Guidance Note 1 of 2019: Registration of Co-operative Financial Institutions

South African Reserve Bank Prudential Authority

Ref.: 15/8/4/2 G1/2019

To: All prospective co-operative financial institutions and registered co-operative financial institutions

Guidance Note 1/2019 issued in terms of section 45(e) of the Co-operative Banks Act, 2007 (Act No. 40 of 2007) relating to co-operative financial institutions

Application for registration as a co-operative financial institution in terms of the Co-operative Banks Act, 2007 (Act No. 40 of 2007)

Executive summary

Prudential standard – TCFI-01 – Transitional arrangements for co-operative financial institutions specifies the requirements for registration of a co-operative financial institution with the Prudential Authority in terms of the provisions of the Co-operative Banks Act, 2007 (Act No. 40 of 2007).

This guidance note is issued to assist prospective co-operative financial institutions and registered co-operative financial institutions to complete the application process for registration with the Prudential Authority by providing guidance on the minimum requirements to be registered as a co-operative financial institution and the requirements to register a co-operative with the Companies and Intellectual Property Commission (CIPC).

1. Interpretation and definitions

1.1 This guidance note should be read in conjunction with the following legislation (as well as related regulations) and regulatory instrument:

• 1.1.1 The Co-operatives Act, 2005 (Act No. 14 of 2005) (Co-operatives Act);
• 1.1.2 The Co-operative Banks Act, 2007 (Act No. 40 of 2007) (Co-operative Banks Act);
• 1.1.3 The Financial Sector Regulation Act, 2017 (Act No. 9 of 2017) (FSR Act); and
• 1.1.4 Prudential Standard – TCFI-01 – Transitional arrangements for co-operative financial institutions (Prudential Standard - TCFI-01).

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1.2 All terms used in this guidance note have the same meaning as defined in the above-mentioned legislation and regulatory instrument, unless the context indicates otherwise.

1.3 A ‘co-operative financial institution’ is a co-operative that takes deposits and chooses to identify itself by use of the name Financial Co-operative, Financial Services Co-operative, Credit Union or Savings and Credit Co-operative;

1.4 A ‘prospective co-operative financial institution’ is a collective whose members, through a special resolution, intend to apply to register as a co-operative financial institution with the Prudential Authority under the Co-operative Banks Act.

1.5 A ‘registered co-operative financial institution’ is a co-operative financial institution that is registered with the CBDA, in terms of Exemption Notice No. 620 of 2014 issued by the Registrar of Banks (Registrar) in terms of the Banks Act 1990, (Act No. 94 of 1990), and is applying to be registered with the Prudential Authority under the Co-operative Banks Act.

2. Introduction

2.1 Prudential Standard - TCFI-01 stipulates the requirements for registration of a co-operative financial institution (CFI) with the Prudential Authority in terms of the provisions of the Co-operative Banks Act. This guidance note is issued to assist prospective and registered CFIs to complete the application process for registration with the Prudential Authority.

2.2 Registered CFIs have until 1 August 2019 to apply for registration with the Prudential Authority. Registered CFIs that have failed to register under the Co-operative Banks Act after 1 August 2019 and continue to conduct the business of a CFI will be committing an offence in terms of the Co-operative Banks Act.

3. Minimum requirements for registration as a co-operative financial institution

3.1 Section 40B of the Co-operative Banks Act provides that to qualify for registration, or to continue to be registered, a CFI must demonstrate to the satisfaction of the Prudential Authority, that it:

• 3.1.1 has the requisite experience, knowledge, qualification and competence to give effect to its obligations;
• 3.1.2 has sufficient human, financial and operational capacity to function efficiently and competently;
• 3.1.3 meets any prescribed threshold requirements in respect of membership, membership shares and deposits held; and
• 3.1.4 meets any other applicable prescribed requirements.

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3.2 Based on the above-mentioned section of the Co-operative Banks Act and the other legislation and regulatory instrument cited in paragraph 1.1, a prospective or registered CFI must satisfy the following minimum requirements to be considered for registration in terms of the Co-operative Banks Act:

	Requirements	Reference to Legislation/Regulatory instrument/Annexure
3.2.1	A minimum of 200 members	Prudential Standard – TCFI-01
3.2.2	R100,000 or more in share capital	Prudential Standard – TCFI-01
3.2.3	Be solvent	Prudential Standard – TCFI-01
3.2.4	Identify itself by use of the name Financial Co-operative, Financial Services Co-operative, Credit Union or Savings and Credit Co-operative.	Co-operative Banks Act
3.2.5	Common bond e.g. <br> - employed by a common employer or who are employed within the same business district; or <br> - common membership in an association or organisation, including a religious, social, co-operative, labour or educational group; or <br> - reside within the same defined community or geographical area.	Prudential Standard – TCFI-01 and the Co-operative Banks Act.
3.2.6	Comply with the co-operative principles	The Co-operatives Act defines co-operative principles as the internationally accepted principles of co-operation, exemplified by the principles adopted by the International Cooperative Alliance. See Attachment 1 for a list and explanation of the co-operative principles.

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4. Registration with the CIPC

4.1 This section is applicable to prospective CFIs only.

4.2 Before a prospective CFI can apply to register as a co-operative, it requires a conditional approval to be registered as a CFI (deposit-taking) from the Prudential Authority. Deposit-taking institutions are strictly regulated and require specific approvals before being allowed to accept deposits.

4.3 The following documentation is required by the CIPC to register a co-operative under the Co-operative Act but must be submitted to the Prudential Authority together with documentation required by the Prudential Authority (see section 5):

• 4.3.1 Certified copies of the identity documents of all founder members of the co-operative and the person lodging the application (Customer Code Owner);
• 4.3.2 Form CR1, application form (the list and signatures of founder members must correspond with last page of the constitution);
• 4.3.3 Form CR4, appointment of auditors (attach a letter from an auditor of consent of appointment) or Form CR8, Exemption from full compliance with auditing requirements;
• 4.3.4 Form CR5, Reservation of name (the name must include the terms: ‘Financial Co-operative, Financial Services Co-operative, Credit Union or Savings and Credit Co-operative’); and
• 4.3.5 Two certified copies of the constitution of the prospective CFI.

4.4 In addition to completing the forms required by the CIPC and furnishing the requisite documentation to the Prudential Authority, the prospective CFI must have completed the following processes:

• 4.4.1 held a formation meeting;
• 4.4.2 created a customer code; and
• 4.4.3 recorded, in order of preference, the name of the CFI and up to 5 alternate names on the Form CR5. The prospective CFI has an option to reserve its preferred name with the CIPC after it has created a customer code.

4.5 Further guidance on the processes outlined in paragraphs 4.4.1 to 4.4.3 is attached hereto as Attachment 2.

4.6 The Prudential Authority will forward all documentation required by the CIPC to the CIPC once it has granted a conditional approval for the registration of the CFI.

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4.7 Forms CR1, CR4, CR5 and CR8 as well as a model constitution are available on the website of the CBDA.

5. Registration requirements for prospective CFIs with the Prudential Authority

5.1 This section outlines the requirements that must be complied with by a prospective CFI in order for the Prudential Authority to register it as a CFI.

5.2 To register a CFI, the following must be submitted to Prudential Authority:

	Requirement	Guidance
5.2.1	Form PA 001, the application form	Every page must be signed by the chairperson of the board of directors. <br> Provide an explanation and motivation with respect to documentation that is not submitted.
5.2.2	Form CR1 (CIPC application form)	CIPC requirement.
5.2.3	Form CR4/CR8 (CIPC form to appoint auditor or for exemption from auditor appointment)	CIPC requirement.
5.2.4	Form CR5 (CIPC form to reserve name)	CIPC requirement.
5.2.5	Form PA 002, membership share register confirming 200 fully paid up members and at least R100,000 in shares	Prudential Authority requirement.
5.2.6	2 certified copies of the CFI’s prospective constitution	Model constitution available on the CBDA website. <br> The following amendments must be made to the model constitution: <br> - The definition of ‘co-operative financial institution’ must be replaced with ‘means a co-operative financial institution as defined in the Co-operative Banks Act, 2007 (Act No. 40 of 2007)’.

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	Requirement	Guidance
		- Deletion of the definition of ‘Regulations’ and ‘Rules’. <br> - The definition of supervisor must be replaced with “Supervisor” means the Prudential Authority’. <br> - The insertion of the term “Prudential Authority” has the meaning defined in the Financial Sector Regulation Act, 2017 (Act No. 9 of 2017)’. <br> - Replacement of “Exemption Notice No. 35368” with “Co-operative Banks Act, 2007 (Act No. 40 of 2007)”. <br> Any variations from the model must be noted and motivated. These will be forwarded to the CIPC.
5.2.7	Certified copies of all founder members identity documents	CIPC requirement.
5.2.8	Latest certified copies of bank statement	Prudential Authority requirement.
5.2.9	Member resolution to register with the PA in the form of minutes	Prudential Authority requirement.
5.2.10	Copy of proposed savings policy	Guideline available on the CBDA website.
5.2.11	Copy of proposed credit/loan policy if registering a savings and loans CFI	Guideline available on the CBDA website.
5.2.12	Copy of National Credit Regulator certificate	This is required before any loans may be issued.
5.2.13	Copy of certificate of registration to a registered representative body	If the prospective CFI is a member of a representative body.

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	Requirement	Guidance
5.2.14	Business plan, which includes: <br> - a short description of the background to the organisation, experience in the sector and overall strategy to serve the target market; <br> - an indication that it has the requisite experience, knowledge, qualifications and competence to give effect to its obligations <br> - an indication that it has sufficient human, financial, and operational capacity to function efficiently and competently. <br> - 3 year financial forecast showing viability plan of the entity <br> - Product sheet	In the business plan the prospective CFI must discuss the board of directors and management experience, knowledge and qualifications. <br> Guidance is provided on the CBDA website.
5.2.15	Form PA 002: Signed Directors Commitment form	Prudential Authority requirement.

6. Registered CFIs and registration with the Prudential Authority

6.1 This section outlines the requirements for registered CFIs to apply to the Prudential Authority for registration in terms of the Co-operative Banks Act.

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6.2 To register a CFI with the Prudential Authority the following must be submitted:

	Requirement	Guidance
6.2.1	Completed Form PA 001, the application form	Every page must be signed by the chairperson. <br> Provide an explanation and motivation in respect to documentation that is not submitted.
6.2.2	Copies of annual financial statements for the last financial year	Prudential Authority requirement.
6.2.3	Copy of the latest version of constitution.	Prudential Authority requirement. <br> The following amendments should be made to the constitution: <br> - The definition of “co-operative financial institution” must be replaced with ‘means a co-operative financial institution as defined in the Co-operative Banks Act, 2007 (Act No. 40 of 2007)’. <br> - Deletion of the definition of “Regulations” and “Rules”. <br> - The definition of supervisor must be replaced with “Supervisor” means the Prudential Authority’. <br> - The insertion of the term “Prudential Authority” has the meaning defined in the Financial Sector Regulation Act, 2017 (Act No. 9 of 2017)’. <br> - Replacement of “Exemption Notice No. 35368” with “Co-operative Banks Act, 2007 (Act No. 40 of 2007)”.