SADC: Legal Frameworks need to work in harmony

A recent report: “In Pursuit of Efficient Financial Markets for the SADC Region”, highlights the need for the harmonisation of legal frameworks to support global best practices in banking contracts, in the SADC region. The report was published by the South African based Centre of Excellence in Financial Services.

The evolution of domestic legislation across SADC has often been based on national interest, resulting in insolvency legislation across the region being inconsistent. Contracts designed and used globally are not supported in some jurisdictions by the underlying legal frameworks.

According to the report, a key impediment is that the intention of the parties to a contract, are not recognised by the legal framework. ‘Close out netting’, where a number of individual contracts are concluded under a master agreement, must allow for a single transaction to settle the net amount owed between the parties, and for it to be effected immediately before the insolvency proceedings.

This is the specific intention of the parties to the contract, but some insolvency proceedings can delay the finalisation of these contracts by years. Even worse, officials with special regulatory powers can select which contracts will be honoured – and which not. This can be a significant liability for the party that has contracted in good faith.

Jurisdictions that meet the legal requirements for these contracts to be recognised get added to a global data base that permits thousands of banks to contract with other banks or the government of that jurisdiction.

The report does however recognise that to enable this limited review of the legal framework to be prioritised, a bridge must be built between the departments of finance and justice in each country.