Proposed directive relating to the treatment of investments in Flac or similar instruments for Banks

RegCanary interpretation

This is RegCanary analysis, not source text. Check material statements against the original publication.

The South African Reserve Bank's Prudential Authority has opened consultation on a proposed directive addressing how banks must treat investments in FLAC (loss-absorbing) instruments. For compliance teams at South African banks, this signals a potential shift in capital treatment that could affect capital adequacy calculations, risk-weighted asset reporting, and resolution planning. The directive aims to align local practice with international resolution frameworks, particularly the notion of internal loss-absorbing capacity. Banks should review current holdings of FLAC and similar instruments, model the impact on capital ratios, and assess whether existing systems can accommodate any new reporting or validation requirements. Engaging with the consultation process is advisable, as feedback may shape the final directive. Beyond compliance, this initiative offers an opportunity to strengthen resolvability and investor confidence. Immediate actions include inventorying FLAC-related exposures, assessing gaps against the proposed treatment, and preparing internal briefings for risk and finance committees. While the directive is still in consultation, early preparation will reduce implementation friction once finalized.

RegCanary impact assessment

RegCanary impact score: 9/10