South Africa

Details

  • Industry: Financial Services
  • Type: Regulatory update
  • Date: 2014/08/22

Africa Regulatory Center of Excellence

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JSE Capital Adequacy Requirements 

Capital adequacy is the amount of capital a bank or other financial institution has to hold as required by a financial regulator in this case the JSE. This is usually expressed as a capital adequacy ratio of equity that must be held as a percentage of risk-weighted assets. The JSE Capital Adequacy requirements were initially brought-out in August of 2001.

Capital adequacy requirements exist in order to protect investors. These requirements are put into place to ensure that these institutions do not take on excess leverage and become insolvent. Capital requirements govern the ratio of equity to debt, recorded on the assets side of a firm's balance sheet. They should not be confused with reserve requirements, which govern the liabilities side of a bank's balance sheet -in particular, the proportion of its assets it must hold in cash or highly-liquid assets.


The capital adequacy requirements depend on which market the JSE member wants to trade in, this could be the Equity Market, Derivate Market or Interest Rate and Currency Market.


As capital adequacy and requirements are something that is an extremely contentious and highly regulated issue there is constant review of the requirements that are needed and have indeed become more stringent since the 2008 economic crisis, therefore members are to submit monthly reviews of adequacy ratios to the Director of Surveillance in order for the JSE to monitor capital adequacy of its members and ensure compliance.


Due to the nature of risk and it being unpredictable and dynamic the Directives governing capital adequacy are reviewed on a continual basis in order to ensure that they are in-line with the current economic climate. Changes have been made regarding the frequency of reporting and date of reporting to the Director of Surveillance, for the purposes of monitoring, however, no significant changes are expected to be made to the Directives.

 

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Contact

Sipho Malaba
Director
Tel: +27 (0)82 719 0670
sipho.malaba@kpmg.co.za


Nadine Moses
Manager
Tel: +27 (0)827152968
nadine.moses@kpmg.co.za