January 2023 Legislative Update
We hope that you had a good break, and that the adjustment back into work mode hasn’t been too difficult.
As usual, the regulators were busy while most of us were away, so there is plenty to get on with as the year starts.
THE FINANCIAL SECTOR CONDUCT AUTHORITY (THE FSCA)
Premium collection by intermediaries
The exemptions granted to independent intermediaries from section 49 and regulation 3.2(1) and (2) of the Long-term Insurance Act, and section 48 and regulation 5.1(1) and (2) of the Short-term Insurance Act ended on 31 January 2023.
This means that these intermediaries will no longer be able to be remunerated by insurers for performing the direct collection of premiums function.
Joint standard on cyber resilience requirements
The FSCA and Prudential Authority (PA) released a draft joint standard, which sets out the minimum requirements and principles for sound practices and processes of cybersecurity and cyber resilience for banks, insurers, collective investment scheme managers, market infrastructures, discretionary financial service providers (FSPs), Category I FSPs that provide investment fund administration services, administrative FSPs, pension funds, over-the-counter (OTC) derivative providers, pension funds administrators, and credit rating agencies.
The draft standard revolves around the requirement to document a suitable and robust cybersecurity strategy that identifies risks and provides appropriate protective measures. It must also include response and recovery procedures, and various items of good practice are listed as requirements.
Comments can be sent to FSCA.RFDStandards@fsca.co.za or PA-Standards@resbank.co.za by 28 February 2023.
Request for information (RFI) from crypto asset FSPs
The FSCA requires all FSPs involved in crypto assets to complete an information request by 15 February 2023. Failure to complete the return will mean that the exemption applicable to crypto asset FSPs will not apply to the FSP, and they will have to halt trading in the products.
Crypto asset FSPs must complete the relevant Annexure A in full, and submit in Word document format via email to keith.sabilika@fsca.co.za.
We will be in contact with our retainer clients to assist in the completion of the RFI.
PRUDENTIAL AUTHORITY
Directive to identify beneficiaries
The PA released a directive to all life insurers requiring them to obtain the particulars of beneficiaries of life insurance policies. This is to be done as soon as the beneficiary is identified, designated, or amended by the client.
The document goes on to explain that insurers should apply the client due diligence criteria to beneficiaries as part of this verification process, which came into effect on 15 December.
This will no doubt add to the list of documents and steps to be followed by intermediaries.
Eligible collateral for OTC derivative transactions
The PA and FSCA released Joint Notice 2 in December.
The notice provides for South African central government bonds to constitute additional eligible collateral as required in terms of the margin requirements for OTC derivative transactions.
FINANCIAL INTELLIGENCE CENTRE (FIC)
Reference guide for Accountable Institutions (AIs)
The FIC released an updated reference guide for AIs. The document notes the updated list of AIs, as well as the amendments to the FIC Act.
If you are new to the AI space, or would like to check what needs to be updated in your Risk Management and Compliance Plan (RMCP) and procedures, this is a good place to start.
Draft Public Compliance Communications (PCCs) for new AIs
The FSCA released draft PCCs for the amendments to current and newly-added AIs, i.e. legal practitioners, trust and company service providers, credit providers, money or value transfer service providers, high-value goods dealers, and crypto asset service providers.
The PCCs will be amended and adopted following review of the public comments.
International Funds Transfer Reports (IFTRs)
It has been many years since the reporting of cross-border fund transfers was tabled as part of the Financial Intelligence Centre Act, 38 of 2001. Most AIs have made allowances for this in their RMCPs, and state that it is “awaiting enactment”. That is set to change, as the Money Laundering and Terrorist Financing Control Regulations, 2002 have been amended, and the FIC has issued draft Guidance Note 104A for a second round of consultation.
As of 1 February 2023, affected AIs are to submit an IFTR with the FIC when a transaction that exceeds the prescribed threshold of R19,999.99 has taken place, where funds have been transferred electronically into or out of South Africa. Effectively, international funds transfers of R20,000 and more must be reported.
The affected AIs are:
- Authorised dealers.
- Authorised dealers with limited authority.
- FSPs that have a direct reporting dispensation under the Exchange Control Regulations.
- The Post Office.
The following transactions constitute transactions that must be reported:
- Remittances and payments through which funds are sent and/or payments are made to persons located outside of South Africa.
- Remittances and payments through which persons in South Africa receive funds from persons located outside of South Africa.
- Credit and debit card transactions where the transaction is linked to an account held in South Africa.
- Credit and debit card transactions where the transaction is linked to an account held outside of South Africa.
- Funds paid into, and refunded from, electronic wallets and cash passports intended for international spend.
The following transactions are not required to be reported as IFTRs:
- Cash withdrawal or deposit abroad, i.e. debit/credit card deposit or withdrawal by client. However, if that cash withdrawal or deposit abroad exceeds the cash threshold amount of R49,999.99, then a cash threshold report must be reported.
- Transactions relating to interbank transactions between banks such as settlement of account debits and credits between banks.
A report must be sent to the FIC as soon as possible, but not later than three days (excluding Saturdays, Sundays, and public holidays) after the AI has become aware of the fact that the transaction has occurred.
AIs need to consider and document their IFTR process within their RMCP to ensure that the time periods for reporting are adhered to. We would also recommend those not specifically listed amend their RMCPs to embrace these requirements.
IFTRs must be filed with the FIC by using the internet-based reporting portal provided for this purpose at www.fic.gov.za. This allows for individual, batch, or system-to-system reporting as per the other anti-money laundering (AML) reporting requirements.
Comments on the Guidance Note must be submitted via the online link by close of business on 1 February 2023.
The feedback on the first round of consultation can be reviewed here.
NATIONAL TREASURY
Adoption of further AML and Anti-terrorist financing laws
National Treasury announced the release of the new and amended laws aimed to combat money laundering and terrorism.
The laws were passed in December, but have differing dates when they come into effect:
The POCDATARA Amendment Act commenced on 4 January 2023. It amends the Protection of Constitutional Democracy Against Terrorism and Related Activities Act, 2004 by strengthening its provisions and expanding it to include aspects such as cyber-terrorism.
The General Laws Amendment Act (GLAA) amends five different Acts: the Trust Property Control Act, 1988; the Nonprofit Organisations Act, 1997; the Financial Intelligence Centre Act, 2001; the Companies Act, 2008; and the Financial Sector Regulation Act, 2017. The dates of commencement for the majority of the amendments in the GLAA were on 31 December 2022, except for the Trust Property Control Act and Nonprofit Organisations Act, which will be on 1 April 2023.
The effect on financial institutions will be to add requirements for confirmation of beneficial ownership, and similar client due diligence activities.
Appointment of Ombud council board members
The Minister of Finance, Enoch Godongwana, appointed Silindile Kubheka as the chairperson, and Lebohang Senne as a member of the board of directors of the Ombud council, both for a period of three years with effect from 1 February 2023.
We wish them well as they take up their new roles.
ADVERTISING REGULATORY BOARD (ARB)
The ARB has added a new clause which deals with cryptocurrency products to the Code of Advertising Practice. The new rules are aimed at protecting consumers from being misled by unethical advertisers.
The addition is clause 17 of Section III.
A phrase is to be included in advertising material and should state “Investing in crypto assets may result in the loss of capital.”
Clause 17 goes on to give further details regarding acceptable marketing content about the rates of return, forecasts, past performance, and precludes entities that are not credit providers from recommending crypto assets be purchased using credit.
FINANCIAL SERVICES TRIBUNAL
Timely submission of financial statements
This application for reconsideration of the withdrawal of a FAIS licence should be mandatory reading for all licensed FSPs.
The applicant had neglected to submit the FSP’s financial statements, despite numerous requests from the FSCA, which eventually led to the FSP’s licence being withdrawn. The Tribunal upheld the decision.
This is why compliance officers are so painstaking about obtaining copies and submitting financial statements – it’s your livelihood on the line!
Part of our service is to review and submit FSPs’ financials, specifically to avoid this type of issue.
Enforcement decision: J J Khumalo and Liberty Life
This is a case where a Representative was originally debarred for fraudulently initiating policies, but then attempted to have the decision overturned on procedural grounds.
The case was originally conducted through correspondence due to the COVID-19 restrictions, and the applicant subsequently claimed that this have caused her to not have had a fair opportunity to present her case in her home language. The Tribunal found no merit in her complaint; moreover it was clear that six policies had been fraudulently initiated. The debarment was upheld.
