CODI will manage the country’s Deposit Insurance Fund (DIF) that will allow for bank depositors to have access up to a stipulated limit of their deposits should their banking institution fail, be liquidated and placed into resolution, thereby enhancing public confidence in the country’s banking system. CODI is also mandated to promote awareness among financial customers of the protection it offers.
President Cyril Ramaphosa signed into law the Financial Sector Laws Amendment Act 23 of 2021 (FSLAA) in January 2022 after both houses of Parliament passed the Bill in December 2021. The Minister of Finance published a commencement schedule with the effective date of some deposit insurance clauses of the FSLAA. In terms of this commencement schedule, CODI was established on 24 March 2023.
The establishment of CODI will support the South African Reserve Bank (SARB)’s secondary mandate to pursue price stability and protect and enhance financial stability by identifying and mitigating systematic risks that might disrupt the financial system. CODI will support the SARB’s financial stability mandate and focus on protecting the quallifying depositors of banks.
A Deposit Insurance Scheme (DIS) provides a mechanism to ensure a pre-planned, orderly and efficient provision of protection to depositors and more importantly, depositors will know when they will have access to their deposits at a failed bank.
In response to the global financial crisis, the Group of Twenty (G20) tasked the Financial Stability Board (FSB) with developing policies to address the 'too-big-to-fail' problem.
The FSB developed, among other standards, the Key Attributes of Effective Resolution Regimes for Financial Institutions, which require jurisdictions to have a privately funded depositor protection and/or resolution fund in place or, alternatively, arrangements to recover any public costs from the private sector after the failure of a bank.
The financial safety net is aimed at protecting depositors and enhancing financial stability, and comprises a combination of strong regulation and supervision, crisis management tools, and an effective resolution framework. In the event of an institutional failure, it protects the most exposed or most vulnerable customers of financial institutions.
As one of the G20 countries, South Africa has also been engaged in enhancing financial stability. The lessons learnt from the 2008-09 crisis and domestic experiences saw the country introduce the 'Twin Peaks' model in 2011 to reform the regulatory and supervisory system for financial institutions and market infrastructures. The model contained in the Financial Sector Regulation Act 9 of 2017 (FSR Act), gave the SARB an explicit mandate to maintain and enhance financial stability. It established the Prudential Authority (PA) that regulates financial institutions and market infrastructure to promote and enhance their safety and soundness, as well as the Financial Sector Conduct Authority (FSCA) that ensures that customers are informed and treated fairly by financial institutions.
CODI was established as part of the financial safety net, designed to protect vulnerable bank depositors by ensuring that they will have timeous access to their savings should a bank fail. It will also alleviate the burden on Government to bail out banks and compensate depositors using taxpayers' money.
The journey to establish CODI has included broad public consultation to ensure that all contributions have been considered in the design of an effective DIS for South Africa.
CODI is a statutory body and subsidiary of the SARB. It will be a separate legal entity with its own Chief Executive Officer (CEO) and Board of Directors (Board). The board will oversee CODI’s affairs. In order to be financially and operationally effective, CODI will outsource its support functions to the SARB, including the investment of funds, legal services, information technology services and financial services.
The FSLAA, prescribes the Board's composition, which includes the following members: