CLA 2602 PAST PAPER EXAM WITH
SOLUTIONS
OCTOBER/NOVEMBER 2022
SECTION A: PART A - BANKING REGULATIONS
Question One
Discuss THREE (3) ways in terms of which different types of banks may be categorised. Provide
ONE example for each.
1. Regulatory framework: Banks can be categorized based on the regulatory framework
that governs them. For example, in South Africa, the private banking sector is divided
into commercial banks (regulated by the Banks Act 94 of 1990), mutual banks (regulated
by the Mutual Banks Act 124 of 1993), and co-operative banks (regulated by the Co-
operative Banks Act 40 of 2007).
2. Ownership: Banks can also be categorized based on their ownership structure. For
example, some banks are publicly owned, while others are privately owned. An example
of a publicly owned bank is the State Bank of India, while an example of a privately
owned bank is JPMorgan Chase.
3. Services offered: Banks can also be categorized based on the services they offer. For
example, some banks specialize in investment banking, while others focus on retail
banking. An example of a bank that specializes in investment banking is Goldman Sachs,
while an example of a bank that focuses on retail banking is Wells Fargo.
Question Two
Differentiate between financial integrity and consumer protection as trade-offs to
financial inclusion. In your answer, do not discuss policy and regulatory measures
that have been adopted to address these trade-offs.
Financial integrity and consumer protection are two important considerations when it
comes to financial inclusion. Financial integrity refers to the soundness and stability
,of the financial system, while consumer protection refers to the measures put in
place to ensure that consumers are treated fairly and protected from harm.
In terms of financial inclusion, there can be trade-offs between financial integrity and
consumer protection. For example, in order to expand access to financial services to
underserved populations, financial institutions may need to relax certain standards or
requirements that are designed to ensure financial integrity. This could potentially
increase the risk of fraud or other types of financial crime.
On the other hand, if financial institutions prioritize consumer protection over
financial integrity, they may be more cautious in their lending practices and may not
extend credit to certain individuals or groups who are deemed to be high-risk. This
could limit access to financial services for those who need them the most.
It is important to strike a balance between financial integrity and consumer protection
in order to achieve sustainable financial inclusion. This can be done through the
adoption of appropriate policies and regulatory measures that take into account the
needs of both financial institutions and consumers.
Question Three
Study the following factual scenario and answer the questions below:
John is conducting a business as a civil engineer and employs twenty-five employees.
He persuades his employees to deposit certain amounts of their salaries with him and to
earn interests to a maximum of 10%. None of his employees has deposited money and
no deposit has been accepted by him.
3.1 Discuss whether John’s conduct constitutes “the business of a bank” in terms
of the Banks Act 94 of 1990 by focusing on the following aspects.
(a) Whether the employees are “general public”. (3)
Based on the information provided, it is not clear whether John's employees
would be considered part of the "general public" as defined by the Banks Act 94
of 1990. The Act defines "deposit-taking" as the acceptance of deposits from the
general public, which is defined as "persons other than banks, authorized
financial services providers, long-term insurers, short-term insurers, mutual
banks, co-operative banks, and certain other entities."
Without more information about the nature of John's business and the
relationship between him and his employees, it is difficult to determine whether
his conduct would be considered the "business of a bank" under the Banks Act.
(b) Whether he, John is “soliciting for deposit”. (3)
Based on the information provided, it appears that John is soliciting for deposit by
persuading his employees to deposit certain amounts of their salaries with him
, and earn interest. However, it is important to note that no deposit has been
accepted by him.
In order to determine whether John's conduct constitutes "the business of a bank"
under the Banks Act 94 of 1990, it would be necessary to consider additional
factors, such as the nature and extent of the solicitation, the terms and conditions
of the proposed deposits, and whether John is holding himself out as a bank or
other financial institution.
3.2 Discuss THREE (3) types of activities that are excluded from the definition of
“the business of a bank” in terms of the Banks Act 94 of 1990. (6)
[12]
The Banks Act 94 of 1990 excludes certain activities from the definition of "the
business of a bank". Three types of activities that are excluded are:
1. The provision of advice or intermediary services: The Banks Act excludes the
provision of advice or intermediary services, as well as banking services and
related financial services, from the definition of "the business of a bank".
These activities are regulated by the Financial Advisory and Intermediary
Services Act (FAIS) 37 of 2002.
2. The operation of a mutual bank: Mutual banks are regulated by the Mutual
Banks Act 124 of 1993 and are therefore excluded from the definition of "the
business of a bank" under the Banks Act.
3. The operation of a co-operative bank: Co-operative banks are regulated by
the Co-operative Banks Act 40 of 2007 and are also excluded from the
definition of "the business of a bank" under the Banks Act.
It is important to note that while these activities are excluded from the definition of
"the business of a bank" under the Banks Act, they may still be subject to regulation
under other laws and regulations.
Question Four
4.1 Briefly describe the following types of stokvels.
(a) Investment club (2)
An investment club is a type of stokvel where a group of individuals pool their
money together to invest in stocks, bonds, or other securities. Members of the
investment club typically meet regularly to discuss investment opportunities and
make decisions about how to allocate the club's funds.
, Investment clubs are often formed by individuals who are interested in investing
but may not have the knowledge or resources to do so on their own. By pooling
their resources, members of the investment club can access a wider range of
investment opportunities and potentially achieve better returns than they would
on their own.
(b) High budget association
A high budget association is a type of stokvel where members contribute large sums
of money on a regular basis, typically on a monthly or quarterly basis. The funds are
then used to finance high-cost items or events, such as luxury vacations, expensive
cars, or high-end fashion items. Members of high budget associations may be
required to meet certain eligibility criteria, such as having a high income or net worth,
in order to join. It is important for members of high budget associations to carefully
consider the risks and benefits of participating, as the large sums of money involved
can lead to significant financial losses if not managed properly.
4.2 Briefly explain whether a stokvel that involves borrowing money from a
third party.
such as a bank constitutes a “credit agreement” in terms of the National credit
Act (32 of 2005).
In terms of the National Credit Act (32 of 2005), a "credit agreement" is defined as an
agreement between a credit provider and a consumer in which the credit provider
agrees to provide credit to the consumer. The Act sets out various requirements that
must be met in order for a credit agreement to be valid and enforceable, including
the need for the agreement to be in writing and for certain disclosures to be made to
the consumer.
If a stokvel involves borrowing money from a third party such as a bank, it may
constitute a credit agreement in terms of the National Credit Act if the requirements
for a credit agreement are met. This would depend on the specific terms of the
agreement and the nature of the relationship between the stokvel and the bank. If
the stokvel is borrowing money from the bank on behalf of its members, and the
members are considered to be consumers under the Act, then the agreement may
be subject to the Act's requirements.
It is important to note that the National Credit Act is a complex piece of legislation,
and the application of its provisions to a particular stokvel arrangement will depend
on the specific facts and circumstances involved. Members of stokvels that involve
borrowing money from third parties should seek professional advice to ensure that
they are aware of their legal obligations and the potential risks involved.
