4.2 What are the legal requirements?
Authorised Financial Services Provider and Cooperative
ChinaAI sets up a tokenised security under private placement in South Africa (the "S" in BRICS) the relevant legal jurisdiction. Private placements adhere to a combination of local regulations subsumed under the Banks Act and international standards set by Basel. Moreover, retail and institutional investors can purchase a fractional claim to the portfolio through a "collective scheme" defined by the Collective Investment Schemes Act 2002, p.10.
ChinaAI is further authorised to sell securitised claims to public clients as an authorised “Financial Services Provider,” sponsored by NASASA, a Self-Regulating Financial Cooperative approved by the South African Reserve Bank and Prudential Authority — NASASA is a community bank empowered by the state to create DAO-like savings and investments vehicles co-owned by its member base. Agreements with NASASA may be found here. Section 4.3 lists the various licenses secured by the protocol.
Below are the key regulatory and compliance requirements for establishing an asset-backed securitisation programme in South Africa under private listing, servicing a global client base of retail and institutional investors:
Significant Risk Transfer: Following Basel III, to achieve “significant risk transfer (SRT),” the originator bank must demonstrate that at least 50% of the credit risk is transferred to a third party, ensuring the originator bank no longer bears the majority of the risk.
Documentary (Sanctions) Requirements: Derivative issuers must comply with the minimum documented criteria as per the South African Securitisation Notice, 2008, under the Financial Markets Act and ensure that all investors are KYC’d as per FICA Act of 2001, Section 21.
Capital Relief: The originating bank must show that the transaction reduces its regulatory capital requirements by transferring the credit risk of a pool of assets in compliance with the Basel III risk-weighting approach.
Disclosure and Reporting: Full disclosure of the structure, risks, and counterparties involved to the Prudential Authority and the vehicle's investors.
Due Diligence and Compliance: Originating banks must conduct thorough due diligence on the creditworthiness of the assets being securitised and ensure compliance with local regulations and international standards regarding risk transfer and exposure.
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