive officer of the proposed bank has
sufficient experience of the management of the kind of business it is intended to
conduct

That every person who in to be director or an executive officer of the proposed bank
is, as far as can reasonably by ascertained, a fit and proper person to hold the office of
such director or executive officer

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BANKING LAW

LML4807

OCTOBER/NOVEMBER 2018

QUESTION 1

Briefly explain or discuss the following:

1.1. A creditor’s rights in terms of a stop order:

The creditor does not derive rights from the stop order
The creditor in favour of whom the stop order is made out usually obtains no right
against the bank or the debtor/account holder who has given the stop order,
since it results in an obligation between the bank and the account holder only.
The account holder may revoke his or her instruction at any time by cancelling
the stop order and the creditor cannot legally object.
In the case of a cheque the account holder can also revoke the payment
instruction contained in the cheque by countermanding payment, that is by
instructing the bank not to pay the cheque.

1.2. Safekeeping:
A person may leave his or her (valuable) articles with a bank for safe custody on
the understanding that the bank will return the same articles on request. (It is a
true depositum and the relationship between the parties will be governed by a
contract of deposit).
It must be noted that the bank is not liable as a depositary for the safety of such
valuables because the legal relationship between the parties is governed by a
rental agreement. The terms of the rental agreement are usually contained in a
standard printed contract, which expressly excludes the bank’s liability for loss
and damage.

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1.3. A bank’s common-law duty of confidentiality:

Bank confidentiality: refers to all activities performed within the context of

banking business. The purpose of which is to prevent disclosure between one
entity in a group and another. At common law, banks owe a duty of confidentiality
to their customers not to disclose any details. The duty arises by way of an
implied obligation that stems from the nature of the bank and customer
relationship. Three reasons customers of a bank have a right to expect that their
dealings with the bank will be treated as confidential:
1. the right to personal privacy;
2. the contractual relationship between a bank and customer; and
3. Statutory provisions governing banking confidentiality.

Tournier v National Provincial & Union Bank of England the Appeal Court
decided that the duty not to disclose confidential information is an implied term of
the contract between a bank and its customer. The court indicated that the nature
of such a duty as a legal duty arising out of the contract, and cannot be defined.
At most, the duty can be classified and its limitations indicated. Such duty arises
from the moment the relationship is established, and continues after a customer's
death extending to any information derived from the account. Except in 4
circumstances, a bank may violate its customer's confidentiality when:
1. mandated by law, (statute)
2. it is in the public's interest to do so,(court order)
3. it is in the interests of the bank to do so, and
4. On the express or implied consent of the customer. (Agreement).

1.4. Mutuum:

(Loan for use): Where the customer deposits money with the bank, or where the
customer has a credit balance in his or her current account, the relationship also
involves the contract of mutuum. The bank then becomes the owner of the
money so deposited with the bank, and the client has a claim against for a similar
amount of the money at a later stage.

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1.5. The operation of tripartite credit cards:

Three-party credit cards issued by a financial institution such as a bank to its
client, who use the card to effect purchases from the suppliers who enter into
contract concluded by the issuer in terms of which the supplier agrees to accept
payment in the future. The bank (issuer) acts as payment intermediary between
the card holder and the supplier. Three contractual relationships are involved:
a) issuer and card holder
b) issuer and supplier
c) supplier and card holder.

QUESTION 2

2.1. Whereas a customer may terminate the contract summarily, the bank must give
reasonable notice of termination. The court in Bredenkamp v Standard Bank
(supra) confirmed the principle that if the bank wishes to terminate the contract, it
must give reasonable notice. What a reasonable notice is will depend on the
circumstances of each case. Banks undertake in the Banking Code that they will
not close customers’ accounts without giving them “reasonable prior notice”. In

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terms of the English Banking Code, banks undertake to give their clients at least
30 days’ notice prior to the closing of an account. Schulze states that, generally,
a period of 30 days will constitute a reasonable notice.

2.2. The bank must ensure that its decision to terminate the contract does not cause
the customer to become (temporarily) unbanked unless there are compelling
reasons. Schulze believes that the circumstances present in the Bredenkamp
case constituted a good example of the type of situation that would excuse a
bank from the obligation of preventing the customer from becoming unbanked.
The reasons and circumstances which led to Standard Bank’s termination of the
contract would in all likelihood also have caused other banks to terminate any
bank-customer relationship with Bredenkamp. In these circumstances Standard
Bank would find it difficult, if not impossible, to convince another bank to take
Bredenkamp as a customer. In this regard Harms DP’s reasoning in the
Bredenkamp appeal is compelling: “I find it difficult to perceive the fairness of
imposing on a bank the obligation to retain a client simply because other banks
are not likely to accept that entity as a client” (par 60).

Students need to apply the reasoning of the court in Bredenkamp case to

the set of facts given in the above scenario.

QUESTION 3

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QUESTION 4

4.1. Credit agreement

In terms of section 8 of the National Credit Act 34 of 2005, an agreement will

qualify as a credit agreement for purposes of the Act if it is:
1. a credit facility eg a credit card
2. a credit transaction eg an instalment agreement or a mortgage agreement
3. a credit guarantee eg a suretyship

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4. any combination of (a)-(c)

An agreement will not be a credit agreement if it is:

1. an insurance policy
2. a lease of immovable property, or
3. a transaction between a stokvel and one or more of its members

Any agreement which is or contains any combination of a credit transaction or a

credit guarantee is a “credit agreement” for the purposes of the Act and is
therefore subject to the provisions of the Act.

4.2. Credit facility

In terms of section 8 of the National Credit Act:

Credit facility defined as-an agreement in terms of which a credit provider
undertakes to supply goods or services or to pay amount/s, as determined by the
consumer, to the consumer or on his behalf or direction and either to defer the
consumer's obligation to pay any part of the goods or services, or to repay any
part of any amount to the credit provider; or bill the consumer periodically for any
part of the costs of goods or services.

Eg of a credit facility would be a credit card transaction. In a credit card

transaction, the credit provider undertake to pay an amount as determined by the
consumer to a third.

4.3. Pawn transaction

It is where the one party advances money or grants credit to another and, at the
time of doing so, takes possession of goods as security for the money advanced
or credit granted. The resale value of the goods exceeds the value of the money
provided or credit granted. The party who has advanced the money or granted
the credit has the right to sell the goods on expiry of the agreement and retain all
the proceeds of the sale in settlement of the consumer’s obligation under the
agreement.

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4.4. Credit guarantee

The Act describes a credit guarantee as an agreement in terms of which a
person undertakes to satisfy on demand any obligation of another consumer (eg
by way of suretyship) in terms of a credit facility or a credit transaction to which
the Act applies.

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QUESTION 5

5.1. The main part of the definition reads as follows:

“An amount of money paid by one person to another person subject to an

agreement in terms of which-
1. an equal amount or any part thereof will be conditionally or unconditionally
repaid, either by the person to whom the money has been so paid, or by any
other person, with or without premium, on demand or at a specified or
unspecified dates or in circumstances agreed to by or on behalf of the person
making the payment and the person receiving it; and

2. no interest will be payable on the amount so paid or interest will be payable

thereon at specified intervals or otherwise”

It is sufficient if only a portion of the amount is repayable, whether conditionally or

unconditionally.

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5.2. Certain payments are excluded from the concept of deposit:

• any payment in consideration for property, the use of property or for services
although the contract itself makes provision for repayment in certain
circumstance
• an amount paid as security for the performance of a contract or as security in
respect of any loss that may result from the non-performance of a contract
• An amount paid as security for the delivery or return of any movable or
immovable property, whether in a particular state of repair or otherwise.
• An amount paid by a holding company to its subsidiary, or by a subsidiary to
its holding company, or by one subsidiary to another subsidiary of the same
holding company
• An amount paid by a person, who at the time of such payment is a close
relative, a director or executive officer, or a close relative of a director or
executive officer of the person to whom such money is paid
• An amount paid by any person to a registered insurer as a premium in
respect of any insurance policy
• An amount paid to a registered pension fund as a contribution by or on behalf
of a member of that fund
• An amount paid to a benefit fund as a contribution or subscription by or on
behalf of a member of that fund.

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QUESTION 6

6.1.
(a) If the system is on-line, an EFTPOS payment shows similarities with a cash
payment and the sale agreement between the customer and the merchant is
concluded as soon as the crediting and debiting of the different accounts are
completed.

However, in an offline system, the bank undertakes to pay, provided that the
merchant stays within the pre-arranged limit. There is thus a third party (the
Bank) who also undertakes a payment obligation towards the merchant. Given
this, it may be argued that the cardholder, who uses an electronic fund transfer in
an offline system where the financial institution undertakes to pay the merchant,
obtains ownership with delivery, although real payment is effected at a later
stage.

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(b) In an EFTPOS transaction there are at least three interdependent contracts:

1. customer/merchant (Anthea/Mr Diamond) - Its main element is the sale of

the items and an implied term that the merchant will accept a properly validated
EFTPOS card in satisfaction of the customer's obligation to pay for the groceries.
This term is implied from the presence of the EFTPOS card reader at the point of
payment and the merchants advertising of the fact that certain cards are
accepted.

2. customer/bank (Anthea/Elite Bank) - Usually, the relationship is governed by

the agreement containing standard terms such as inter alia:
a) The customer is generally (at least initially) liable for all uses made of the card
or PIN, whether authorised by him or her or not. In some cases, liability for
unauthorised transactions is limited in the terms of the contract (eg on informing
the bank of the loss of the card or PIN).
b) Customer is obligated to keep the PIN a secret.
c) EFTPOS transaction is irrevocable.

3. merchant/bank (Mr Diamond/Elite Bank) - standard commercial bank

account contract containing particular terms relating to EFTPOS payments such
as:
a) Time at which the merchant's account at the bank will be credited with an
EFTPOS payment, and to the procedures for dealing with erroneous or
unauthorised transactions.

(Where more than one bank participates in the system, there will of course also
be a further contractual agreement between the settlement banks.)

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6.2. FICA imposes threshold reporting obligations for accountable institutions (listed
in schedule 1) and reporting institutions (listed in schedule 3).

At present, only dealers in motor vehicles and dealers in Kruerrands are listed in
schedule 3 as “reporting institutions”.
• In addition to suspicion-based reports, accountable and reporting institutions are
compelled to file reports which concern:
cash transactions in excess of a prescribed amount
cash conveyances in excess of a prescribed amount, to and from South Africa,
before the cash is conveyed
international money transfers through electronic funds transfers in excess of a
prescribed amount
• The abovementioned obligation constitutes the threshold-based reporting leg of
the hybrid theory. The threshold at present is R5 000.

Mr Diamond have an obligation under FICA since he is a dealer in Krugerrands

hence he falls under the threshold of reporting institutions as listed in schedule 3.
Also Anthea’s transaction falls under suspected transactions because it is a cash
payment of R15 000, which exceeds the prescribed limit
(at present moment R5 000).

6.3. PAGE 226 OF THE STUDY GUIDE, FIRST PARA (…. Gold coins may be
tendered ………….)
(Answer ----- YES Athea can tender the Krugerand in payment of a money debt……)

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QUESTION 7

S13 the bank may not:

1) Purchase its own stock, or grant loans or advances against security thereof

2) Without the consent of the Minister purchase shares of a bank, or grant loans or
advances against security thereof

3) Lend money on security of any bond or acquire immovable property

4) Buy, discount or rediscount bills or exchange or promissory notes drawn or

issued for commercial or industrial purposes, which have a maturity exceeding
120 days

5) Buy, discount or rediscount bills of exchange or promissory notes drawn or

issued for agricultural purposes, which have a maturity exceeding 6 months

6) Hold in stocks of the government of the republic a sum exceeding its paid-up
capital and reserve fund plus one-third of its liabilities to the republic

SEE PAGE 224 PARA 11.4.2.

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BANKING LAW

LML4807

MAY/JUNE 2018

QUESTION 1

Briefly explain the following

1.1. The bank’s duty of care
Due to the bank-customer relationship being one of debtor and creditor arising
from a contract, the bank has a common law duty of care with respect to its
customer’s affairs. In terms of this duty, a bank must foresee the possibility of
harm occurring to a customer in the circumstances and take steps to prevent
such an occurrence. The extent of this duty is determined by:
1. the nature of the contract between the parties; and
2. where negligence is alleged in terms of a delict, reasonableness and justice
based on the relevant facts and circumstances of the matter.

In Durr v Absa Bank the appellant (customer) lost money because of poor
investment advice given by the bank's investment advisors. The court held that
the test to establish whether the advisor had acted negligently in giving the
investment advice was whether he failed to act with ``the necessary skill and
knowledge of a regional manager of the broking division of a bank professing
investment skill and offering expert investment advice''. The court held that, in
terms of this test, the advisor indeed acted negligently and that the bank was
liable for the advisor's conduct because it had accepted vicarious liability.

1.2. Depositum
Depositum is a contract in terms of which one person (the depositor) delivers an
object to another (the depository) who keeps it in his custody without using it and
with the obligation to return the same object to the depositor.

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1.3. Two-party credit cards

Two-party credit cards are usually issued to their clients by large chain stores
where the card issuer and the supplier are the same entity and the issuer and the
cardholder are the only two parties involved. The card holder pays the
issuer/supplier at the end of the month or after whatever time they agree on.

1.4. Advances against fixed deposits

Advances against fixed deposits: If the customer requests the fixed deposit
before the maturity date and the bank refuses to accommodate the request, the
customer may apply for a loan using the fixed deposit as security. This can take
place in 2 ways:
1. Pledging of the right against the bank as security for the loan.
2. Mere agreement that the bank may deduct any outstanding amount from the
loan when the fixed deposit becomes repayable.

A complete cession of the customer's personal right, coupled with a reverse

cession of that right when the loan is repaid, does not seem to be a possibility
because that would lead to a merger of debts (confusio) – the bank would
become its own debtor.

1.5. The relationship between a bank as issuer of a credit card and a card
holder
A credit card account is a current account on which individual debts are
continuously set off and are thus normally extinguished by set-off, so that only
the balance remains. Contacts between card issuers and holders provide that
payment made in good faith by the issuer, even if the billing slip has not been
signed or the holders signature has been forged, may be debited against the
holder’s account unless in terms of the contract notice has been given in good
time (before bank incurs liability against supplier) of the loss of the card, will this
risk not rest on him. Most card issuers nowadays offer to carry this risk
themselves against payment of an additional fee for the use of the card.

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QUESTION 2

2.1. The bank would in the ordinary course of events not be under any
obligation to inform the customer of its reasons for termination. The motive
of a party in exercising a (contractual) right is usually irrelevant. However,
it is strongly advised that a bank does inform a customer of the reasons
for exercising its contractual rights. An absence of such communication
could easily be construed as an absence of bona fides, or even worse, as
a possible abuse of contractual rights by the bank (Bredenkamp appeal).

2.2. Where the bank has terminated the contract, it generally remains obliged
to keep confidential certain information concerning its former customer.
Upon termination of the bank-customer agreement, the bank’s duty of
confidentiality ceases to have a contractual obligation. But it nevertheless
continues to exist and a bank should not without “good cause” disclose
any confidential information about the former customer’s banking affairs.
Disclosure of a customer’s banking affairs may be made under the
following circumstances: (a) where disclosure is under compulsion of law;
(b) where there is a duty to the public to disclose; (c) where the interests
of the bank require disclosure; or (d) where the disclosure is made by the
express or implied consent of the customer.

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Thus, only where there is an overriding principle which requires disclosure

of the customer’s affairs, such as the circumstances present in
Bredenkamp v Standard Bank, is a bank allowed to disclose it. Schulze
states that in the Bredenkamp case there was indeed, on Standard Bank,
if not a public duty, then at least a duty to the banking community at large
to disclose to that community that it had terminated the agreement with
Bredenkamp and also to disclose the reasons for terminating the
relationship.

QUESTION 3
3.1.

1. customer/merchant - Its main element is the sale of the items and an implied
term that the merchant will accept a properly validated EFTPOS card in
satisfaction of the customer's obligation to pay for the groceries. This term is
implied from the presence of the EFTPOS card reader at the point of payment
and the merchants advertising of the fact that certain cards are accepted.

2. customer/bank - Usually, the relationship is governed by the agreement

containing standard terms such as inter alia:
a) The customer is generally (at least initially) liable for all uses made of the card
or PIN, whether authorised by him or her or not. In some cases, liability for
unauthorised transactions is limited in the terms of the contract (eg on informing
the bank of the loss of the card or PIN).
b) Customer is obligated to keep the PIN a secret.
c) EFTPOS transaction is irrevocable.

3. merchant/bank - standard commercial bank account contract containing

particular terms relating to EFTPOS payments such as:

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a) Time at which the merchant's account at the bank will be credited with an
EFTPOS payment, and to the procedures for dealing with erroneous or
unauthorised transactions.

(Where more than one bank participates in the system, there will of course also
be a further contractual agreement between the settlement banks.)

3.2.

Physical loss of the electronic purse will result in the loss of any money stored
in the purse at the time of loss or theft, in the same way that cash would be lost.
Thus in terms of the South African Banking Code of Practice it is essential that
banks are informed as soon as the client suspects or discovers loss or theft of
the electronic purse. Where the client has informed the bank of such loss or theft
and the bank has acknowledged such notification, the bank will refund its client
the amount including interest and charges of any transaction where money is
transferred from the client's account to the electronic purse after the bank has
been informed of the loss or theft. If the client acts fraudulently or with gross
negligence he will be liable for all losses. The client’s failure to comply with
paragraph 4 of the Code may constitute such gross negligence.

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QUESTION 4

4.1. Is this a credit agreement under the NCA?

The general provision relating to which credit agreements fall under the NCA, is
included in section 4. (1 mark) According to section 4, the NCA applies to every
credit agreement between parties who deal at arm’s length (1 mark) where the
credit agreement is made or has an effect in South Africa. (1 mark) There are a
number of exceptions where the specific types of credit agreements will not be a
credit agreement under the NCA. However, we are sure you would agree with us
that it was clear from the facts that none of these exceptions were evident.
It is a credit agreement in terms of the NCA. The essential elements which must
be present are:
There is some deferral of repayment or prepayment; and (1 mark) [Patricia
paid off the R150,000 in installments]
There is a fee, charge, or interest imposed for the deferral of payment or a
discount given when prepayments are made. (1 mark) [Patricia would be paying
interest on the financed amount]

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If this is then a credit agreement under the NCA, what type of credit
agreement am I dealing with?
There are a few possibilities, as contained in section 8 (1 mark) of the NCA. We
did not award marks for this, but we include it for your information.
(a) a credit facility (e.g. a credit card)
(b) a credit transaction (e.g. an installment agreement)
(c) a credit guarantee (e.g. a suretyship)
(d) any combination of (a)–(c)

We hope you were able to determine that the credit agreement in the factual
scenario was a credit transaction. (1 mark) The type of credit transaction you
were dealing with was an installment agreement (1 mark).

The elements of an installment agreement are:

There were goods (the motor vehicle) bought on credit. (1 mark) [Patricia
bought a VW Polo.]
The purchase price was paid in installments. (1 mark) [The R150,000 was paid
over 60 equal monthly installments.]
And the seller retained ownership of the goods until the full purchase price has
been paid. (1 mark) [We tell you in the question that Goliath Bank remains the
owner of the vehicle until Patricia has fulfilled all her obligations in terms of the
agreement.]

In summary: the NCA applies because the transaction is an installment

agreement in terms of the NCA.

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4.2. The general rule is that the credit provider is not allowed to unilaterally increase
the periodic or incidental service fees, or the method of calculating such fees.
The Act provides for certain exceptions to this general rule:
1. If the interest rate in respect of a credit agreement with a fixed interest rate is
to be changed by the credit provider, it must give the consumer written notice
of at least five business days. This notice must be given before the interest is
changed.

2. the credit provider is not allowed to unilaterally increase the rate of interest
applicable to a credit agreement, except where the contract itself provides for
a variable interest rate, in which case the credit provider must give written
notice to the consumer, not later than 30 business days after the day on
which a change in the variable interest rate takes effect. In the case of a
credit agreement with a variable interest rate, therefore, the credit provider
does not need to give notice beforehand of an increase in the interest rate;
but notice must be given not later than 30 days after the increase has taken
effect.

3. The agreement may only provide for a rate to vary in future if the variation is
by fixed relationship to a reference rate. Otto (in The National Credit Act
explained) provides the following example (which complies with the provisions
of the Act here): The parties agree that the bank may at any time increase or
reduce the interest rate by the same margin as, and in accordance with,
changes in the bank’s prime lending rate announced from time to time.

The contractual term providing for interest rate amendments in the above
question is valid.

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4.3. The contractual term that obliges Patricia to provide her PIN and bank card to the
bank is invalid. This is so because the act listed it as an unlawful provision of
credit agreements. The Act states that:
Any agreement by the consumer to deposit with the credit provider or an agent
any identity document, PIN, bank access card or similar payment device on
behalf of the consumer (this provision attempts to prevent the infamous “card-
and-pin” method of assessing repayment by the consumer).

QUESTION 5

5.1. Section 1 of the 1998 Act defines “unlawful activity” broadly as conduct which
constitutes a crime either in South Africa or elsewhere.

5.2. The 1998 Act defines “property” widely as money or any other movable,
immovable, corporeal or incorporeal thing. Rights, privileges, claims, securities
and any interest in, and all proceeds of, such property are also included in the
definition.

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5.3. The guidance notes further recommend utilisation of a “risk-based approach” in

terms of which information needs to be verified. This approach entails that the
greater the perceived risk of money laundering is thought to be, “the higher the
level of verification, and the more secure the methods of verification used, should
be”
The risk-based approach also enables accountable institutions to assess the
money laundering risks of certain combinations of client profiles, product types
and transactions. In this regard the Centre advises as follows: The balance
between the accuracy of the verification required on the one hand, and the level
of effort invested in the means to obtain such verification on the other, has to be
commensurate with the nature of the risk involved in a given business
relationship or transaction.

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QUESTION 6

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a) No (little entitlement)
b) Yes
c) Yes
d) No

6.2. Nedbank Ltd v Pestana

The respondent, Mr Jose Manuel Pestana, conducted a current account at the

Carletonville branch of the appellant, Nedbank. A different Mr J M Pestana
(Pestana) conducted a similar account at the same branch. On 4 February 2004,
Pestana instructed the branch to transfer R480 000 from his account to the
account of the respondent. The bank duly complied with this instruction and
credited the respondent’s account. Unbeknown to the bank official at the branch
who effected the transfer, Nedbank had earlier that same day received an
instruction from SARS, informing the bank that Pestana owed SARS some R340
million. Nedbank was accordingly appointed as agent for Pestana in terms of sec
99 of the Income Tax Act 58 of 1962 and was instructed to pay to SARS the
amount standing to the credit of Pestana. The bank accordingly reversed the
credit in the respondent’s account without authority from the respondent and paid
the money to SARS.

The respondent sued Nedbank in the Johannesburg High Court for payment of
the amount of R 480 000, but the claim was dismissed by the court of first
instance. On appeal to the full court in Johannesburg, the claim succeeded. On
further appeal to the Supreme Court of Appeal, the court agreed with the full
court that payment to the respondent had taken place. Furthermore, there was
no evidence before the court to indicate that the payment was conditional or that
there was anything improper about the instruction by Pestana to the bank to
transfer the money to the account of the respondent. The SCA accordingly
dismissed the appeal and ordered Nedbank to pay the costs of the respondent,
including the costs of two counsels.

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QUESTION 7

Commercial paper:
It is any written acknowledgement of debt. It therefore includes promissory notes,
debentures (which are issued by companies) and any other document containing an
acknowledgement of debt, except bankers’ acceptances.

Deposit:
“An amount of money paid by one person to another person subject to an
agreement in terms of which-
3. an equal amount or any part thereof will be conditionally or unconditionally
repaid, either by the person to whom the money has been so paid, or by any
other person, with or without premium, on demand or at a specified or
unspecified dates or in circumstances agreed to by or on behalf of the person
making the payment and the person receiving it; and

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4. no interest will be payable on the amount so paid or interest will be payable

thereon at specified intervals or otherwise”

It is sufficient if only a portion of the amount is repayable, whether conditionally or

unconditionally.

The definition of “the business of a bank”

The acceptance of deposits from the general public. The person concerned must carry
on the “business” of deposit taking without soliciting or advertising for deposits.
Employees of the person taking the deposit are also regarded as members of the
general public. General public does not include a registered bank
The soliciting of or advertising for deposits. Someone who solicits or advertises for
deposits is
irrebuttably presumed be carrying on the business of a bank. It is a question of degree
whether or notone is dealing with soliciting or advertising
The utilisation of money, or the interest or other income earned on money for certain
described purposes
The obtaining of money, as a regular feature of the business in question, through the
sale of an asset to any person other than a bank, subject to an agreement in terms of
which seller undertakes to purchase from the buyer at a future date the asset so sole or
any other asset. The effect is that someone who concludes “repurchase agreements” as
a business is deemed to be conducting the business of a bank.
The legislator‟s viewpoint on a repurchase agreement is defective in that it maintains
that the “second contract of sale” is only concluded at later stage. However, this is not
true. Only performance in terms of the “second contract of sale” is delayed
Any other activity which the registrar has after consultation with the governor of the
reserve bank, declared to be the business of a bank by notice in the government
gazette. This gives the registrar draconian powers
After the consultation with the governor of the reserve bank, the registrar declared
certain activities regarding specific business practises to be the business of a bank.
These include:

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Any agreement, arrangement or undertaking, whether legally enforceable or not,

between two or more persons; or
Any scheme, practice or method of trading, including any method of marketing or
distribution
The activities of such a practice which are declared as the business of a bank which
are the acceptance of money, directly or indirectly, from members of the public, as a
regular feature of a business practise, with the prospect of such members receiving
payments or other money-related benefits directly or indirectlya)
On or after the introduction of other members of the public to the business practice,
from which new participating members, in their turn, money is accepted or obtained,
directly or indirectly as a regular feature of the business whether or not- “

I. The introduction of the new participating members is limited to their introduction by

participating members or extends to the introduction of the new participating members
by other persons; or
II. New participating members are required to acquire moveable or immovable property,
rights or services;
b) On or after the promotions, transfer or change of status of the participating members
or new participating members in terms of the business practice”
The activities of soliciting, or advertising, directly or indirectly for money and/or
persons for introduction into or participation in such a business practice are also
declared to be the business of a bank.

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