You’re probably reading this while winding up your business activities for 2022 and planning for 2023. It’s that time of year, and we hope you’re in the right frame of mind.
We usually hold on to our last update to try to cram in all the changes the regulators release at the end of the year, however we’re sure they’re going to save it all until 15 December. We’ll have to let you know what you’re in for next year, unless you’re a Compliance Officer or suddenly on the list of Accountable Institutions (AIs)!
We hope you have a safe and relaxing break.
THE FINANCIAL SECTOR CONDUCT AUTHORITY (THE FSCA)
Appointment of new FAIS Ombud
Advocate John Simpson has been appointed as the Ombud for Financial Services Providers (FAIS Ombud) effective 1 November 2022.
Simpson previously served as a Magistrate, General Manager at the Ombudsman for Banking Services, legal consultant, and tribunal member at the National Consumer Tribunal.
He replaces the acting Ombud, Thobile Masina.
Workshop for Funeral Parlour Financial Service Providers (FSPs)
The FSCA is hosting a workshop for Funeral Parlours that are also registered FSPs. The virtual workshop is on 7 December, and you can register here if you’re interested.
The FSCA hopes to assist affected providers to comply with their requirements in terms of the FAIS and Long-term Insurance Acts.
Amendment to FAIS General Code of Conduct
The FSCA made three changes to the FAIS General Code of Conduct on 2 December.
The most significant change in the Guidance Notice is the additional requirement for FSPs to disclose to customers when products are not financial products, and that the customer has no protection in terms of the FAIS Act.
In addition, the terminology regarding premium handling has been adjusted to align to the relative sections of the Short-term and Long-term Insurance Acts.
Lastly, in an effort to reduce the number of ongoing notices and extensions to exemptions, the General Code has been amended to exempt insurers and banks from the requirements to have professional indemnity and fidelity insurance covers.
The changes came into force on 2 December, so FSPs will need to make arrangements to meet the revised disclosure requirements as soon as possible.
Update to Compliance Officer requirements
The FSCA also released an update to the qualifications, experience, and criteria requirements for Compliance Officers.
The list of approved qualifications and subjects has been extensively updated, and the regulations now specifically note that Compliance Officers must complete the Regulatory Exams applicable to the categories they are involved in.
It has been more than five years since the last changes were made, so this is not unexpected. The changes apply to new applications, and took effect from 2 December.
Updated RE preparation guides
The FSCA released updated preparation guides for the Regulatory Exams on 29 November. FSPs need to make sure that any individuals planning on writing the exams review these documents.
The RE1 and RE5 preparation guide is here, the RE3 guide here, and the RE4 guide here.
Conduct Standard for Benchmark Providers
The FSCA requested further public consultation on the Draft Conduct Standard on the provision of benchmarks via Communication 38 of 2022. The Conduct Standard aims to set up a regulatory framework in terms of which benchmark administrators will be supervised.
Comments are to be sent to FSCA.RFDStandards@fsca.co.za by 6 February 2023.
PRUDENTIAL AUTHORITY (PA)
Banking Proliferation Financing Guidance Note
In yet more of an effort to meet the Financial Action Task Force’s (FATF’s) requirements and avoid ‘grey listing’, the PA released a Guidance Note to banks on 28 October.
The document provides the PA’s recommendations on minimum requirements for proliferation financing risk assessments and client risk assessment.
There have been so many of these types of guidelines this year, that it’s difficult to see anything different in this document, but banks should ensure that they review their anti-money laundering and terrorist financing protocols in any event.
Liquidity risk management for insurers
The PA released Guidance Note 1 of 2022 for comment on 24 November. The Guidance Note, although not binding on insurers, sets out the PA’s expectations on life and non-life insurers when setting out their liquidity management policies.
The rationale for the guidance in the wake of the Constantia Insurance Company Limited collapse is obvious. In addition, a Liquidity Risk Return for Life Insurers was issued, which will become binding. The return will have to be submitted monthly.
Comments are to be submitted to PA-Standards@resbank.co.za by 3 February 2023 using this template.
FINANCIAL INTELLIGENCE CENTRE (FIC)
Changes to list of AIs
The Minister of Finance changed the list of AIs on 19 November as noted in the Government Gazette.
Some of the changes are simply to align the definitions to other legislation that has been amended. As such, those entities that are already AIs continue to be so. However, there are additional entities that have been included in the list. This is part of the attempt to close gaps in sectoral coverage, and meet the requirements of the FATF’s mutual evaluation.
Motor dealers and Kruger Rand dealers are no longer Reporting Institutions, but are now AIs as entities that deal in high-value goods. High-value goods are defined as anything valued at R100,000 or above. The South African Mint has its own category that matches this.
As we knew would happen, crypto-currency has been included, and the following entities are listed: entities exchanging crypto assets and fiat currency, exchanging crypto assets, transfers of crypto assets, safekeeping or administration of crypto assets, and provision of financial services related to crypto assets.
In addition, clearing system participants that facilitate or enable electronic funds transfers are included – bringing the list to 23.
The Minister also saw fit to realign the number of supervisory bodies in an attempt to increase the regulators’ oversight capabilities. The PA, Financial Surveillance Department, and provincial gambling licensing authorities are now included, but the Independent Regulatory Board for Auditors and the Law Society have been removed.
The changes come into effect from 19 December 2022. That means that entities that are now included in the list of AIs will have to sort out their Risk Management and Compliance Plans, monitoring and reporting policies and procedures, appoint Money Laundering Control Officers, Cash Transaction Reporting Officers, and register on the goAML system in quite a hurry. However, the media release notes that the authorities will be conducting reviews and providing remediation guidance over the next 18 months, which means that the ‘hard’ deadline is 19 May 2024.
If your entity suddenly has to meet these requirements and you are overwhelmed, please get in touch with us.
Guidance on Property Practitioners
The FIC released Public Compliance Communication 56 (PCC 56) on 14 November. PCC 56 sets out sector-specific guidance from the FIC that the broader category of persons, who are now property practitioners, do not automatically fall within the definition of AIs, unless the person performs an activity which is equivalent to that of an “estate agent” as defined in the now repealed Estate Agency Affairs Act.
This means that any person registered as an estate agent prior to February 2022 will remain an AI, and any person performing the activities of an estate agent, although they may be referred to as a property practitioner after February 2022, will too be considered as an AI.
Draft Reporting Directive
The FIC issued Draft Directive 7 on 25 November. The intention is to have specific AIs submit a return on their anti-money laundering, terrorist financing, and proliferation financing controls and activities between 1 April and 31 May of each year. The submission to the FIC will have to be completed by 30 June each year.
The FIC’s intention is to gather information from the less regulated AIs (if you consider how heavily regulated the ‘mainstream’ financial services industry is). The returns will (currently) only affect attorneys, trusts, property practitioners (formally estate agents), casinos, lenders against the security of securities, the Postbank, members of stock exchanges, the Ithala Development Finance Corporation Limited, registered traders on stock exchanges, and financial markets traders.
A template of the return is available here. The return reviews the AI’s client, transaction, distribution, product, geographic and terrorist financing risk assessment processes and controls, as well as its compliance and governance structures (including a fairly in-depth look at the Risk Management and Compliance Plan). It pays particular attention to the client due diligence controls, as well as the reporting regime of the AI.
We would recommend that the remaining AIs prepare for a similar return.
The draft is open for consultation until 20 December 2022. Comments can be submitted to consult@fic.gov.za.
AML data processing in terms of POPIA
The FIC issued Public Compliance Communication 22A on 30 November to provide guidance to AIs on their compliance obligations in terms of FICA, but in a manner that does not conflict with the principles of data privacy protection laws.
Essentially, it notes that the FIC Act provides the necessary justification that AIs require the information to process personal and special personal information in terms of data privacy protection laws. It goes on to remind AIs of their duties to risk rate and monitor transactions, as well as to conduct customer due diligence and their reporting responsibilities.
Draft clearing and Electronic Funds Transfer (EFT) controls
The FIC invited a second round of comments on Draft Guidance Note 102A. The Draft Guidance Note details the further proposed anti-money laundering controls for banks and clearing systems involved in EFTs.
The original Directive provides the verification and identification criteria and procedural guidance.
THE SOUTH AFRICAN RESERVE BANK
Corporation for Deposit Insurance Update
The South African Reserve Bank released an update on the establishment of the South African Corporation for Deposit Insurance (CODI).
CODI is intended to reimburse qualifying investors up to R100,000 should a bank fail and be liquidated. This will be funded by collecting premiums from banks.
Of interest was the note regarding the manner in which joint bank accounts will be dealt with – essentially indemnifying each signatory up to the maximum of R100,000.
It seems strange that this is even necessary – surely a prudent bank shouldn’t fail, or have we misunderstood what “you can bank on it” means?
