pc
nid 94693
Aug 21, 2026
ggallwey@vixio.com
South Africa
Reserve Bank of South Africa
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1778 charsSouth Africa's Reserve Bank Publishes Proposed Directive on FLAC Instrument Treatment for Mutual Banks
On August 20, 2026, the Reserve Bank of South Africa (SARB) published a proposed directive relating to the treatment of investments in FLAC or similar instruments for mutual banks. The directive establishes prudential requirements governing how mutual banks may invest in FLAC instruments and comparable financial assets.
FLAC instruments represent a specific category of financial investments, and the proposed directive aims to ensure that mutual banks maintain appropriate risk management frameworks and capital adequacy standards when holding such assets. The directive applies to all mutual banks operating under SARB's regulatory oversight and establishes uniform treatment standards across the sector. By issuing this proposed directive, SARB seeks to enhance prudential supervision and protect the stability of mutual banking institutions through standardised investment treatment protocols.
The proposed directive is issued for consultation by SARB's Prudential Authority (PA), which oversees the prudential regulation and supervision of banks and other financial institutions in South Africa. This consultation period allows mutual banks and other stakeholders to provide feedback on the proposed requirements before final adoption.
Interested parties should review the full text of the proposed directive and submit responses during the consultation period. The directive will be finalised following consideration of stakeholder feedback. Further details regarding the consultation deadline and submission procedures are available on the SARB website.
REFERENCES:
Reserve Bank of South Africa. (2026, August 20). Proposed directive relating to the treatment of investments in FLAC or similar instruments for Mutual Banks. Retrieved from https://www.resbank.co.za/
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2053 charsSouth Africa's Reserve Bank Publishes Proposed Directive on Capital Loss Instrument Treatment for Banks
On August 20, 2026, the South African Reserve Bank’s Prudential Authority (PA) published a proposed directive under s ection 6(6) of the Banks Act, 1990 , establishing regulatory capital treatment rules for bank investments in First Loss Absorbing Capacity (FLAC) and similar instruments.
To support its open bank resolution strategy, the South African Reserve Bank (SARB) introduced FLAC instruments. These are a dedicated class of unsecured subordinated debt designed to ensure Systemically Important Financial Institutions (SIFIs), maintain sufficient loss-absorbing and recapitalisation capacity during a failure without relying on public bailouts.
The proposed directive outlines distinct capital deduction mechanisms depending on whether a banking institution is designated as a systemically important financial institution (SIFI):
Designated Banks (SIFIs) must apply the corresponding deduction approach to their FLAC holdings in accordance with paragraph 11.4(c) of Prudential Standard RA03
Non-Designated Banks, with Investments in FLAC or Tier 2 capital instruments, must be deducted from the bank's Tier 2 capital. For non-significant investments (owning 10% or less of common shares in the issuing designated bank), holdings net of short positions exceeding a 10% aggregate threshold must be deducted. For significant investments (owning over 10% of common shares), the full investment amount net of short positions must be deducted. Any Tier 2 shortfall must be deducted from the next-higher capital tier.
Index Holdings and Look-Through Rules should apply where FLAC exposure is held via index securities.
Non-designated banks must perform a look-through to underlying holdings or request written PA approval to use conservative, well-founded estimates if look-through is operationally burdensome.
The PA is currently inviting public and industry comments on the proposals, with a feedback deadline of September 23, 2026. Comments should be submitted by email to PA-ITS-Capital@resbank.co.za for the attention of Ms Sibongile Mbebe.