June 2022 Legislative Update
“There’s gold in them thar hills!” is not a South African phrase. It’s not even what Mark Twain actually wrote, but Yosemite Sam says it a lot! It’s one we should be cognisant of when considering our business options. In an economy still heavily reliant on the production and export of natural resources, this is a key component to start our economic recovery; but then South Africa needs to move to a sustainable green economy. Will policymakers allow this to happen? Our economy and our legislation always seem to be pulling us in many different directions…
EMPLOYMENT EQUITY
Employment Equity Amendment Bill
The National Council of Provinces passed the Employment Equity Amendment Bill on 17 May 2022.
Currently, companies with fewer than 50 employees but with total annual turnover equal to or above the levels provided in Schedule 4 of the Act (R10m for financial services), are deemed to be designated employers and fall within the scope. The Bill removes this inclusion of small businesses regardless of their turnover. As such, small businesses will not have to have an employment equity plan or submit reports.
The Bill includes a newly created section 15A, which gives the Minister of Labour authority to identify national economic sectors and then set numerical targets to ensure equitable representation of suitably qualified people from designated groups at all occupational levels. We anticipate the sectors will likely be the same as those already identified, but note that this is not linked to turnover or number of employees. The sectoral targets will be published in the Government Gazette, and there will be at least 30 days to comment. It is highly likely that there will be legal challenges to the numerical targets.
Current employment equity plans will have to be replaced with new ones adjusted to meet the requirements of the Bill.
THE FINANCIAL SECTOR CONDUCT AUTHORITY (THE FSCA)
Draft levies notice
The draft levies notice was released on 9 June 2022. There has been some discussion on the issue of levies recently, as they are essentially a secondary tax on financial services companies, and there are some who argue that the proposed levies under the Financial Sector Regulation (FSR) Act are not equitably distributed among industry participants.
These proposed amounts relate to levies as imposed by the FAIS Act due for payment this year (and in some instances secondary payments next year). In general, the proposed amounts have been increased by a little under 5% which is below current inflation.
A blanket increase of 5% on the previous year’s levy for insurers and Lloyds underwriters is proposed – this ignores growth and contraction fluctuations in gross written premium.
Category I and IV Financial Services Providers (FSPs) are likely to pay a base amount of R3,982, and R635 per Key Individual (KI) and Representative (Rep) to the FSCA.
Category II, IIA, or III FSPs are likely to pay a base amount of R8,024, R635 per KI and Rep, and 0.0000184595 times the total value of investments under management.
The newly created over-the-counter (OTC) derivative providers are facing a levy of R100,000.
In addition, all FAIS licensed entities are in line to pay a base amount of R1,231 and R469 per KI and Rep for the offices of the FAIS Ombud.
Comments are to be submitted to FSCA.RFDStandards@fsca.co.za by 22 July 2022.
ODP capital adequacy requirements
The FSCA released the capital adequacy requirements for OTC derivative providers on 6 June.
Of note is that the calculation makes provision for the exclusion of subordinated loans which was removed as an option from all other FSPs.
A provider in the field noted that one client’s trades could cause a firm to be in breach in only a few days. An early warning system will help, but not prevent this. We recommend the requirements be treated as an absolute minimum and that greater reserves be held, ideally no less than a 1:1 ratio.
FSCA fines Poneso Employee Benefits and Actuarial Consultants (Pty) Ltd and Poneso Consulting (Pty) Ltd
The FSCA found that Poneso Employee Benefits and Poneso Consulting failed to comply with requirement to the General Code of Conduct between 1 March 2016 and October 2018, in that it failed to maintain a separate account for client funds.
Poneso Employee Benefits and Poneso Consulting have already taken corrective action, and have remedied the non-compliance in respect of the contraventions.
Omni-CBR workshop
The FSCA invited FSPs to attend a workshop on the cross-cutting Conduct of Business Report. We are registered and will provide feedback.
The “roadmap” is available here and the original questionnaire here.
There have already been a few sessions of these workshops, so we are aware of some of the topics and will be keenly awaiting some clarity.
The FSCA warns the public against Bitcoin Trade Pro (Pty) Ltd
The FSCA issued a warning to the public to be cautious when conducting financial services business with Bitcoin Trade Pro (Pty) Ltd (Bitcoin Pro). Bitcoin Pro offers trading in forex, commodities, contracts for difference, indices, equities, and binary options.
Bitcoin Pro notes its FSP number as 46675 which is the lapsed FSP of Primus Africa (Pty) Ltd. Primus Africa has no knowledge of Bitcoin Pro. Bitcoin Pro is not responding to the FSCA.
Information request on paid-up members of retirement funds
Another request for information on paid-up members of retirement funds was issued by the FSCA as Communication 18 of 2022. The details of the information required are included in the annexures available in the zipped folder.
Funds and administrators are required to provide the information via this link on the FSCA’s website by 31 October 2022.
Funds and administrators are also required to submit the information quarterly (via the same link) within 30 days of the last day of the calendar quarter (so technically: 30 January, 30 April, 30 July, and 30 October).
As much as it is a “request”, penalties as per the relevant sections of the Pension Funds Act and the FSR Act are possible for late or non-submission.
PRUDENTIAL AUTHORITY (PA)
Anti-Money Laundering (AML) guidance for banks and deposit takers
Part of the plan to mitigate the poor findings in the report from the Financial Action Task Force, the PA released three guidance notes in its capacity as the supervisory body responsible for the enforcement of compliance with FICA by banks and deposit takers. The intent is clearly to enhance the Risk Management and Compliance Plans of the entities, and hopefully that of South Africa as a whole.
The guidance seems superfluous, but there is always a nugget of information in such documents for the right party.
Quarterly AML reports to the PA
Directive 4 of 2022 was released and took effect on 21 June 2022. It instructs banks, their subsidiaries, mutual banks, and life insurers to submit quarterly returns to the PA regarding their AML, terrorist financing, and proliferation financing controls.
Banks and their subsidiaries are required to submit as follows:
Quarter 1: January to March is due by 30 April
Quarter 2: April to June is due by 31 July
Quarter 3: July to September is due by 31 October
Quarter 4: October to December is due by 31 January
Mutual banks and life insurers are only required to submit reports twice a year, but only for quarters 2 and 4 by the same deadlines. (And yes, only for the months in those quarters as per the FAQ.)
Reports are to be submitted via this link on the PA’s website.
Proposed amendments to margin requirements for non-centrally cleared OTC derivative transactions
The FSCA and PA invited comments on the proposed changes to Joint Standard 2 of 2020, which detailed the margin requirements for non-centrally cleared OTC derivative products.
The proposed amendments aim to do a few things: simply to align the terminology in the Joint Standard to that of the FSR Act, and refine the phasing in of initial margin requirements to align with implementation dates noted in Joint Notice 1 of 2022.
More importantly, the amendments include provisions requiring reporting from providers and financial institutions that are counterparties. This will roll out in two phases: the first phase is an interim requirement where providers and counterparties will be required to submit information on a Microsoft Excel template, and the second phase will involve the PA developing a dedicated technological reporting solution. The authorities cite their need to have “access to accurate, up-to-date, and detailed information on the non-centrally cleared OTC derivative transactions and of the initial margin and variation margins posted”.
The two most important amendments are: the addition of provisions enabling the imposition of risk mitigation requirements such as risk management, internal control, and assurance requirements by providers wanting to make use of non-cash collateral; and refinements to the provisions on quantitative portfolio margin models to clarify the application requirements on the historical data utilised for calibration. The regulators note that the entire identified period of historical data is to be used rather than the last five years.
Comments are to be submitted to Lezanne Botha FSCA.RFDStandards@fsca.co.za or Kalai Naidoo PA-Standards@resbank.co.za by 25 July 2022.
NATIONAL TREASURY
Demarcation regulations: 2022 escalation of policy benefits
The minister of finance publishes annual policy benefit escalations regarding health policies and accident and health policies (which are excluded from the Medical Schemes Act, 131 of 1998).
The escalations are linked to the Consumer Inflation Index (CPI) and effective from 1 April.
The annexures provide the exact amounts. Product providers and intermediaries will need to update their systems and documentation.
International Monetary Fund (IMF) end-of-mission
The IMF issued a press release on 7 June 2022 summarising its preliminary findings on South Africa.
In general it’s positive, but resolving Eskom’s and Transnet’s issues are viewed as key issues with decisive action needing to be taken.
National Treasury’s response makes the same policy promises as always, but most importantly notes that the unbundling of Eskom is underway.
If South Africa is to avoid becoming another donor-dependent state that is essentially managed by the IMF, we need to take the final report and get on with implementing the recommendations.
Ismail Momoniat appointed as National Treasury Acting Director General
National Treasury announced that Ismail Momoniat has been appointed as the Acting Director General from 8 June.
COUNCIL FOR MEDICAL SCHEMES (CMS)
Brokers earning commission on their own policies to cease
The CMS issued Circular 26 of 2022 on 27 May.
It seems the CMS was unaware that brokers and brokerages were earning commission on their own policies. The CMS is applying a legal principle that this process is “insensible” and “unbusinesslike”.
As such, the Circular includes a directive to medical schemes and administrators to terminate arrangements where brokers receive commission, directly or indirectly, on their own health or medical scheme policies by 30 June 2022. Confirmation that action has been taken must be sent to Florence Maphanga, the Broker Accreditation Manager, by email f.maphanga@medicalschemes.co.za with the subject line: “Confirmation of compliance with the broker commission-related directive”.
It is unlikely that any medical aid provider in the retail space will be unaffected, and those dealing with scheme-based business should also verify they are not in breach of the directive.
