The EU’s Carbon Border Adjustment Mechanism has shifted from paperwork to payment in 2026 and South African exporters of steel, aluminium, cement and iron are squarely exposed. CBAM certificates became payable from 1 January 2026, and steel, aluminium, cement and iron exporters to the EU face rising costs as certificate coverage climbs from 2.5% of embedded emissions in 2026 to 100% by 2034. South Africa’s rising domestic carbon tax is the main lever to offset the EU charge but only if emissions data is verified and reported.

What exactly is CBAM?

The EU’s Carbon Border Adjustment Mechanism, or CBAM, is best understood as a carbon tax charged at the EU’s border. It was formally established by Regulation (EU) 2023/956 of the European Parliament and of the Council of 10 May 2023. The EU already prices carbon for its own industry through the EU Emissions Trading System, established under Directive 2003/87/EC [1], and CBAM ensures that goods imported into the EU carry a comparable carbon cost, so foreign producers cannot undercut EU manufacturers simply by emitting more. [2]

CBAM is not a treaty that countries sign up to. It is EU law that applies automatically and unilaterally to anyone exporting covered goods into the EU market – there is no opt-in, and no country’s consent is required. [3] South Africa, alongside China, India and Brazil, has publicly criticised the mechanism as an unfair burden on developing economies and argued that it breaches World Trade Organization rules. [4] That political contest does not, however, pause the compliance clock facing exporters. [5]

How the mechanism works

CBAM currently applies to iron and steel, aluminium, cement, fertiliser, hydrogen and electricity. The EU importer of the goods must report the embedded carbon emissions in what it brings in and, from 2026, must purchase and surrender CBAM certificates to cover those emissions. [6] The obligation is phased in gradually – certificates need only cover 2.5% of embedded emissions in 2026, rising step by step to 100% by 2034. [7] Where the exporting country has already charged the producer a carbon price, that amount is deducted, so only the difference between what has already been paid and the EU-equivalent price falls due. [8]

The EU has also proposed extending CBAM to around 180 further product categories manufactured from steel or aluminium – including machinery, vehicle parts, white goods and construction and electrical equipment. [9] That would pull many South African manufacturers of finished and semi-finished goods into scope, not only producers of raw metal.

The compliance timeline to diarise

CBAM’s transitional phase ran from October 2023 to the end of 2025 under Commission Implementing Regulation (EU) 2023/1773 [10], during which importers only had to report emissions, with no payments due. [11] The definitive phase began on 1 January 2026 under Regulation (EU) 2023/956 – importers must now buy and surrender certificates, and the EU has replaced its earlier, more generous default emissions values with country-specific defaults that include an added mark-up. [12] This matters a great deal for South African exporters – the transitional phase’s flat default values happened to sit below actual South African carbon intensity, giving local exporters an inadvertent, temporary cushion that disappears with the 2026 shift. [13]

The next major milestone is 30 September 2027, the deadline for the first annual certificate surrender, backed by penalties of €100 per tonne of CO2 (indexed to inflation) for shortfalls [14]. From 2027, the European Commission will also begin publishing default carbon-price references for third-country carbon pricing regimes – the mechanism through which South Africa’s own carbon tax could, in principle, be formally recognised to reduce the net CBAM bill its exporters face. [15] Beyond steel and aluminium, CBAM’s scope may extend further still, with signals of coverage for plastics and chemicals by 2026, and potentially all EU ETS sectors by 2030. [16]

Why South Africa is particularly exposed

South Africa’s economy carries a disproportionate share of CBAM risk. Its high electricity generation intensity makes it one of the most carbon-intensive exporters globally, and it has been flagged as likely to see declines in value-added specifically because of its reliance on high-emitting exports. [17] Iron, steel, aluminium and cement exports to the EU – sectors that matter enormously to South African trade and employment – face real added costs unless emissions intensity comes down to meet EU benchmarks. [18] Comparative analyses place South Africa among the economies facing the steepest relative cost increases as CBAM’s definitive phase takes hold. [19]

What non-compliance actually costs

Direct legal liability under CBAM sits with the EU importer of record, not with the South African exporter. [20] EU importers who fail to report, or who report inaccurate data, face fines of €10 to €50 per tonne of CO2; failing to surrender certificates on time, or operating without authorised-declarant status, attracts a much steeper €100 per tonne penalty (indexed to inflation); and importers who exceed authorised thresholds without approval can face penalties of three to five times that rate. [21]

South African exporters do not face these fines directly – but the practical effect lands on them regardless. If a South African supplier cannot or will not provide verified emissions data, its EU customer either pays the (often higher) default emissions value or looks elsewhere. Non-cooperative or high-emitting producers therefore risk losing EU market access indirectly, through their customers’ cost calculations, without a single fine ever being issued against them. [22]

What a CBAM certificate actually costs

The certificate price tracks the EU’s own carbon market, calculated as the weighted average of EU ETS auction prices. The first published price, for the first quarter of 2026, was €75.36 per tonne of CO2 equivalent. [23] In 2026, only 2.5% of embedded emissions need be covered by certificates, so the real-world bill is import volume, multiplied by embedded emissions, multiplied by that 2.5% factor, multiplied by the certificate price. Actual charges vary hugely by country and product: one Q1 2026 analysis put default-value CBAM costs on steel at roughly €100.55 per tonne for Turkey, €254.13 for India, €148.03 for Algeria and €94.14 for Vietnam [24] – underscoring how much cheaper it is to supply verified, plant-level emissions data rather than rely on generic country averages. [25]

The single biggest lever available to South Africa is the carbon-price deduction described above. South Africa’s own carbon tax, levied under the Carbon Tax Act 15 of 2019, [26] rose from R236 to R308 per tonne with Phase Two from January 2026, and is legislated to climb to R462 per tonne by 2030 – a credible, rising domestic price is precisely what keeps revenue in South African hands rather than “leaking” to Brussels via certificate purchases. [27]

What exporters should be doing now

Government-to-government diplomacy over CBAM’s fairness – through the WTO, the G20, the BASIC bloc and the African Continental Free Trade Area [28] – is a long game, and coalition-building of this kind will not resolve matters in time to help exporters through the 2026 definitive phase. [29] For individual businesses, four practical steps matter most –

1. Measure and report now. Commission a thorough CBAM impact assessment and build a compliance roadmap, including the systems needed to meet mandatory emissions reporting obligations. [30]

1.1. Steel and iron producers should commission mill-level emissions data (rather than relying on the EU’s generic country default values) so EU customers can access the lower, verified emissions figure instead of the costlier default.

1.2. Aluminium smelters should document the electricity source and grid emission factor behind each tonne produced, since power-intensive smelting is the single largest driver of embedded carbon in this sector.

1.3. Cement producers should report the clinker-to-cement ratio and kiln fuel mix per shipment, as these are the two variables the EU’s methodology weighs most heavily in calculating embedded emissions.

2. Cut embedded carbon. Reducing the greenhouse gas footprint of exported products, and aligning measurement with international standards, is the main lever available to reduce future certificate costs. [31]

2.1. Steel producers should, where feasible, shift a greater share of output to scrap-based electric arc furnace production, which carries a materially lower carbon footprint than primary blast-furnace steel.

2.2. Aluminium smelters should negotiate renewable or low-carbon power purchase agreements to displace grid electricity, directly reducing the emissions intensity that drives most of the CBAM charge on aluminium.

2.3. Cement producers should increase the use of supplementary cementitious materials, such as fly ash or slag, to lower the clinker ratio and adopt alternative fuels in the kiln.

2.4. Iron producers should invest in furnace efficiency upgrades and process-gas capture to reduce the emissions embedded in each tonne of iron exported.

3. Track South Africa’s domestic carbon tax. A rising, credible local carbon price is what allows South African exporters to claim a deduction against the EU charge, rather than effectively paying twice over. Steel, aluminium, cement and iron producers should keep Carbon Tax Act payment records and allowance certificates audit-ready, so the carbon price already paid domestically can be evidenced and deducted from the EU certificate bill without dispute

4. Do not wait on diplomacy. The reporting and certificate deadlines apply regardless of whether South Africa’s advocacy efforts succeed. Exporters across all four sectors should consider direct data-sharing arrangements with EU importers (with the relevant data privacy provisions), rather than waiting for the 30 September 2027 certificate-surrender deadline to force the conversation.

The bottom line

CBAM has moved from a reporting exercise to a real financial cost, and 2026 is the year that shift becomes concrete for anyone exporting steel, aluminium, cement or iron products into the EU. South Africa’s government is right to keep fighting for a fairer, more differentiated approach, but for individual exporters the more urgent task is decarbonising production and getting emissions-reporting infrastructure in place before rising certificate obligations start eating into margins or compel EU importers to consider less expensive exporters. Businesses that get ahead of verification and start reducing embedded carbon now will be far better placed than those waiting for the politics to be resolved.

[1] Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the EU, on the EU Emissions Trading System.

[2] CBAM operates as a carbon cost applied at the EU border, mirroring the carbon price EU industry already pays under the EU Emissions Trading System. See Regulation (EU) 2023/956 of the European Parliament and of the Council of 10 May 2023 establishing a carbon border adjustment mechanism, recital 4 and Article 1 and Directive 2003/87/EC establishing the EU Emissions Trading System.

[3] CBAM is unilateral EU law binding on EU importers; it does not require agreement or ratification by exporting countries. See Regulation (EU) 2023/956, Article 1(1).

[4] South Africa, China, India and Brazil have criticised CBAM as placing an unfair burden on developing countries and as inconsistent with WTO rules. See Joint Statements of the BASIC Ministerial Meetings on Climate Change (2023 – 2024); South African National Treasury, Budget Review 2023, Chapter 4 (Carbon Tax and Climate Change).

[5] Compliance obligations for EU importers, and their knock-on effect on exporters, apply irrespective of the outcome of diplomatic or multilateral advocacy. See Regulation (EU) 2023/956, Articles 2, 5 and 22.

[6] CBAM currently covers iron and steel, aluminium, cement, fertiliser, hydrogen and electricity; EU importers must report embedded emissions and, from 2026, surrender matching certificates. See Regulation (EU) 2023/956, Annex I

[7] The CBAM certificate obligation is phased in from 2.5% of embedded emissions in 2026 to 100% by 2034, alongside the parallel phase-out of free EU ETS allowances. See Regulation (EU) 2023/956, Article 31; Commission Implementing Regulation (EU) 2025/2083 (CBAM Simplification Regulation).

[8] Where an exporting country has already charged the producer a carbon price, that amount is deducted from the CBAM certificate obligation otherwise due. See Regulation (EU) 2023/956, Article 9.

[9] The European Commission has proposed extending CBAM to approximately 180 downstream product categories reliant on steel or aluminium. See European Commission, Proposal for a Regulation amending Regulation (EU) 2023/956 as regards the simplification and scope extension of the carbon border adjustment mechanism, COM (2025) (December 2025).

[10] Commission Implementing Regulation (EU) 2023/1773 of 17 August 2023 laying down the rules for application of Regulation (EU) 2023/956 as regards reporting obligations for the purposes of the carbon border adjustment mechanism during the transitional period.

[11] CBAM’s transitional phase ran from 1 October 2023 to 31 December 2025, and was limited to quarterly emissions reporting with no certificate purchase obligation. See Commission Implementing Regulation (EU) 2023/1773 of 17 August 2023 laying down the rules for the transitional period.

[12] The definitive phase began on 1 January 2026, introducing country-specific default emissions values with an added mark-up in place of the earlier flat defaults. See Regulation (EU) 2023/956, Article 7(1) and Annex IV.

[13] During the transitional phase, EU default emissions values were lower than actual South African production intensity, providing a temporary and inadvertent cost advantage that ends with the 2026 definitive phase. See Commission Implementing Regulation (EU) 2023/1773, Annex III (default values for the transitional period).

[14] The first annual certificate surrender is due by 30 September 2027, with penalties of €100 per tonne of CO2 (indexed) for shortfalls. See Regulation (EU) 2023/956, Articles 22 and 26; Commission Implementing Regulation (EU) 2025/2083, Article 20.

[15] From 2027, the European Commission will publish default carbon-price references for third-country carbon pricing regimes, for use in the certificate deduction calculation. See Regulation (EU) 2023/956, Article 9(2).

[16] Signals point to potential CBAM expansion to plastics and chemicals by 2026, and to all EU ETS sectors by 2030. See Regulation (EU) 2023/956, Article 30 (review clause); European Parliament

[17] South Africa’s high electricity generation intensity is cited as a principal driver of its status as one of the most carbon-intensive exporting economies globally. See South African Department of Mineral Resources and Energy, Integrated Resource Plan; South African National Treasury, Budget Review 2023, Chapter 4.

[18] Iron, steel, aluminium and cement are identified as the South African export sectors most exposed to added CBAM-related costs. See South African National Treasury, Budget Review 2023 and 2025, Chapter 4 (Carbon Tax and Climate Change).

[19] Comparative cost analyses of CBAM’s definitive phase place South Africa among the more significantly affected exporting economies. See South African National Treasury, Budget Review 2025, Chapter 4 (Carbon Tax and Climate Change).

[20] CBAM imposes direct legal obligations on the EU importer of record, not on the non-EU exporter or producer. See Regulation (EU) 2023/956, Article 3(15) (definition of “authorised CBAM declarant”) and Article 4.

[21] EU importer penalties range from €10–€50 per tonne of CO2 for reporting failures, to €100 per tonne (indexed) for certificate shortfalls, rising to three-to-five times that rate for unauthorised imports above threshold. See Regulation (EU) 2023/956, Article 26; Commission Implementing Regulation (EU) 2023/1773, Article 16 (transitional reporting penalties).

[22] Non-EU producers unable to supply verified emissions data risk indirect loss of EU market access through their customers’ increased costs, notwithstanding the absence of direct penalties on the producer itself. See Regulation (EU) 2023/956, Article 7 (application of default values absent verified actual emissions data).

[23] The Q1 2026 CBAM certificate price, calculated as the weighted average EU ETS auction price, was published at €75.36 per tonne of CO2 equivalent. See Regulation (EU) 2023/956, Article 21; European Commission, published CBAM certificate price notices.

[24] Comparative analysis of Q1 2026 default-value CBAM costs on steel by country of origin, derived from published EU default emissions values and the Q1 2026 CBAM certificate price.

[25] Comparative Q1 2026 analyses show default-value CBAM costs on steel varying significantly by exporting country, illustrating the cost benefit of verified plant-level emissions data over generic country defaults. See European Commission, CBAM default value publications for Q1 2026, issued pursuant to Regulation (EU) 2023/956, Article 7.

[26] Carbon Tax Act 15 of 2019 (South Africa), as amended, including the Phase Two rate increase effective 1 January 2026.

[27] South Africa’s carbon tax rose to R308 per tonne from January 2026 (Phase Two) and is legislated to reach R462 per tonne by 2030. See Carbon Tax Act 15 of 2019, section 5, as amended; South African National Treasury, Budget Review 2025 and Draft Rate Amendment schedules.

[28] South Africa continues to engage on CBAM through the World Trade Organization, the G20, the BASIC bloc (Brazil, South Africa, India and China) and the African Continental Free Trade Area.

[29] South Africa has pursued coalition diplomacy on CBAM through the BASIC bloc, the G20 and the African Continental Free Trade Area Council of Ministers. See Joint Statements of the BASIC Ministerial Meetings on Climate Change (2023–2024); G20 communiqués under South Africa’s 2025 Presidency; AfCFTA Council of Ministers decisions.

[30] Exporters are advised to undertake CBAM impact assessments and establish compliance roadmaps ahead of the definitive phase. See Regulation (EU) 2023/956, Articles 4 – 8 (reporting and declarant obligations).

[31] Reducing embedded carbon in production, aligned with international measurement standards, is identified as the principal lever for minimising future CBAM certificate costs. See Regulation (EU) 2023/956, recital 4 (objective of incentivising cleaner production methods); ISO 14064 series on greenhouse gas quantification and verification

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On 17 April 2026, in Government Notice No. 54520 under Government Gazette 7375, the Minister of Finance (“Minister“) published the draft Capital Flow Management Regulations in terms of section 9(1) of the Currency And Exchanges Act 9 of 1933 (“Draft Regulations“) for public comment.[1]

The Draft Regulations follow the Minister’s 2026 Budget Speech, which announced further exchange control reforms.[2] These reforms aim to bring crypto assets within the capital flows management framework.[3] The Draft Regulations complement two earlier regulatory developments, namely, (i) the Financial Sector Conduct Authority’s declaration of crypto assets as a financial product in General Notice 1350 of 2022 in Government Gazette 47334, and (ii) the inclusion of crypto asset service providers as accountable institutions under Item 22 of Schedule 1 of the Financial Intelligence Centre Act 38 of 2001.[4]

Once finalised, the Draft Regulations shall repeal and replace the existing Exchange Control Regulations published under Government Notice R1111 in Government Gazette Extraordinary123 of 1 December 1961 (“Excon Regulations“).[5]  The Draft Regulations shall have an impact on, inter alios, authorised dealers, crypto asset service providers as well as other affected parties who currently fall within the regulatory ambit of the Excon Regulations.

Importantly, the Draft Regulations, inter alia –

• • provide for a monetary threshold which shall be published by the Minister for transactions regulated by the Draft Regulations,[6] where a transaction/s relating to the purchase, sale, or loan of (i) foreign currency, (ii) gold, and (iii) crypto assets exceeding the value of the threshold ‑
    • may, in respect of the purchase, sale or loan of foreign currency and gold to any person other than an authorised dealer, only be conducted by an authorised dealer;[7] and
    • may, in respect of the purchase, sale or loan of crypto assets to any person other than an authorised crypto asset service provider (“CASP“), only be conducted by an authorised CASP;[8]
  • state that any person other than (i) an authorised dealer, intent on buying, selling, borrowing, or lending foreign currency or gold must apply to an authorised dealer to do so,[9] and (ii) an authorised CASP, intent on buying, selling, borrowing, or lending crypto assets must apply to an authorised CASP to do so;[10]
  • impose purpose-use restrictions and information-furnishing obligations on persons applying to an authorised dealer or CASP to buy, sell, borrow or lend (i) foreign currency, (ii) gold, or (iii) crypto assets (where applicable),[11] to ensure that such foreign currency, gold or crypto assets are not used for any purpose other than the purpose for which they were acquired, as stated in that person’s application to the authorised dealer or CASP;[12]
  • place (i) restrictions on the import and export of currency, crypto assets, gold and securities,[13] and (ii) compulsory declaration requirements for all persons (a) about to enter the Republic of South Africa (“South Africa“) who have currency, crypto assets, securities and gold in their possession and control,[14] or (b) about to enter or leave South Africa, where such declaration is requested by an enforcement officer;[15]
  • allow enforcement officers to search any person and seize articles in that person’s possession if that person (i) denies having any currency, crypto assets, gold or security in their possession, and (ii) is suspected to have such articles in their possession in contravention of the regulations for the import or export thereof;[16]
  • provide for the acquisition by either the National Treasury (“Treasury“), an authorised dealer or an authorised CASP of (i) foreign currency or crypto assets, or (ii) the right to receive payment of foreign currency or crypto assets, the value of which exceeds the monetary thresholds declared by the Minister;[17]
  • place an obligation on all persons in the South Africa that are in possession or control of a foreign asset or crypto asset, to declare such possession or control in writing to the Treasury or an authorised person within 30 days of being in possession of such foreign or crypto asset;[18]
  • restrict the export of capital, where the definition of ‘capital’ now includes crypto assets;[19]
  • allow for the granting of exemption and permissions by the Treasury or authorised person of persons or classes thereof from any of the provisions of the Draft Regulations that may be subject to certain conditions;[20]
  • provide for a controlled accounts regime, under which the Treasury or an authorised person may direct that payments owed by a person resident in the South Africa to a non-resident creditor (where such payments are precluded by the Draft Regulations) be paid into a controlled account opened with an authorised dealer or the Corporation for Public Deposits;[21]
  • restrict dealings in securities belonging to non-residents by, inter alia, prohibiting the acquisition, disposal, transfer or nomination of controlled securities (being securities registered in the name of, owned by, or in which a non-resident has an interest) without the permission of the Treasury or an authorised person;[22]
  • prohibit dealings in bearer securities and bearer options, including the acquisition, disposal, issuance and payment of dividends or interest in respect thereof, without an exemption or permission from the Treasury or an authorised person;[23]
  • control the issue of capital (which includes the raising of capital in the South Africa by the issue of securities, loans repayable by the issue or transfer of securities, and municipal borrowings) by prohibiting any issue of capital exceeding the determined threshold during any 12-month period without an exemption or permission from the Treasury or an authorised person;[24]
  • require that transactions with a branch or subsidiary of a business controlled from outside the South Africa be treated as if the branch or subsidiary were a separate person resident in the South Africa, subject to the same duties and obligations under the Draft Regulations;[25]
  • empower the Treasury or an authorised person to impose administrative sanctions on authorised dealers or authorised CASPs for non-compliance, including financial sanctions, public reprimands, suspension or revocation of appointments, disqualification of directors and senior management, restrictions on transactions, and orders to take remedial action;[26]
  • confer broad powers on the Treasury or an authorised person to attach money, crypto assets and other property, block accounts, and issue forfeiture orders in respect of suspected contraventions of the Draft Regulations, subject to compliance with the Promotion of Administrative Justice Act 3 of 2000;[27]
  • create criminal offences for, inter alia, contraventions of the Draft Regulations, non‑compliance with any notice, order, permission, exemption or condition, obstruction and the making of false statements, with penalties including a fine not exceeding R1,000,000 and/ or imprisonment for a period not exceeding 5 years;[28] and
  • provide for administrative relief, under which the Treasury or an authorised person may authorise the regularisation of contraventions of the Draft Regulations through a voluntary disclosure process, subject to conditions including the payment of levies or administrative penalties.[29]

Comments on the Draft Regulations are to be submitted on or before 18 May 2026.[30]

[1]        See the Draft Regulations available on https://www.treasury.gov.za/public%20comments/CapFlow/ (accessed on 21 April 2026).

[2]        See paragraph 1 of Exchange Control Circular No. 3 of 2026 published by the South African Reserve Bank on 3 March 2026, available at https://www.resbank.co.za/en/home/publications/publication-detail-pages/circulars/exchange-control-circulars/2026/excon-circ-3-2026 (accessed on 20 April 2026).

[3]        See page 5 of Annexure A of Exchange Control Circular No. 3 of 2026.

[4]        See page 5 of Annexure A of Exchange Control Circular No. 3 of 2026.

[5]        See section 32 of the Draft Regulations and the joint Media Statement published by the National Treasury and the SARB on 17 April 2024, available at https://www.resbank.co.za/en/home/publications/publication-detail-pages/media-releases/2026/capital-flow-comment (accessed on 20 April 2026).

[6]        See section 31 of the Draft Regulations.

[7]        See section 2(1) of the Draft Regulations.

[8]        See section 3(1) of the Draft Regulations.

[9]        See section 2(4) of the Draft Regulations.

[10]      See section 3(4) of the Draft Regulations.

[11]      See sections 2(4) and 3(4) of the Draft Regulations.

[12]      See sections 2(5) and 3(5) of the Draft Regulations.

[13]      See sections 4 and 5 of the Draft Regulations.

[14]      See section 5(1)(a) of the Draft Regulations.

[15]      See sections 4(2) and 5(1)(b) of the Draft Regulations.

[16]      See sections 4(3), 4(5), 5(1)(c), 5(2) and 5(3) of the Draft Regulations.

[17]      See section 8 of the Draft Regulations.

[18]      See section 10 of the Draft Regulations.

[19]      See the definition of ‘capital’ in section 1, section 12 and 17 of the Draft Regulations.

[20]      See section 23 of the Draft Regulations.

[21]      See section 6 of the Draft Regulations.

[22]      See section 15 of the Draft Regulations.

[23]      See section 16 of the Draft Regulations.

[24]      See section 17 of the Draft Regulations.

[25]      See section 18(1) of the Draft Regulations.

[26]      See section 21 of the Draft Regulations.

[27]      See section 24 and 25 of the Draft Regulations.

[28]      See section 29 of the Draft Regulations.

[29]      See section 30 of the Draft Regulations.

[30]      See the joint Media Statement published by the National Treasury and the SARB on 17 April 2024.

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The horizon of the financial sector is one coloured by significant regulatory reform. Extensive reviews have been and are being conducted by the Prudential Authority (“PA“), the Financial Sector Conduct Authority (“FSCA“), the Financial Intelligence Centre (“FIC“) and the South African Reserve Bank (“SARB“) on various financial sector laws with a focus on encouraging innovation, competition, new market participants and fresh product offerings whist ensuring appropriate supervision in a market that requires customers to be informed by service providers and to be treated fairly. At the forefront of the slew of pending legislation are reforms to the Financial Markets Act No. 19 of 2012 (“FM Act“), the National Payment System Act 78 of 1998 (“NPS Act“) and banking legislation, with further reforms on the regulation of crypto assets and crypto asset service providers (“CASPs“) following closely behind. Remaining alert to the impending changes is essential in such a rapidly evolving regulatory landscape with far-reaching consequences.

FM Act

The financial sector has changed significantly since the FM Act was first promulgated with the entry of new market participants and innovative product offerings becoming more prolific over the past few years.[1] A review of the FM Act was therefore necessary to ensure that such developments were brought within the regulatory fold. The review of the FM Act was led by the Financial Markets Review Committee and involved input from the PA, FSCA and the SARB,[2] the outcome of which was published by National Treasury in the report “Building Competitive Financial Markets for Innovation and Growth” (“Report“) in 2020.[3] The Report sets out various proposals for regulatory reform, one of which is expected to result in significant amendments to the FM Act, such as –

• an increase in the scope of market structures governed by the FM Act, including new trading platforms such as multilateral trading facilities;[4]
• the classification of foreign currency as a financial asset to facilitate oversight on currency trading;[5]
• clarification on the roles assumed by different regulators in the financial markets sector;[6]
• clarification on competition-related issues and the treatment of digital assets;[7] and
• alignment to global best practices in governance, transparency and operational resilience.[8]

The FSCA, in recognising that certain of the proposed amendments require more urgent attention, has accordingly made use of joint standards and conduct standards under the Financial Sector Regulation Act 9 of 2017 (“FSR Act“), such as Joint Standard 1 of 2023[9] and Joint Standard 1 of 2025,[10] as interim measures while the amendment processes run their course.[11]

NPS Act

The review of the NPS Act, as with the FM Act, is driven by the modernisation of the regulatory framework to accommodate new products and market participants in a meaningful and transparent manner. In the past almost 30 years, the payment industry has been the subject of rapid evolution with the rise of new technology and swifter payment methods which are not recognised in the NPS Act.[12] Although South Africa was previously considered a pioneer in the payments industry, it has not unexpectedly fallen behind the prodigious pace of innovation both locally and globally.[13] The SARB, in recognition of the evolving payment landscape, undertook a review of the NPS Act to recognise technological advancements within the safety and security of the National Payment System (“NPS“).

In 2018, the SARB published “Vision 2025” in which it undertook to research and review the existing NPS regulatory framework and to develop new regulatory frameworks in line with domestic and international standards and principles.[14] In this regard, it undertook to draft the NPS Bill by the end of December 2020, however, with the advent of the global pandemic, and significant changes in payment systems which coincided, and sometimes stemmed from the pandemic, both domestically and globally, it has been a challenge for the SARB to keep abreast of the proliferation of new technologies and to bring them within the ambit of the legislation in a meaningful way. It has not been announced when the NPS Bill will be released for public comment but it is anticipated to be in the near future.

In “Positioning the South African Reserve Bank’s Payments Ecosystem Modernisation Programme: a strategic shift to a higher equilibrium” (“PEM Programme“), the SARB notes that the NPS Bill must, inter alia, enable non-banks to participate in the clearing and settling of payments within the National Payments System without requiring bank sponsorship[15] to improve competition, innovation and efficiency, and which would be achieved by adopting an activity-based, as opposed to an entity-based, regulatory approach that supports a fair environment for competition.[16] The PEM Programme will also promote modern payments architectures and systems like Payshap and a pre-funded settlement model[17] for fast payments.[18]

As an interim measure and to give effect to the PEM Programme, on 3 March 2025, the SARB published (i) a draft directive setting out the requirements for specific payment activities (“Directive“), and (ii) a draft exemption notice which designates specific payment activities as not forming part of the business of a bank as defined under the Banks Act 94 of 1990 (“Exemption Notice“), thereby indicating the removal of payment activities from bank exclusivity in National Payment System.

Banking legislation

In the “Regulatory Strategy 2025-2030” (“Strategy“) published by the PA in August 2025, the PA outlined its regulatory and supervisory priorities for the period 2025 to 2030. As part of the Strategy, the PA plans to implement a ‘revised mutual banks regulatory framework’ and a ‘comprehensive and updated regulatory framework’ for co-operative banks and co-operative financial institutions.[19] The above revisions indicate the inclusion of the principle of proportionality in the deposit-taking sector where regulatory requirements are scaled according to the nature, size, complexity and risk profile of the affected entities.[20] The PA is currently developing prudential standards to reflect the above principle and it remains to be seen if the Strategy will result in amendments to the Mutual Banks Act 124 of 1993 and/ or the Co-Operative Banks Act 40 of 2007.

Crypto regulation

In May 2025, the High Court of South Africa in Standard Bank of South Africa v South African Reserve Bank and Others,[21] declared that crypto assets do not fall within the ambit of currency or capital surveillance and regulation under the Exchange Control Regulations, 1961.[22] The ruling has, however, been suspended pending the outcome of the appeal launched by the SARB and National Treasury in the Supreme Court of Appeal. It is anticipated that interim measures will ensue to address the regulatory lacuna created by the judgment and long-term legislative reforms will be undertaken to bring crypto assets within the remit of the SARB.

The PA has identified the need to enhance the regulatory and supervisory frameworks relating to the crypto-asset exposures of financial institutions.[23] This follows the publication in 2022 by the Basel Committee on Banking Supervision of a standard dealing with the requirements for the prudential treatment of banks’ crypto-asset exposures and which is anticipated to be adopted and implemented by member jurisdictions by 1 January 2026.[24] Accordingly, the PA is currently drafting a prudential standard and related disclosure requirements to regulate banks’ crypto asset exposures. The prudential standard is likely to require banks to disclose crypto asset holdings and to hold regulatory capital against such exposure.[25] The PA has acknowledged that fintech will be the most disruptive force in its supervisory environment,[26] and that it will be focusing on developing the regulation of crypto-assets, stablecoins, open finance and artificial intelligence[27] to bring such technologies within its purview.

In September 2025, the Johannesburg Stock Exchange (“JSE“) released draft amendments to the JSE Debt and Specialist Listing Requirements (“Draft Listing Amendments“). The amendments were proposed (i) in response to a position paper regarding the regulation of crypto assets (“Position Paper“) published by the Intergovernmental Fintech Working Group (“IFWG“) in 2021, which was updated in 2025 and (ii) as a result of the JSE’s research regarding international regulation of crypto assets.[28] Recommendation 23 of the Position Paper required licensed exchanges to ensure that their rules and listing requirements cater for the listing of securities that reference crypto assets, in manner satisfactory to the FSCA.[29] The Draft Listing Amendments will, inter alia, allow issuers of exchange traded notes[30] and exchange traded funds[31] to reference spot crypto assets in a direct or indirect manner and on a whole or partial basis.[32]

Conclusion

The financial sector faces wide ranging regulatory reform in the very near future. With incoming amendments to the abovementioned legislation in addition to the Conduct of Financial Institutions Bill being finalised for submission to Parliament, and the draft General Laws (Anti‑Money Laundering and Combating Terrorism Financing) Amendment Bill, 2024 being published last year for comment,[33] the potential changes are vast and very far-reaching. It is therefore essential that market participants are aware of these impending changes to stay afloat in the sea of change.

————————————————————————————————————————————————————————

[1]       Keynote address by Kamlana U “Shaping market integrity through robust and adaptive regulation” (22 August 2025) https://www.fsca.co.za/News%20Documents/SAIFM%20Regulatory%20Summit%202025%20-%20Keynote%20address%20by%20Mr%20Unathi%20Kamlana.pdf [accessed 28 July 2025] page 3

[2]       Media Statement by National Treasury “New submission date: consultation on a discussion paper” (19 March 2020) https://www.treasury.gov.za/comm_media/press/2020/2020031901%20New%20Submission%20Date%20of%20Consultation%20on%20a%20Discussion%20Paper.pdf [accessed 9 September 2025] page 1

[3]       National Treasury “Building competitive financial markets for innovation and growth”  (2020) https://www.treasury.gov.za/comm_media/press/2020/FINANCIAL%20MARKETS%20ACT%20REVIEW.pdf [accessed on 9 September 2025]

[4]       Ibid. Multilateral trading facilities are electronic platforms that operate as an alternative to traditional exchanges. They connect buyers and sellers to trade financial instruments such as derivatives and those which lack an official market

[5]       Ibid

[6]       Kamlana U (2025) page 3

[7]       Ibid

[8]       Ibid

[9]       Titled “Amendments to Joint Standard 2 of 2020 – Margin Requirements for Non-Centrally Cleared Over-The-Counter Derivative Transactions”

[10]      Titled “Criteria for the exemption of an external central counterparty and external trade repository from the provisions of the FMA”

[11]      Kamlana U (2025) page 4

[12]      Page 1 of the SARB “Review of the National Payment System Act 78 of 1998” (September 2018) https://www.treasury.gov.za/publications/other/NPS%20Act%20Review%20Policy%20Paper%20-%20final%20version%20-%2013%20September%202018.pdf [accessed 2 September 2025]

[13]      SARB “Positioning the South African Reserve Bank’s Payments Ecosystem Modernisation Programme: a strategic shift to a higher equilibrium” (2025) https://www.resbank.co.za/content/dam/sarb/publications/other-publications/2025/pem-position-paper.pdf [accessed 10 September 2025] page 3

[14]      Page 5 of the “The national payment system framework and strategy, vision 2025: action plan” (2018) published by the SARB https://www.resbank.co.za/content/dam/sarb/what-we-do/payments-and-settlements/Vision%202025%20-%20Action%20Plan.pdf [accessed 4 September 2025]

[15]      PEM Programme page 8

[16]      PEM Programme page 7

[17]      Pre-funding occurs when settlement participants provide funding to a central point. Payments between settlement participants are then made using these pre-funded deposits to settle a payment before the actual settlement would take place, usually in a few days

[18]      https://www.rmb.co.za/news/how-upcoming-payments-regulation-changes-will-impact-companies-and-consumers [accessed on 4 September 2025]  and PEM Programme page 8

[19]      Page 12 of the Strategy https://www.resbank.co.za/content/dam/sarb/what-we-do/prudential-regulation/pa-regulatory-strategy/PA%20Regulatory%20Strategy%202025-2030.pdf [accessed 10 September 2025]

[20]      Page 11 of the Strategy

[21]      2025 (5) SA 289 (GP)

[22]      Published under the Currency and Exchanges Act No. 9 of 1933

[23]      Page iv of the Strategy

[24]      Page 12 of the Strategy

[25]      Page 42 of the Strategy

[26]      Page 10 of the Strategy

[27]      Page 20 of the Strategy

[28]      Page 2 of the JSE “Proposed Amendments to the JSE Debt and Specialist Listing Requirements” (September 2025)

[29]      Ibid

[30]      An exchange traded note is defined in the Draft Listing Amendments as an investment product, in the form of a note, that reflects the linear (on a one for one basis) performance of underlying securities or benchmarks, such as shares or bonds, an index, an exchange rate or a commodity and is backed by the creditworthiness of the issuer

[31]      An exchange traded fund is defined in the Draft Listing Amendments as a fully funded (unleveraged) fund, registered in terms of Collective Investment Schemes Control Act 45 of 2002, tracking the performance of a specified security, index or currency or a company tracking a commodity

[32]      Page 5 of the Draft Listing Amendments

[33]      The Bill will amend, inter alia, the FSR Act and the Financial Intelligence Centre Act 38 of 2001

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Blockchain technology became available to the public in 2009 when Bitcoin was released.[1] The technology used a vast amount of electricity,[2] the majority of which was consumed in the People’s Republic of China, a country which relies on fossil fuels to produce most of its electricity.[3] Blockchain technology, especially crypto asset[4] mining, soon became synonymous with generating extensive carbon emissions as a result of the high electricity consumption that is associated with using blockchain technology.[5] Despite the aforementioned, blockchain technology is characterised by its decentralised and immutable nature, which makes it secure and transparent as information stored on the blockchain cannot be altered by any single party.[6] By adopting energy-efficient consensus mechanisms, leveraging renewable energy and implementing carbon offset solutions, blockchain is a powerful tool that can be used to achieve global sustainability goals and is applied in sustainability initiatives such as the carbon credits trade, waste reduction, and various sustainable projects. As blockchain technology continues to improve, so does its ever increasing capacity to facilitate the global transition to a more sustainable future.

Integrating sustainability into blockchain technology

The integration of sustainability into blockchain technology, a historically carbon intensive technology, is a groundbreaking shift in how industries can approach environmental responsibility and resource management. The decentralised, transparent and immutable characteristics of blockchain technology promotes transparency as the information is available for all users to access,[7] and is secure as would take the majority of the users of a network acting in concert to change the information.[8] The process of adding information to the blockchain is also efficient as users are not dependant on inefficient central authority.[9]

These characteristics of the technology make it a powerful tool to improve sustainability. Businesses using blockchain technology to adhere to sustainability standards can ensure a higher level of accountability and efficiency as the information stored is transparent to users and cannot be easily altered or manipulated. These benefits can be harnessed to improve the integrity and reliability of information in corporate governance by making practices like back dating impossible.[10] The technology is also suitable for trading carbon credits to facilitate carbon offsetting, a practice which historically has been inconsistent with unreliable data and was susceptible to manipulation and fraud.[11] The use of blockchain technology has made the process more efficient, transparent and reliable.

Changes are also being made to the technology itself to combat its energy intensive nature. Many cryptocurrencies, such as Bitcoin, make use of a proof of work system to verify transactions which by nature requires users to expend a large amount of computing power and electricity.^[12]In an attempt to become more sustainable, the alternative proof of stake was implemented by platforms like Ethereum which has reduced its electricity consumption.^[13]

The developments in blockchain have continued to increase its potential to enhance sustainable development and has shown that it can play a pivotal role in fostering a greener, more resilient future where environmental stewardship and economic growth can co-exist.

Sustainability tokens

Sustainability tokens are crypto assets designed to incentivise and fund environmentally and socially responsible initiatives. Various sustainability tokens have been developed over the years for the aforementioned purpose, including –

1. the FishCoin token, a token issued by the FishCoin Project. The purpose of this project is to eliminate wastage in an industry where 89% of global wild fish stocks are overfished or fully exploited and approximately 60% of the seafood is discarded, lost or wasted in supply chains.^[14] In order to combat this inefficiency, FishCoin uses blockchain technology to enable fishermen to record data about the fish they have caught on blockchain in exchange for tokens.[15] Each person in the supply chain adds to this data in the blockchain until the fish are at the end consumer, being hotels and restaurants. The increased information allows wastages and inefficiencies in the supply chain to be discovered and mitigated. FishCoin, therefore, plays a pivotal role in reducing overfishing and promoting sustainable fishing practices;

• the HARA Agri tokens issued by HARA, a blockchain based technology company. The project aims to address a similar wastage problem which is present in the farming industry, with 30% of global food produce being wasted or lost.^[16] The project encourages farmers to record information on the blockchain regarding their operations in exchange for HARA Agri tokens, which can be exchanged for rewards such as discounts on agricultural supplies.^[17] Farmers can use the information, such as the supply and demand for a specific crop and more effectively manage stock and inventory to mitigate food wastage;[18]

• the Plastic Bank Tokens developed by the social enterprise Plastic Bank. The project aims to reduce plastic waste and provide economic benefits to communities.[19] The token is funded by donations in the form of a membership fees.^[20] It provides communities collecting plastic waste with tokens that can be converted into either (i) money or (ii) goods and services such as tuition and social benefits.^[21] The collected plastic is then recycled by the Plastic Bank partners and reintegrated into new products. This establishes a circular economy where plastic waste is continually recycled and reused. The use of blockchain technology allows the impact of the collections and recycling to be verifiable and traceable;

• the SolarCoin cryptocurrency issued by the SolarCoin Foundation. The foundation aims to promote solar electricity production by reducing the production cost of the electricity. This initiative uses blockchain technology to verify the amount of solar electricity generated by producers registered with the SolarCoin Foundation.[22] The producers are then rewarded with SolarCoins which can be used as a typical cryptocurrency that can be exchanged for other cryptocurrencies or fiat, or spent at a growing network of businesses.[23] This aims to incentivise the production of renewable energy; and

• the carbon credits issued by CarbonX, an organisation which has combined with the Zerofootprint program to use blockchain technology to lower carbon emissions. The Zerofootprint program measures and verifies the carbon impact of an organisation.[24] The organisation can then purchase carbon credits, which are generated through sustainable initiates, like reforestation, to offset carbon emissions.[25] CarbonX uses blockchain technology to store the recorded information and to provide the platform to trade carbon credits. The blockchain technology eliminates historical problems associated with carbon credits by increasing transparency, reliability and eliminating double counting.

The strides that blockchain technology has made in sustainability may also find application in the Republic of South Africa (“South Africa“), a country which has committed to reducing its greenhouse gas emissions as a signatory of the Paris Agreement in terms of which it aims to reach net zero emissions by 2050.[26] As part of this commitment, in July 2024, the Climate Change Act 22 of 2024 (“Act“) was assented to by the President of South Africa. Although the Act is not yet in force, it plans to impose a limit on the amount of greenhouse gases, inter alia, a company may emit by assigning a carbon budget to such company.[27] Blockchain has the potential to be a useful tool in facilitating the implementation of the Act, by incorporating the reliability and transparency of the technology into the reporting process. It can also be used to facilitate the purchase of carbon credits by companies seeking to minimise the amount of carbon tax payable in terms of the Carbon Tax Act 15 of 2019.[28]

In the meantime, companies should in any event consider how they can use blockchain technology in their sustainability efforts. Inspiration can be taken from renewable energy initiatives such as the SolarCoin project. These initiatives are especially important in the South African context where the energy supply is unstable and heavily dependant on fossil fuels and where many South Africans are seeking to become self sustainable.[29] The instability of the power supply should also warrant the selection of an energy efficient consensus mechanism, in the use of blockchain technology in any sustainability project.

Conclusion

At its inception, blockchain technology was energy intensive and relied on fossil fuels to generate the requisite electricity. As the technology developed, so did its capacity to contribute meaningfully to global sustainability initiatives. The decentralised nature of the technology promotes transparency and efficiency that supports sustainability initiatives and reporting. The integration of sustainability in blockchain technology represents an important step toward a more environmentally responsible digital future and its ever developing nature presents unlimited possibilities for future deployment for sustainability initiatives.

[1]       Sedlmeir J et al “The energy consumption of blockchain technology: beyond myth” (2020) https://link.springer.com/article/10.1007/s12599-020-00656-x  [accessed 4 March 2025] page 599 (“The energy consumption of blockchain technology“)

[2]       The energy consumption of blockchain technologypage 599

[3]       https://www.techinasia.com/inner-mongolia-bitcoin-mine [accessed 4 March 2025]

[4]       According to ‘Declaration of a Crypto Asset as a Financial Product Under the Financial Advisory and Intermediary Services Act, 2022’ published under General Notice 1350 in Government Gazette 47334 of 19 October 2022, a crypto asset is defined as a s a digital representation of value that –

                (a) is not issued by a central bank, but is capable of being traded, transferred or stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility;

                (b) applies cryptographic techniques; and

                (c) uses distributed ledger technology

[5]       Stoll C et al “The carbon footprint of Bitcoin” (2019) http://sciencedirect.com/science/article/pii/S2542435119302557#bib5 [accessed 4 March 2025]

[6]       The UNCTDAD secretariat “Harnessing blockchain technologies for sustainable development” (2024) https://unctad.org/system/files/official-document/ciid52_en.pdf [accessed 4 March 2025].

[7]       Investopedia – Blockchain

[8]       Investopedia – Blockchain

[9]       Investopedia – Blockchain

[10]      Akgiray V “The potential for blockchain technology in corporate governance (2019) https://www.oecd.org/content/dam/oecd/en/publications/reports/2019/06/the-potential-for-blockchain-technology-in-corporate-governance_3f26824e/ef4eba4c-en.pdf#page=20&zoom=100,82,186 [accessed 5 March 2025] page 20

[11]      Hoskin O et al ” Tokenized carbon credits: how blockchain is revolutionizing carbon markets” (2025) https://www.lexology.com/library/detail.aspx?g=2704d8a7-fa26-40ac-8366-9dea0dc4433e [accessed 5 March 2025]

[12]      Alvarez IA et al “Unsealing the secrets of blockchain consensus: A systematic comparison of the formal security of proof-of-work and proof-of-stake” (2024) https://dl.acm.org/doi/pdf/10.1145/3605098.3635970 [accessed 3 March 2025] page 280

[13]      Cambridge Blockchain Network Sustainability Index: CBECI [Accessed 26 February 2025]. Bitcoin used 121.13 TWh of electricity in 2023, while Ethereum used only 0.00585 TWh.

[14]      https://fishcoin.co/ [Accessed 26 February 2025]

[15]      https://fishcoin.co/ [Accessed 26 February 2025]

[16]      D Uzsoki et al “Impact tokens: a blockchain-based solution for impact investing” (2019)  https://www.iisd.org/system/files/publications/impact-tokens.pdf [Accessed 26 February 2025] (”Impact tokens“) page 20

[17]      Impact tokens page 21

[18]      Impact tokens page 21

[19]      https://plasticbank.com/about/ [Accessed 26 February 2025]

[20]      https://plasticbank.com/about/ [Accessed 26 February 2025]

[21]      https://plasticbank.com/about/ [Accessed 26 February 2025]

[22]      https://solarcoin.org/ [accessed 5 March 2025]

[23]      https://solarcoin.org/ [accessed 5 March 2025]

[24]      https://www.carbonx.ca/projects [accessed 5 March 2025]

[25]      https://www.carbonx.ca/projects [accessed 5 March 2025]

[26]      https://www.wri.org/news/statement-south-africas-climate-commitment-much-more-ambitious [access 6 March 2025]

[27]     The Act, section 27

[28]     Section 13.

[29]     https://ember-energy.org/countries-and-regions/south-africa/#:~:text=South%20Africa%20generated%2017%25%20of,the%20highest%20in%20the%20G20 [accessed 6 March 2025]

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Reviewed by Natalie Scott, Director and Head of Sustainability

On 24 December 2024, Cyril Ramaphosa, the President of the Republic of South Africa, signed the Taxation Laws Amendment Act No. 42 of 2024, which introduces a significant tax incentive aimed at promoting the production of battery electric and hydrogen-powered vehicles in South Africa. This incentive reflects the South African government’s commitment to transform the automotive manufacturing industry from the production of primarily internal combustion engine vehicles to include the production of battery electric and hydrogen‑powered vehicles as envisaged in the Electric Vehicles White Paper published in November 2023.[1] Various African countries, like the Togolese Republic, Republic of Ghana, Republic of Benin, Republic of Uganda, United Republic of Tanzania and the Republic of Zambia, have introduced tax incentives for battery electric vehicles, not only to lower to cost of such vehicles to the consumer, but to boost investments in the local manufacture of electric vehicles.[2] South Africa joins a laundry list of African countries that have adopted tax incentives, however, battery electric and hydrogen-powered vehicle manufacturers need to be aware of the manner in which the South African Revenue Service (“SARS“) will apply this tax incentive.

The incentive allows taxpayers to claim income tax allowances of 150% of the cost of –

• any buildings (and improvements);

• new and unused plant and machinery (including the cost of installation of any foundations or supporting structures designed for the plant and equipment); and

• any improvements to plant and machinery acquired by the taxpayer,

that are used mainly in the production of battery electric or hydrogen-powered vehicles in South Africa.

The incentive will apply for 10 years, to assets brought into use from 1 March 2026 and before 1 March 2036.

SARS has also introduced anti-abuse rules, which prevent taxpayers from inflating the cost of the asset or improvement and from claiming the allowance for assets that the taxpayer has sold in terms of an instalment credit agreement.

If the taxpayer sells an asset or ceases to use that asset mainly in the production of battery electric or hydrogen-powered vehicles within five years, there will be a 50% recoupment of the cost of the asset. If the asset has been sold, the recoupment will be in addition to the normal recoupments provided for in section 8(4)(a) of the Income Tax Act No. 58 of 1962, but not exceeding the allowances claimed in respect of that asset.

The extent to which multinationals benefit from the incentives remains to be seen following the enactment of the Global Minimum Tax Act No. 46 of 2024, which introduces a minimum tax rate of 15%, through a domestic minimum top-up tax (“DMTT“), for companies forming part of a multinational group with revenues exceeding EUR750 million. The rules involve complex calculations, which allow for a level of exclusion from the DMTT based on the taxpayer’s eligible payroll costs and tangible asset values. The effect of the section 12V allowance and the DMTT will have to be carefully modelled to ensure that taxpayers investing in the production of battery electric or hydrogen-powered vehicles obtain the full benefit of the section 12V allowance.

Even though this tax incentive is a leap in the right direction for battery electric and hydrogen‑powered vehicle manufacturers, the sustainability challenges that South Africa faces may dilute the benefits that the tax incentive aims to achieve. South Africa is heavily reliant on fossil fuel-based electricity, with approximately 80-85% of South Africa’s electricity being generated via coal-fired power stations,[3] which ranks South Africa as one of the most carbon intensive nations globally. While electric vehicles are marketed as having “zero tailpipe emissions” and are optically favoured, the reality is that charging these vehicles will add to the load already borne by the carbon-heavy and buckling electricity grid[4] and potentially offer only marginally less greenhouse gas emissions, when measured from a supply-chain perspective. Vehicle manufacturers’ should, therefore, consider a concurrent shift to renewable energy sources such as “off-grid solar‑powered battery charging infrastructure that can be made available to consumers[5] to reduce reliance on the national electricity grid.

The manufacturing process for electric and hydrogen-powered vehicles, particularly their batteries, is energy-intensive and involves the extraction of rare earth metals like lithium, cobalt, and nickel.[6] The mining of these materials often has significant environmental and social consequences, raising questions about the sustainability of scaling up electric and hydrogen-powered vehicles under this incentive. In addition, the disposal and recycling of electric vehicle batteries at the end of its life-cycle is frequently an overlooked issue. South Africa currently has limited infrastructure to handle the safe recycling of lithium-ion batteries, which pose environmental risks if not properly managed.[7]

South Africa’s 150% tax incentive for electric vehicle manufacturers is a bold move toward modernising the country’s automotive sector and aligning with global climate goals. However, the tax incentive is undermined by systemic challenges, including a coal-dependent national grid, the environmental impact of electric vehicle manufacturing, limited adoption and sustainable waste management processes. For this incentive to deliver tangible sustainability benefits, it must be paired with investments in renewable energy, equitable electric vehicle adoption strategies, sustainable manufacturing and recycling practices and emissions control throughout the supply chain process. Only then can South Africa truly drive towards a greener automotive future.

[1]        Electric Vehicle White Paper, November 2023, page I

[2]        “Government Removes Tax on Electric Vehicles“, 12 December 2024, available on https://zanis.gov.zm/index.php/2024/12/12/government-removes-tax-on-electric-vehicles/#:~:text=Government%20says%20it%20has%20removed,of%20EVs%20in%20the%20country. (accessed on 14 January 2025)

[3]        https://www.trade.gov/country-commercial-guides/south-africa-energy (accessed on 20 January 2025)

[4]        https://www.energy.vic.gov.au/renewable-energy/zero-emission-vehicles (accessed on 21 January 2025)

[5]        https://charge.co.za/media-statement-charge-welcomes-ev-tax-incentive-but-more-regulatory-action-needed-for-ev-charging/ (accessed 22 January 2025)

[6]        https://greenly.earth/en-us/blog/ecology-news/the-harmful-effects-of-our-lithium-batteries (accessed on 24 January 2025)

[7]        https://ewasa.org/new-battery-recycling-plant-opens-in-gauteng/#:~:text=Unfortunately%2C%20battery%20recycling%20is%20a,its%20facility%20in%20Germiston%2C%20Gauteng. (accessed on 24 January 2025)

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The 2021 decision of a Dutch district court in Milieudefensie v Royal Dutch Shell[1] was widely regarded as an inflection point in global climate litigation. In its judgment, the district court ordered Shell plc (“Shell“) to reduce its global CO₂ emissions by at least net 45% by 2030, relative to their 2019 level. The imposition of a concrete obligation on a corporate entity to reduce its emissions marked a decisive development in climate change jurisprudence, which up to that point had focused on the responsibilities of States to protect environmental rights. Shell appealed against the judgment and sought a reversal of the district court’s order. On 12 November 2024, the Dutch Court of Appeal handed down a decision[2] (“Appeal Decision“) which overturned the order binding Shell to the 45% reduction standard, but affirmed the obligation resting on corporations like Shell to limit their CO₂ emissions to counter the harmful effects of climate change.

The appeal court’s finding that failure by Shell to adhere to a particular reduction standard would not constitute an “unlawful act” under Dutch law was grounded in the concept of the “unwritten social standard of care” contemplated in the Dutch Civil Code. Much like the wrongfulness element in the South African law of delict, this standard of care is “interpreted as much as possible on the basis of objective starting points, such as legislation, general legal principles, fundamental rights, case law and/or expert reports”.[3] The appeal court considered these sources in turn.

Article 2 and Article 8 of the European Convention on Human Rights have been interpreted to impose positive obligations on States to take measures to protect the rights to life and private/ family life, respectively, including preventing the harmful effects of climate change. Additionally, several reports and resolutions of the United Nations affirm that protection from these harmful effects is a human right. The appeal court recognised that fundamental rights, and the values they embody, may have “horizontal effect” and impact private-law relationships by giving substance to open standards and general concepts such as the “social standard of care”. From a South African perspective, environmental rights are explicitly enshrined in section 24 of the Constitution of the Republic of South Africa, 1996 (“Constitution“), and the horizontal application of fundamental rights, particularly by way of their influence on the common law, has long been recognised as a hallmark of South Africa’s culture of transformative constitutionalism.

The court in the Appeal Decision found that no direct reduction obligations or commitments arise from the various pieces of European Union (“EU“) and Dutch legislation that regulate the climate-related obligations of corporations. Whilst not exhaustive, companies’ obligations under existing legislation must be taken into account when assessing the fulfilment of any duty of care owed by those companies to the public at large. The regulatory framework presently in place in the EU contemplates the use of price incentives to curb emissions and leaves companies free to adopt their own approaches to reducing emissions in line with the targets set by the Paris Agreement.[4]

South African climate legislation bears resemblance to EU law, whilst differing in certain respects. The Climate Change Act 22 of 2024 (“Climate Change Act“), the commencement date of which has yet to be proclaimed, contemplates the allocation of a “carbon budget” to any person conducting an activity which emits, or has the potential to emit, one or more of the greenhouse gases[5] that the minister responsible for environmental affairs (“Minister“) reasonably believes causes or is likely to cause or exacerbate climate change.[6]

A carbon budget must have a duration of at least three successive five-year periods and specify the maximum amount of greenhouse gas emissions that may be emitted during the first five-year period. A person to which a carbon budget has been allocated must prepare and submit to the Minister for approval a greenhouse gas mitigation plan which describes the measures that it proposes to implement to remain within its carbon budget. The approved plan must be implemented, and progress in this regard must be monitored, evaluated and reported on annually by that person. Should such reporting indicate that a person has failed, is failing or will fail to comply with its carbon budget, it must provide a description of measures that it will implement in order to remain within its carbon budget.

Alongside carbon budgets, the mitigation system envisaged in the Climate Change Act includes the determination of sectoral emissions targets (“SETs“) for certain sectors and sub‑sectors identified by the Minister.[7] These targets will include “quantitative and qualitative greenhouse gas emission reduction goals”.[8] The ministers responsible for the administration of the relevant sectors and sub-sectors will be tasked with developing and implementing policies and measures to ensure that the targets are not exceeded.

The implementation of SETs was initiated with the approval of the SET Framework by Cabinet in November 2021. This was followed by the publication of the Draft SET Report on 26 April 2024,[9] which sets out the proposed SETs to be adopted by sector departments, including the energy sector.[10] The oil and gas sector is not specifically mentioned, although it is recorded that the draft SETs will be refined following public consultation before being recommended to Cabinet for allocation to the relevant departments. Whilst Shell has announced its intention to divest from its downstream South African operations as part of its “commitment to simplification, performance, and discipline”,[11] those corporations which do operate in the oil and gas sector in South Africa are likely to be expected to comply with more stringent regulation and scrutiny from an emissions perspective in the near future.

It is clear from the aforegoing that the Climate Change Act, like EU law, provides for the allocation of emission allowances to designated emitters,[12] emissions “targets” and “goals” for designated sectors, and requirements for emitters to report on their emissions and implement mitigation plans, but stops short of imposing binding emissions standards. The approach adopted in the Climate Change Act thus, on its face, accords with the court’s finding in the Appeal Decision.

In the latter part of its judgment, the appeal court focused specifically on Shell’s obligation to reduce its scope-three emissions, being those indirect emissions generated in its value chain, including from the use or consumption of products it supplies to third parties, such as the combustion of Shell’s fossil fuel products by end users. The court recognised the consensus amongst climate scientists that, in order to limit global warming to 1.5°C, reduction pathways must be chosen in which CO₂ emissions are reduced by a net 45% by the end of 2030. These pathways, however, involve a global reduction representing an average for all sectors, places and greenhouse gases. Applying the 45% reduction standard to Shell is thus insufficiently case specific and ignores the details of Shell’s supply portfolio. Additionally, no unequivocal conclusion could be drawn from the sources presented to the court regarding the required reduction in emissions from the oil and gas sector in particular on which to base an order against any specific company. Finally, it was not firmly established by the respondents that limiting Shell’s resale of fossil fuels purchased from third parties would be effective in reducing its scope-three emissions.

Despite the appeal court’s finding that corporations could not be held to binding emissions reduction standards, the Appeal Decision is far from a death blow to climate litigation. The court (i) strongly suggested that corporations have an obligation to reduce their scope-three emissions, and (ii) recognised that foundations or associations have standing to bring claims for the protection of sufficiently similar environmental interests of other persons.

South Africa’s transformative Constitution, with its explicit protection of environmental rights and broad approach to standing, is ripe ground for climate change litigation, particularly in light of the impending coming into force of the Climate Change Act. Whether this litigation will track the trajectory of the Shell saga, or chart its own course, remains an open question.

[1] Case number C/09/571932/HA ZA 19-379.

[2] Under case number 200.302.332/01.

[3] Paragraph 7.2 of the Appeal Decision.

[4] Paragraph 7.56 of the Appeal Decision.

[5] “Greenhouse gases” are defined in section 1 of the Climate Change Act as “gaseous constituents of the atmosphere, both  natural and anthropogenic, that absorb and re-emit infrared radiation”, and include CO_2, methane and ozone.

[6] Section 27(1) of the Climate Change Act, read with sections 26(1) and 26(2), requires the Minister to publish, by notice in the Government Gazette, a list of (i) the gases which the Minister reasonably believes causes or is likely to cause or exacerbate climate change, and (ii) the activities that emit, or have the potential to emit, one or more of these gases. We note that as at the date of this article no such list has been published.

[7] Section 25(1) and 25(3) of the Climate Change Act.

[8] Section 25(4)(a) and (c) of the Climate Change Act.

[9] Accessible at https://www.gov.za/sites/default/files/gcis_document/202404/50571gon4763.pdf (accessed on 21 November 2024).

[10] The Draft 9^th National Greenhouse Gas Inventory Report, published by the Minister on 2 May 2024, identifies the energy sector as a sector that accounts for a substantial portion of South Africa’s total emissions. Furthermore, oil and natural gas is identified as a “key category” with a “significant influence” on the country’s total inventory of greenhouse gases. The vast majority of energy-sector emissions are generated by fuel combustion activities, although fugitive emissions from the fuels sector also have an impact. Fugitive emissions in the context of the oil and gas sector include emissions due to venting, flaring and all other sources associated with, inter alia, the exploration, production and transmission of oil and natural gas.

[11] Shell.co.za (10 May 2024) “Important Update for Our Loyal Customers!” (accessible at https://www.shell.co.za/media/2024-media-releases/important-update-for-our-loyal-customers.html), accessed on 20 November 2024.

[12] Section 27(1) of the Climate Change Act provides that the Minister must allocate a carbon budget to any person that conducts an activity listed in terms of section 26(2) and, inter alia, determine quantitative greenhouse gas emission thresholds to identify persons which are to be assigned a carbon budget and required to submit greenhouse gas mitigation plans.

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Following the COVID-19 pandemic, more people than ever are ordering goods online based on the variety of good and services available, convenience, quick delivery times and usually competitively prices, however, the risks associated with issuing an electronic funds transfer credit payment instruction (“EFT Payment Instruction“) to make payment for such online goods and services have been mostly understated.

The emergence of financial technology (fintech) companies that use technology to provide innovative tools, products and services has offered the e‑commerce environment various tools to “optimise” e-commerce transactions, with screen-scraping being one of such tools. Screen scraping refers to the process where computer techniques are deployed to solicit a payer (being a consumer)[1] to divulge his/ her online banking login credentials so that the “screen scraper” can use the payer’s online banking login credentials to issue an EFT Payment Instruction on behalf of the payer.[2] Unbeknownst to most payers at the time of the transaction, they are unwittingly authorising an independent third party to issue an EFT Payment Instruction on their behalf without having actually logged onto their online banking account (either via the website or mobile application versions). This transfer of personal information leaves the payer more susceptible to (i) cyberattacks, (ii) data breaches (including in relation to the payer’s personal information), (ii) fraud and (iv) financial losses.[3]

In response to growing number of ‘authorised’ independent third party payments taking place via EFT Payment Instructions and the increasing risks to consumers, on 15 November 2024, the South African Reserve Bank (“SARB“), in accordance with section 12 of the National Payment System Act No. 78 of 1998 (“NPS Act“), published the “Directive in respect of issuing of electronic funds transfer credit payment instructions on behalf of the payer in the national payment system” (“Directive 2“). The purpose of Directive 2 is to impose more stringent requirements on independent third parties issuing EFT Payment Instructions on behalf of payers, using screen scraping or any other technology tools, in the national payment system.

Directive 2 prohibits any person (including a juristic person) from issuing an EFT Payment Instruction on behalf of a payer unless that person –

• is registered with the SARB, in such manner and form that the SARB prescribes in Directive 2, which, inter alia, involves –

• supplying the SARB with the requisite supporting documents;

• employing or appointing a qualified person(s) with relevant experience who will ensure compliance with the relevant legislation, rules, regulatory frameworks and agreements;

• demonstrating the manner in which the informed consent of the payer will be obtained before issuing an EFT Payment Instruction on behalf of such payer; and

• demonstrating to the SARB that it has the necessary processes and systems in place to secure the payer’s data and online banking credentials;[4]

• has obtained the informed consent of the payer before issuing any EFT Payment Instructions on behalf of the payer; or

• is exempted by the SARB from registering in accordance with Directive 2.[5]

In addition to the registration requirements, Directive 2 imposes ongoing obligations on persons issuing EFT Payment Instructions on behalf of payers. In this regard, such persons must, inter alia, –

• ensure that the marketing practices of its products and services to payers are not fraudulent or likely to create false and misleading statements;

• inform the payer if it has entered into any contract with a clearing system participant[6] to issue EFT Payment Instructions on behalf of the payer and publicly disclose the terms and conditions for using its services;

• obtain the informed consent of the payer, in the manner prescribed in Directive 2, before using his/ her online banking credentials to access the transactional accounts of the payer to issue an EFT Payment Instruction on behalf of the payer;

• have sound and effective policies, systems and procedures in place to mitigate operational risks;

• comply with all requirements of the Protection of Personal Information Act No. 4 of 2013 to protect the personal information of the payers;

• have an insurance or guarantee mechanism against possible losses for payers and beneficiaries resulting from fraud or refunds; and

• submit monthly reports to the SARB by no later than the 15^th day of each month.[7]

Paragraph 6 of Directive 2 authorises the SARB and its representatives to monitor compliance with these directives and any person that contravenes Directive 2 may be liable to pay a fine not exceeding R1,000,000 or sentenced to a term of imprisonment not exceeding five years, or both a fine and a term of imprisonment.[8]

Directive 2 comes into effect 90 days after the publication thereof, or on such later date as may be communicated by the SARB. All persons who issue EFT Payment Instructions on behalf of payers are therefore encouraged to initiate discussions with the SARB to align its current and/ or future business practices with Directive 2.

[1]        “Payer” is defined in paragraph 1.18 of Directive 2 as “a person that holds a payment account and allows a payment instruction to be issued from that payment account”

[2]        Paragraph 1.23 of Directive 2

[3]        Paragraph 2.5 of Directive 2

[4]        Paragraphs 5.1.4 and 5.2.1 of Directive 2

[5]        Paragraphs 5.1.1 and 5.1.2 of Directive 2

[6]        “Clearing system participant” is defined in section 1 of the NPS Act as “a bank, a mutual bank, a co-operative bank, a branch of a foreign institution or designated clearing system participant that clears in the manner contemplated in section 4(2)(d)(i) [of the NPS Act]”

[7]        Paragraph 5.3 of Directive 2

[8]        Paragraph 7.3 of Directive 2, read with sections 12(8) and 14(a) of the NPS Act

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The Financial Intelligence Centre (“FIC“) on 15 November 2024 published “Directive 9 concerning the implementation of the ‘Travel Rule’ relating to crypto asset transfers in accordance with the Financial Action Task Force Recommendations” (“Directive 9“). The directive, which enters into force on 30 April 2025, seeks to ensure that crypto asset service providers (“CASPs“), in carrying out crypto asset transfers, implement the requirements of Recommendation 16 of the Financial Action Task Force (“FATF“).

Directive 9 applies to all accountable institutions listed in items 12 and 22 of Schedule 1 of the Financial Intelligence Centre Act 38 of 2001 (“FIC Act“) that are ordering, intermediary or recipient CASPs and “facilitate or enable the origination or receipt of domestic and cross-border transfers of crypto assets” or “act as an intermediary in receiving or transmitting the crypto assets for or on behalf of a client”.

Directive 9 sets out separate obligations in respect of –

• ordering CASPs, which initiate transfers of crypto assets upon receipt of a request from or on behalf of an originator;

• intermediary CASPs, which receive and transmit crypto assets on behalf of another CASP with which they do not have a business relationship; and

• recipient CASPs, which receive crypto assets and make them available to a beneficiary.

Prior to executing a transfer, an ordering CASP is required to transmit to the recipient CASP certain identifying information concerning both the originator and beneficiary of the transfer, including its distributed ledger address associated with the transfer and crypto asset account number, if applicable. Directive 9 places an obligation on ordering CASPs to conduct due diligence in respect of the originator (subject to certain exceptions), and any counterpart CASP to which it transmits information.

An intermediary CASP must ensure that all originator and beneficiary information pertaining to a transfer is transmitted to the next CASP in the transaction chain, whilst a recipient CASP is required to verify the identity of the beneficiary. In respect of cross-border transfers, intermediary and recipient CASPs must (i) take reasonable measures to identify transfers that lack the requisite information, and (ii) “develop, document, maintain and implement effective risk-based policies and procedures” for determining when to execute, suspend execution or return a transfer that lacks such information.

Ordering and intermediary CASPs must transmit the requisite information prior to or simultaneously with the crypto asset transfer itself, and must transmit and store this information in a secure manner. Ordering and recipient CASPs must “develop, document, maintain and implement effective risk-based policies and procedures” for the treatment of transfers involving “unhosted wallets”, being crypto wallets “where the user has exclusive control of the private keys”.

The relevant measures, policies and procedures which CASPs are required to implement in terms of Directive 9 must be included in the CASP’s risk management and compliance programme. Given that failure to comply with Directive 9 could lead to the imposition of administrative sanctions, CASPs would be well advised to seek legal advice in respect of their obligations under the FIC Act, and Directive 9 in particular, to ensure compliance.

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A recent study conducted by the Manchester Metropolitan University revealed that the processes intended to decontaminate noxious liquid landfill waste before it re-enters rivers and sewers lead to increased levels of some of the worst toxic chemicals, being per- and poly‑fluoroalkyl substances (“PFAS”).[1] PFAS is the umbrella term that refers to a group of thousands of synthetic chemicals (approximately 15,000) that are known for their indestructible and non-stick properties. PFAS are found in various domestic products, such as waterproof clothing, furniture, cookware, electronics, food, packaging, and firefighting foams.[2] Due to its persistence and resistance to natural degradation processes, PFAS do not break down for thousands of years, which means that these chemicals essentially exist forever, resulting in ever-increasing levels of these substances in the air, water, and soil.

The first PFAS were created in 1940, and studies over the years have linked PFAS to a wide range of diseases, including cancer and birth defects.[3] The hazardous nature of PFAS has led to various countries imposing restrictions and bans on the production, distribution, import, and export of PFAS and other hazardous substances. In South Africa, the Minister of Forestry, Fisheries and the Environment (“Minister of FFE”) published the “Regulations to Prohibit the Production, Distribution, Import, Export, Sale and Use of Persistent Organic Pollutants that are listed by the Stockholm Convention on Persistent Organic Pollutants” (“POP Regulations”).[4] In terms of the POP Regulations, no person may produce, distribute, import, export, sell or use, inter alia, per-fluorooctanoic acid (“PFOA”), which is a type of PFAS, its salts and PFOA-related compounds.[5] Any person who contravenes the POP Regulations may be liable to pay (i) a minimum fine of R5,000,000 or may be imprisoned for five years for a first offence, or receive both a fine and imprisonment or (ii) a maximum fine of R10,000,000 or may be imprisoned for 10 years in the case of a second or subsequent offence, or receive both a fine or imprisonment.[6] The POP Regulations contained transitional provisions, in terms of which the substances listed in Regulation 3 of the POP Regulations were phased out over a 12-month period.

In 2002, South Africa acceded to the “Convention on the Prior Informed Consent Procedures for Certain Hazardous Chemicals and Pesticides in International Trade” (“Rotterdam Convention”). The Minister of FFE, accordingly, enacted the “Regulations to Domesticate the Requirements of the Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemicals and Pesticides in International Trade, 2023 (“Rotterdam Regulations”).[7] Even though the Rotterdam Regulations will only come into effect on 12 December 2024 and are not yet in effect, as at the date of this article, it makes provision for, inter alia, –

• a general prohibition in terms of which no person may import chemicals into or from South Africa without prior consent, unless such chemicals are (i) an unintentional contaminant in products or (ii) to be used for laboratory-scale research or as a reference standard;

• the process to obtain prior consent from the Designated National Authority to import or export chemicals from South Africa;

• the record-keeping obligations imposed on persons who import or export chemicals from South Africa in accordance with the Rotterdam Regulations;

• the list of chemicals controlled under the Rotterdam Regulations; and

• the penalties for any contraventions of the Rotterdam Regulations.

The South African legislature has published Regulations and Norms and Standards to address the growing concerns around landfills and to mitigate against the potential contamination of groundwater sources. In this regard, the Minister of FFE enacted the “National Norms and Standards for Disposal of Waste to Landfill” (“Landfill Norms and Standards“),[8] which, inter alia, sets out the various landfill classifications and that regularises the standards for the containment barriers of landfills. In addition, the Department of Water and Sanitation published its “Guideline for Pollution Control Barrier System Design”,[9] which sets out cost-effective and environmentally acceptable waste disposal facility designs to prevent groundwater and surface water pollution.

Despite the legislative efforts of the South African legislature, illegal landfills and dumpsites remain a concern, especially considering the potential of PFAS and other hazardous chemicals to cause severe pollution that is detrimental to the environment and human health. It is estimated that 90% of the waste produced in South Africa ends up in landfills.[10] Globally, sanctions against multinational companies that contravene local and international laws pertaining to waste management are increasing, with one of the biggest recorded settlements being a $10.3 billion in terms of which a prominent multinational conglomerate agreed to pay this settlement following allegations that it had contaminated public water sources with, inter alia, PFAS.[11] South African companies are urged to familiarize themselves with the POP Regulations and the steps they are required to take to ensure compliance at all times with South Africa’s waste management legislation, and now specifically in relation to PFAS and other hazardous chemicals.

[1] https://www.theguardian.com/environment/2024/nov/04/decontamination-of-landfill-waste-leads-to-increase-in-toxic-chemicals-says-study#:~:text=Landfills%20are%20well%20known%20to,by%20as%20much%20as%201%2C335%25. (accessed on 5 November 2024)

[2]         https://www.theguardian.com/environment/2023/feb/23/what-are-pfas-forever-chemicals-how-toxic-are-they-and-how-do-you-become-exposed (accessed on 6 November 2024)

[3]         https://www.theguardian.com/environment/2024/oct/15/cost-dealing-pfas-problem-sites-frightening-environment-agency-england (accessed on 6 November 2024) 

[4]         Published in terms of section 25(3) of the National Environmental Management Act, in Government Gazette 44449, on 12 May 2021

[5]         Regulation 3 of the POP Regulations

[6]         Regulation 4 of the POP Regulations

[7]         Published in terms of section 25(3) of the National Environmental Management Act, in Government Gazette 48098, on 21 February 2023

[8]        Published in terms of section 7(1)(c) of the National Environmental Management: Waste Act No 59 of 2008

[9]        Guideline for Pollution Control Barrier System Design, published on 3 September 2021

[10]      https://www.regenize.co.za/landfill-crisis#:~:text=In%20South%20Africa%2C%20the%20landfill,at%20source%20can%20be%20recycled. (accessed on 6 November 2024)

[11]      https://smartwatermagazine.com/blogs/helen-hulett/3ms-big-water-payout-south-africas-industry-next-line (accessed on 5 November 2024

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Incidental credit attracts renewed interest in the context of the Financial Intelligence Centre Act 38 of 2001

Incidental credit agreements have, to a certain extent, traditionally been regarded as somewhat ancillary or peripheral – perhaps even incidental – to the overall scheme of consumer credit legislation. Several key provisions of the National Credit Act 34 of 2005 (“NC Act“) do not apply to incidental credit agreements, including those dealing with assessments of creditworthiness and reckless credit.

Notably, persons providing incidental credit are not required to register as credit providers in terms of section 40(1) of the NC Act. This stands to reason, given that incidental credit agreements, as defined in the NC Act, ordinarily arise during the course of any commercial transaction in which, inter alia, a fee, charge or interest becomes payable when payment of an amount charged in terms of an account rendered to a consumer is not made on or before a determined period or date. The definition of an incidental credit agreement is thus sufficiently broad to include any agreement that entitles a supplier to charge penalty or default interest on outstanding payments by the consumer.

Despite the limited application of the NC Act to incidental credit agreements, a person who supplies goods or services under such an agreement to which the NC Act applies is nonetheless a “credit provider” as defined in section 1 of the NC Act. Furthermore, an incidental credit agreement constitutes a “credit agreement” as contemplated in section 8 of the NC Act. The regulation of incidental credit thus falls squarely within the remit of that statute.

The terms “credit provider” and “credit agreement” have taken on new significance owing to their use in Schedule 1 of the Financial Intelligence Centre Act 38 of 2001 (“FIC Act“), which sets out those persons and organisations that are required to register as accountable institutions in terms of section 43B of the FIC Act. In this regard, Schedule 1 at item 11 refers to any person who –

• carries on the business of a credit provider as defined in the NC Act; or
• carries on the business of providing credit in terms of any credit agreement that is excluded from the application of the NC Act by virtue of the threshold provisions  contained in section 4 of the NC Act.[1]

The meaning of the phrase “to carry on business” for purposes of item 11 of Schedule 1 is unclear, as that term is not defined in the FIC Act. However, the Financial Intelligence Centre (“FIC“) in the Draft Public Compliance Communication No. 23A, dated 15 December 2022 (“Draft PCC“) adopts a wide interpretation of “credit provider”, stating that the provision of credit need not “form part of the core business” of an institution in order for that institution to be “deemed to be a credit provider specifically for purposes of the credit agreement”. This diverges from the FIC’s position in relation to high-value goods dealers, which requires that the trade of such goods must “form part of [the] ordinary course of business” of an entity for it to be regarded as an accountable institution.

It is important to note that item 11 of Schedule 1 is concerned solely with whether a person falls within the definition of a credit provider (or provides credit in terms of any credit agreement), and not with whether such person is required to be registered as a credit provider under the NC Act. In this regard, the courts have settled on the view that the inclusion of a clause entitling a supplier to claim interest if a debt is not paid on or before the expiry of a determined period brings an agreement within the ambit of an incidental credit agreement.[2] Accordingly, a supplier will be regarded as an accountable institution in terms of the FIC Act if it concludes agreements with its customers that provide for penalty interest, notwithstanding the fact that the agreements themselves may be excluded from the application of the NC Act entirely by virtue of the threshold provisions in section 4 of that statute.

In light of the above, it can be concluded that the FIC’s interpretation of item 11 in the Draft PCC, whilst arguably uncommercial and unbusinesslike, is one that is supported by the ordinary meaning of the FIC Act.[3] The implications of this approach are far-reaching, in so far as it imposes onerous obligations on entities beyond those that would ordinarily be expected to comply with the FIC Act.

Providers of incidental credit would, accordingly, be well advised to seek legal advice in respect of their obligations under the FIC Act so as to ensure compliance, particularly in light of the contents of the Draft PCC.

[1] Sections 4(1)(a) and 4(1)(b) of the NC Act exclude (i) credit agreements concluded with a consumer that is a juristic person having an asset value or annual turnover in excess of R1,000,000, and (ii) large agreements concluded with juristic persons, from the ambit of the NC Act.

[2] Independent Plumbing Suppliers (Pty) Ltd v Classen 2014 JDR 1311 (GP) at paragraph 40. See also Collotype Labels RSA (Pty) Ltd v Prinspark CC and Others (6722/2016) [2016] ZAWCHC 159 (9 November 2016). These judgments, whilst unreported, signal a shift away from the reasoning of the court in the earlier case of Voltex (Pty) Ltd v SWP Projects CC and Another 2012 (6) SA 60 (GSJ), which construed interest charged upon failure to pay timeously as being payable “as a consequence of the breach of the agreement, as damages”, and not “in terms of” the agreement, as contemplated in the definition of an incidental credit agreement in the NC Act.

[3] The Draft PCC, despite being in draft form and subject to change, provides an important indication of the strict approach adopted by the FIC in relation to the interpretation of item 11 of Schedule 1 of the FIC Act.

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