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Prudential Authority
 
 
     
 

SARB Mandate - Illegal deposit-taking 

 

The SARB, through the Prudential Authority is responsible for the regulation and supervision of registered banks in the Republic of South Africa.
The Banks Act, 1990, however, provides that no person may conduct the “business of a bank” unless such a person is a public company and registered as a bank with the PA
The “business of a bank” is defined in the Banks Act, 1990 and can be described as the soliciting or advertising for, or the acceptance of, deposits from the general public as a regular feature of the business in question.
The PA is afforded certain powers in terms of sections 81 to 84 of the Banks Act, 1990 to control the activities of unregistered persons. These activities are, however, confined to illegal deposit-taking only.
The above-mentioned provisions provide, among other things, that the PA may do the following in respect of unregistered persons that are suspected of taking deposits from the general public in contravention of the Banks Act:
  • Apply to court for an order prohibiting anticipated or actual schemes involved in illegal deposit-taking.
  • Extract information from unregistered persons.
  • Inspect the affairs of an unregistered person (i.e. Inspectors are appointed by the Governor or a Deputy Governor of the Bank in terms of the provisions of the South African Reserve Bank Act, 1989 (Act No. 90 of 1989).
  •  Direct such a person to repay such money if the PA is satisfied that a person has illegally taken deposits from the general public.
  •  Appoint a repayment administrator to manage and control the repayment of the money unlawfully obtained.
To the extent that pyramid and Ponzi schemes have an element of illegal deposit-taking, the PA will have the requisite jurisdiction/mandate to investigate. However, it must be stressed that it is on this basis that the PA is involved, and not on the suspicion of it being a Ponzi/pyramid or otherwise illegal activity. Conversely, if there is no indication of “deposit taking” as defined (hence a contravention of the Banks Act), then the PA will not have the jurisdiction to investigate, albeit that the scheme complained of is prima facie a Ponzi scheme, e.g. MMM
Since the PA neither registers nor supervises unregistered persons, it is generally not aware of such schemes unless it is informed thereof by members of the public. The PA therefore only reacts to complaints received from the general public that contain sufficient details and documentary evidence to justify the PA invoking its powers in terms of the Banks Act.
  • What is a Pyramid scheme?

    A Pyramid scheme is one in which you are required to be an active participant. After an initial entry payment has been made, you would be required to recruit other members before earning a return on the original ‘investment’. The more recruits, the greater the return!
  • What is a Ponzi scheme?

    Named after the person (Charles Ponzi) who first made these schemes infamous, they are operated by tricksters and sometimes seemingly legitimate businesses that will invite you to invest in a scheme or business. The operator promises you unrealistically large returns on your investment in a short period of time. These schemes depend on enticing a steady flow of investors, whose money goes to pay off promises made to earlier investors. Any such scheme will inevitably collapse, as it is impossible to find enough new investors to keep the scheme going.
  • What is the difference between a Ponzi and Pyramid scheme?

    The major difference between the schemes is that in Ponzi schemes the investor takes no active part, whereas in a pyramid scheme, active involvement is a requirement.
  • Tips for avoiding Ponzi and Pyramid schemes:

    When choosing a moneymaking opportunity, do your homework thoroughly. Get advice from registered financial advisers; this is available free of charge with no obligation. Take your time, you didn’t save it overnight. Be particularly cautious of ‘opportunities’ that promise to make you wealthy in a very short period. Beware of a ‘secret formula’ that will only be shared with select investors.
  • Why use registered financial institutions?

    Accredited Financial institutions are regulated and supervised, by either the South African Reserve Bank, National Consumer Commission or the Financial Services Board. There are strict rules and controls that govern investments with these institutions whereas, unregulated and unsupervised persons and groups don’t follow these rules and your money is at great risk with them.
  • How to protect your money?

    Make sure that you only give your money to a company or person that is registered as an accredited financial services provider and a deposit taking institution in terms of the Banks Act. Take the time to check with a respected and registered adviser.
 
 
 
     
 
 
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