Below are a set of frequently asked questions related to developments in respect of the CODI journey.
A deposit insurance scheme (DIS) is part of a country’s financial safety net. The financial safety net protects the soundness of and confidence in the financial sector. It includes the functions of prudential regulation and supervision of financial institutions and financial market infrastructure. It also provides an effective resolution of financial institutions; is a lender of last resort that offers loans to banks that are experiencing financial difficulty; and puts forward a DIS that protects the most vulnerable customers of financial institutions by providing depositors with access to their covered deposits if a bank should fail.
In the past, the government compensated depositors for their losses on a case-by-case basis when a bank failed ‒ meaning that taxpayers had to bear the cost of the failure of banks. When a bank failed, there was uncertainty about which depositors would be compensated, the amount of protection provided and where the funding would come from.
South Africa is among the last Group of Twenty (G20) countries to implement an explicit DIS. Not having an explicit DIS was a gap in the design of the South African financial safety net that had to be addressed to promote financial stability.
A DIS will provide a mechanism to ensure a pre-planned, orderly and efficient provision of protection to depositors, and more importantly, depositors will be informed exactly when and how much they will receive when their bank fails.
The FSR Act provides the over-arching, high-level framework for the establishment of CODI, with a dedicated DIS to be maintained and administered by CODI. CODI will use the Deposit Insurance Fund (DIF) to protect its members’ covered depositors by ensuring access to their deposits within a reasonable timeframe when a bank fails.
CODI will protect banking products where the capital amount is guaranteed and repayable at par (e.g. savings and cheque accounts). It will not protect investment products.
For example, when a bank is liquidated, CODI will use the DIF to pay out the failed bank’s covered depositors by using electronic funds transfers (EFTs) or through a payout agent bank. The proposed protection afforded to qualifying depositors will be up to a coverage limit of R100 000 per depositor per bank.
CODI’s protection will be automatic. Depositors will not have to apply for this protection. CODI will protect deposits held by natural or non-financial persons. CODI’s protection is up to R100 000 per qualifying depositor per bank.
CODI will protect qualifying products where the nominal balance is guaranteed and repayable at par.
Qualifying accounts held by sole proprietors will be covered separately from the individuals’ personal bank accounts. The coverage limit for a sole proprietor will be R100 000 if the bank can identify the accounts the individual uses for its sole proprietor business.
Qualifying deposits in foreign currencies held by qualifying depositors are covered up to the R100 000 limit. When a bank fails, foreign currency balances will be converted to South African rand before a depositor is paid.
Membership to CODI is automatic and compulsory for all registered banks. This includes all commercial banks, local branches of foreign banks, mutual banks, and cooperative banks. Currently there are 17 commercial banks, three mutual banks, six cooperative banks and 12 local branches of foreign banks.
Although CODI was established on 24 March 2023, it will only become fully operational by April 2024.
During the next year CODI, will work closely with National Treasury to take the deposit insurance secondary legislation through Parliament for sign-off by the President. While the FSR Act contains high-level rules for the establishment of CODI, the secondary legislation will contain detailed rules explaining the procedural and/or administrative matters relating to the operations of CODI and the DIF.
CODI is also developing technology systems to automate the collection of depositors’ information from banks to calculate the banks’ financial contributions to CODI. CODI will finalise its governance and administrative processes to collect from the banks levies for its operational costs and premiums to build the DIF. From 1 April 2024, CODI will be operationally ready to protect depositors if their bank should fail.
1. How will I know if I am a qualifying depositor with a bank for deposit insurance protection?
CODI will protect retail and non-financial depositors with products where the capital balance is guaranteed and repayable at par, for example, savings accounts, demand and fixed deposits. Individuals will be qualifying depositors. It is important to note that CODI protects qualifying depositors only when the South African Reserve Bank (SARB, as the resolution authority, places their bank in resolution. When this happens, the SARB may decide to liquidate the bank in which case CODI will reimburse the bank’s depositors up to R100 000 per depositor per bank, subject to the coverage rules which will be outlined in the deposit insurance regulations. If the SARB pursues a different resolution strategy, CODI may provide funding or a guarantee in support of this strategy to ensure depositors have access to their deposits.
When CODI becomes operational, banks will be obligated to provide their depositors with information on CODI, including whether they are a qualifying depositor and whether their deposits will be protected or not.
2. Will the DIS cover a stokvel or similar informal saving forms? If the stokvel has a balance of R100 000 from five different depositors, will each depositor receive R100 000 for a total payout of R500 000?
CODI will protect retail and non-financial corporate depositors. This includes stokvels or informal beneficiary accounts (IBA), up to R100 000 for the combined account balances in the name of the stokvel.
A stokvel is not the same as a joint account. A joint account is treated differently because the bank is responsible for the recordkeeping related to the account. With an IBA, the stokvel opens a stokvel-type of account at a bank and the members of the stokvel appoint signatories to manage the account on their behalf. The stokvel signatories are not accountable institutions in terms of the Financial Intelligence Centre Act 38 of 2001 (FIC Act), meaning they do not comply with the FIC Act’s recordkeeping responsibilities. CODI cannot rely on their recordkeeping with regard to the members of the stokvel and their holdings in the stokvel. Most banks do not record the details of the stokvel members and their individual contributions to such an account. For example, if a stokvel has 5 qualifying accounts, each with R40 000, the total deposit balance in the name of the stokvel would be R200 000. CODI will protect the stokvel up to R100 000 for accounts held by it. If the bank where the stokvel holds accounts fails, CODI will then give the signatories of the stokvel access to the R100 000 it is protected for.
If the joint account holders (for example, 2 account holders) have 5 joint accounts together, each with R40 000, the total balance would be R200 000. In the records of the bank, they would have indicated how the account balance would be split between account holders. If this was not specified, the balance would be split equally between the account holders if both of the joint account holders are qualifying depositors who are protected by CODI. In this case, they will each be protected up to R100 000. In the case where the bank where they have their accounts fail, CODI will provide each of the account holders with access to up to R100 000 each for their holdings in these accounts.
In terms of the example referred to, CODI cannot give a qualifying depositor access to more than the balance they had in the bank as at the date the bank failed. When looking at the example provided, these are the accounts discussed:
Bank ABC before failure:
3. Will bank depositors be liable to pay towards the DIS and if so, how much?
Depositors will not make any payments to CODI. Once CODI becomes fully operational, subject to the promulgation of its secondary legislation, banks will submit depositors’ information (names, accounts and balances) to CODI regularly. CODI will use this information to calculate what the bank must pay to CODI for deposit insurance protection. There is no direct contribution from depositors to CODI for this protection. CODI will establish and build the DIF from financial contributions from member banks. CODI will use the DIF to protect depositors if their bank fails to give them quick access to their money. The DIF will mainly consist of monthly premiums collected from banks, loans provided to CODI in the form of liquidity tier contributions and investment income.
4. Will CODI protect overdraft accounts/amounts (loans with the bank)?
CODI will cover deposits (positive balances) in transactional or savings accounts due to a qualifying depositor if the account is in the name of a qualifying depositor and their bank fails. CODI will not cover loan accounts or overdrawn balances on transactional accounts.
5. Will CODI protect a savings/interest bearing account (such as a money market deposit with a bank)?
CODI will cover deposits in transactional or savings accounts if the account is in the name of a qualifying depositor. CODI will cover money market deposits if the account is held by a qualifying depositor.
6. Will CODI protect any unit trusts held with a bank?
CODI will not cover balances a qualifying depositor has in investment products since investments’ capital amounts are not guaranteed and are repayable to the depositor at par. With investment products, there is a risk of loss to the qualifying depositor. Investment products include derivatives, shares, indices, exchange traded funds, debt instruments, bearer instruments, annuities, insurance products, unit trusts, private equity investments by individuals and non-financial corporates and repurchase agreements.
7. Will CODI protect one individual if, for instance, they have multiple deposit accounts with different banks up to R100 000 each?
Yes, CODI’s protection is up to R100 000 per qualifying depositor, per bank. For example, Mr Smith has 4 accounts with 3 different banks:
If Bank A, Bank B and Bank C all fail simultaneously, Mr Smith will be covered for R100 000 (R80 000 + 20 000 of the R40 000) at Bank A, R70 000 at Bank B and R100 000 at Bank C. Any balances that CODI does not cover will remain in the estate of the failed bank. The liquidator will process these balances in line with the creditor hierarchy.
8. Will CODI cover any education/retirement annuities?
CODI will not cover the balances a qualifying depositor has in an education/retirement annuity at a bank as these are investment products. With investment products, the capital amounts are not guaranteed and repayable to the depositor at par.
9. Will retirement annuities and education annuities at insurers be covered under CODI?
CODI will not cover any balances a qualifying depositor has in a retirement annuity or education annuity at a bank as these are investment products.
If the question refers to the insurer holding funds from a retirement annuity or education annuity/policy at a bank, CODI will not cover financial institutions’ deposits at a bank. Financial institutions include all financial intermediaries regardless of their form of business, including financial sole proprietors, financial companies, banks, money market unit trusts, non-money market unit trusts, insurers, pension funds, fund managers, private financial corporate sector institutions, monetary authorities and public non-financial corporations.
10. Is a currency investment account regarded as a deposit?
CODI will cover foreign currency denominated deposit products held by qualifying depositors, provided that the deposits were booked on the balance sheet of a South African bank. Payout of these balances will be done in rand (ZAR) using the exchange rate on the date that the bank is closed.
CODI will not cover balances a qualifying depositor has in investment products since investments’ capital amounts are not guaranteed and repayable to the depositor at par. With investment products, there is a risk of loss to the qualifying depositor. Investment products include derivatives, shares, indices, exchange traded funds, debt instruments, bearer instruments, annuities, insurance products, unit trusts, private equity investments by individuals and non-financial corporates and repurchase agreements.
Any non-qualifying accounts or uncovered deposit balances will remain in the estate of the failed bank, to be handled by the liquidator in line with the creditor hierarchy.
11. The banks in South Africa are in a better shape than in the United States (US) and Europe. How likely is it that the banks in South Africa can default?
The issues with the banks in the US or Europe do not have an impact on the South African banking sector. South Africa’s banking sector remains healthy and robust.
12. How do you have access to your bank when the grid is down or the bank has defaulted?
Most banks have backup plans for power failures. If a failure of the grid happens, the bank will most likely communicate to its depositors about the options available to them to access their accounts.
In terms of a bank failing, the SARB, as the Resolution Authority, will decide on the resolution strategy for a bank in resolution. When a bank is placed in resolution, CODI will collaborate with the SARB on the implementation of the chosen resolution strategy to give the covered depositors of the bank access to their funds.
If the SARB decides to liquidate a bank in resolution, CODI can reimburse the bank’s covered depositors using a variety of payout methods, including an electronic funds transfer (EFT) to the depositor or a payout agent bank.
If the SARB decides on a different resolution strategy, CODI may provide funding or a guarantee to support a transaction to give the covered depositors access to their funds. Examples of transactions CODI may support include the sale of the bank in resolution to another bank or the transfer of the covered depositors to another bank.
13. What is the ratio of bank deposits/deposit insurance quantity?
At R100 000, about 95% of depositors are fully covered while about 23% of the total deposit values are covered. This is in line with best practice globally and ensures that the most vulnerable depositors are protected from losses when their bank fails.
1. Is there a need for banks to register with CODI to become members?
No. All registered banks automatically became members of CODI.
2. Which banks are members of CODI?
Membership is automatic and compulsory for all banks and branches registered in terms of the Banks Act 94 of 1990 (Banks Act), Mutual Banks Act 124 of 1993 (Mutual Banks Act) and the Co-Operative Banks Act 40 of 2007 (CBA). This definition includes banks operating within the borders of South Africa that are regulated and supervised by the Prudential Authority (PA) as the home or host supervisor.
3. Will cooperative financial institutions (CFIs) be members of CODI?
CFIs will not be members of CODI upon CODI’s establishment, but CODI will undertake work to include CFIs in the deposit insurance framework following its establishment.
4. Why was the maximum coverage level set at R100 000 per depositor per bank?
At a R100 000 coverage level, CODI will provide full protection for more than 95% of qualifying depositors in South Africa. CODI’s mandate is to protect the less sophisticated customers who place their money in a bank for safe-keeping.
5. Will CODI charge banks separately for system upgrades every few years?
No. CODI’s levy includes a reserve to budget for periodic system upgrades and maintenance.
6. Will a cap be applied to the financial contributions by banks to CODI to ensure that banks do not pay excessive amounts to CODI?
There is no cap on the financial contribution of a bank to CODI, but banks’ contributions will be based on the covered balance of each qualifying depositor, (i.e. up to the maximum coverage level of R100 000).
7. What is the difference between the premiums and the levies banks must pay to CODI? Must banks pay both premiums and levies to CODI?
Banks must pay both an annual levy and monthly premiums to CODI. CODI will use the annual levy to cover its operational costs, including staffing and systems. The premiums will be used to fund the DIF to be used to protect covered depositors.
8. If a bank does not have any covered deposit balances, how will it affect its financial contributions to CODI?
A bank with no covered deposit balances will still be a member of CODI and liable for the minimum annual levy. The bank will not pay the monthly premiums to CODI for as long as it has no covered deposits. The bank must still enter into a contractual agreement with CODI for the fund liquidity tier, but may not have a balance until it reports a covered deposit balance. The CEO and CFO of such a bank may have to submit a monthly declaration to CODI to confirm that the bank has no covered deposit balances. CODI may also ask the bank’s internal auditors to verify this annually.
9. Will CODI be independent of the SARB?
CODI will be an independent subsidiary of the SARB with its own board of directors and management team. Since CODI will be part of the broader SARB Group, it will have some governance and reporting obligations to the SARB, but its board will be responsible for overseeing CODI’s operations.
10. Why could CODI not use the banks’ returns submitted to the PA?
Banks currently submit aggregated balances on balance sheet, income statement and risk-related items to the PA. CODI requires granular depositor information to enable it to fulfil its mandated function of protecting the covered depositors of a bank in resolution.
11. CODI requires banks to submit depositors’ personal information in their quarterly deposit insurance submissions. Has CODI considered the compliance requirements of the Protectional for Personal Information Act 4 of 2013 (POPIA)?
Yes. CODI is working with the SARB’s POPIA team to ensure that it complies with the requirements of POPIA.
12. Will banks be required to provide depositor information in a single customer view format?
Yes. Where a bank is initially unable to report depositor information to CODI in a single customer view (SCV) format, a bank can apply for condonation from this requirement. Upon assessing the bank’s request, CODI may grant the bank condonation to give the bank more time to comply to this requirement.
13. Will banks report month-end or average balances to CODI?
A deposit insurer needs updated balances as at a point in time. The monthly deposit insurance submissions will be based on month-end figures. When CODI requests ad hoc submissions, it will specify the date on which the bank must base the submission.
14. How frequently will banks do deposit insurance submissions to CODI?
Banks will submit their qualifying and covered deposit balances to CODI on a monthly basis. On a quarterly basis, they will submit these balances with the SCV calculations to CODI.
15. When a local branch of a foreign bank is a member of a foreign deposit insurance scheme, will it still be a member of CODI?
The FSR Act does not allow for the exemption of any member banks from being a member of CODI. Future amendments to the FSR Act may be considered to allow local branches of foreign banks that are already members of a foreign deposit insurance scheme to apply for exemption. CODI and the foreign deposit insurer will then agree which DIS the branch will be a member of.
16. What will CODI do with unclaimed amounts it cannot pay out?
Any unclaimed deposits will remain in the estate of the failed bank and will be managed by the liquidator in terms of the creditor hierarchy.
17. What is the timeframe ‒ before CODI becomes operational ‒ that CODI is targeting for the banks to share deposit insurance information with banks’ staff and clients? Is there a hard timeline or can banks feed this information through respective internal channels as part of the currently scheduled communication?
There is currently no specific requirement from CODI for banks to communicate to staff or clients about deposit insurance. CODI provided banks with information to use as they deem fit or based on whether their staff or clients have questions about CODI. Most of CODI’s functions and awareness requirements have been included secondary legislation in the form of regulations. These have been published by National Treasury for public comment and will only be effective from the date that CODI becomes operational.
18. For queries from clients, is CODI comfortable that banks answer these based on the information provided on the webpage and other documentation published by CODI or do banks need to refer all client queries to the website and/or CODI directly?
Banks can use the information on the webpage to respond to queries. Some of the information in the discussion papers may not be valid anymore. If the client wants more detailed information than what has been provided on the webpage or if there is a question banks cannot answer, then it would be best to direct the query to CODI (CODI@resbank.co.za).
19. Is the reporting discussion paper issued in 2021 a stable document for banks’ internal teams to use to determine their systems requirements?
Some of the information in the discussion paper may not be valid anymore. It can be used as a basis for system preparations, but it is important for banks to note that the final reporting fields, submission methods and data formats for 2024 are still being finalised. CODI’s data and technology specialists will be engaging with banks during the second half of 2023 on the data requirements, reporting format, industry testing approach, and so on, to ensure that banks have the required information and understanding of CODI’s requirements.
20. Based on communication sent to banks, banks are now already members of CODI and legally obligated to provide CODI with the information it requires to fulfil its mandated functions, and will only start paying financial contributions in the form of annual deposit insurance levies and monthly premiums from 1 April 2024, subject to the promulgation of the deposit insurance secondary legislation – Is there a set of these mandated functions/expectations available?
CODI sent a letter to all banks at the end of March 2023 with an overview of the expected timelines for CODI’s operationalisation and banks’ compliance to CODI’s requirements. CODI keeps banks updated about the developments in the legislation, operationalisation and systems development through Banking Association of South Africa’s (BASA) Deposit Insurance Task Group. The published draft deposit insurance regulations and fund liquidity standard provide more information on the requirements on banks.
21. Has a decision been made on the payment method for deposit insurance premiums?
CODI will provide feedback to banks on the financial contributions and channels to be used closer to April 2024, when these requirements become effective.
22. Should banks expect to be audited on an annual/regular basis?
CODI may, through the PA, require an external audit of a bank’s compliance to the fund liquidity standard. In addition, CODI’s regulations will contain the specific internal audit requirements for banks.