IT Governance Takes Centre Stage: South Africa’s New Regulation Explained

This regulation aligns South Africa with global standards, and sets strict protocols for IT risk management and business continuity. Financial institutions must now act swiftly to implement robust measures to meet these demands and avoid steep penalties or operational restrictions.

The Risks Digitalisation Brings to the Financial Sector

Digital transformation in financial companies bring significant benefits – operational efficiencies, customer satisfaction, and competitive advantages. However, it also introduces catastrophic risks. Here are some of them.

1. Cybersecurity Threats

• Data Breaches: As systems become more interconnected, sensitive financial and customer data is at higher risk of being exposed to cyberattacks. 
• Ransomware and Malware: Increased digitisation makes financial companies prime targets for hackers aiming to disrupt operations or demand ransoms.
• Phishing Attacks: Employees and customers are vulnerable to increasingly sophisticated social engineering scams.

2. Third-Party and Supply Chain Risks

• Vendor Reliability: Dependence on third-party software providers creates vulnerabilities if a vendor fails to deliver, becomes insolvent, or experiences a data breach.
• Outdated Supplier Protocols: Providers with poor security practices can introduce backdoor vulnerabilities.
• Integration Challenges: Misalignment between third-party tools and in-house systems can lead to inefficiencies or data leaks.

3. Regulatory Compliance Risks

• Failure to Comply: Rapid adoption of new technology may outpace the organisation’s ability to meet legal and regulatory requirements.
• Global Standards Variations: Operating across borders introduces complexity in adhering to different compliance frameworks.
• Audit and Reporting Challenges: Digitised systems need robust reporting to satisfy regulators, which may be difficult to implement effectively.

4. Operational Disruptions

• System Downtime: Migration to digital platforms or adoption of new technologies can lead to outages if not handled carefully.
• Legacy Systems Integration: Combining modern technologies with outdated legacy systems often creates inefficiencies or errors.
• Employee Adaptation: Lack of staff training on new systems can result in mismanagement or underutilisation of tools.

Strengthening IT Resilience

The Joint Standard mandates financial institutions to tackle IT-related risks head-on. This will ensure operational continuity and reliable service delivery. 

Banks, insurers, and other financial players are required to establish and prove compliance with stringent IT governance and risk management practices. This will be evaluated a year from the regulation’s effective date. Non-compliance risks hefty fines or even the suspension of operating licences.

In fact, recent findings by McKinsey show that the majority of financial services companies surveyed recognise that their greatest vulnerability is with third-party software risk.

Guy Krige, Executive Risk Consultant at EscrowSURE, explains:

“The regulation addresses the current scale of third-party risks by insisting on comprehensive supply chain management, including tracking critical service providers and developing clear business continuity plans. At the heart of these requirements is the ability to access critical software applications, even if external providers falter. This makes software escrow an invaluable solution—not only for compliance but also for ensuring financial entities remain operational in the face of disruptions or vendor insolvencies. Globally, markets like Singapore and India explicitly require software escrow as part of their IT governance frameworks.”

Software Escrow: A Practical Compliance Tool

Software escrow involves securely depositing source code with a trusted third party, enabling financial institutions to maintain access to critical software if a vendor fails. By using escrow, South African financial firms can protect operational continuity while ticking the compliance boxes of the Joint Standard.

If a third-party provider is unable to meet its obligations, escrow ensures institutions can retrieve and manage critical software themselves, avoiding costly disruptions.

Krige adds:

“Under South Africa’s new IT governance standard, software escrow is a proactive tool that meets regulatory requirements while safeguarding operations. It mitigates the rising threat of supplier failures, offering an operational contingency that financial entities can rely on.”

How to Prepare for What’s Next: The Cybersecurity Joint Standard

While institutions work to comply with the current IT governance regulation, another landmark change looms. The Joint Standard on Cybersecurity, effective from 1 June 2025, will demand enhanced protection against cyber threats. This upcoming regulation also highlights third-party risk management, reinforcing the value of software escrow as a critical component for continuity and security.

Krige concludes:

“By integrating software escrow into their strategies now, financial institutions not only comply with today’s requirements but are also better positioned to tackle the heightened cybersecurity demands of 2025. Escrow agreements are a cost-effective, proactive step to boost resilience, secure IT assets, and ensure both compliance and uninterrupted service delivery.”

As South Africa’s financial sector faces this evolving regulatory landscape, software escrow emerges as an indispensable tool for tackling IT risks, maintaining compliance, and safeguarding operations in an increasingly digital world. 

It is not a question of whether you need software escrow or not, but rather, who to choose. Speak to the leading software escrow provider in South Africa: ESCROWSURE.