November/December 2023 Legislative Update
The Reserve Bank decided to leave interest rates unchanged during November, just in time for Black Friday, and it will no doubt be welcomed by hard-pressed consumers leading up to the festive season.
But, just before you run off to the beach, bush, berg, or abroad, take a few minutes to review the information we’ve compiled in this Legislative Update (or take it with you).
If you’re travelling over the holidays, we wish you a safe journey and a hope that you have a peaceful break no matter what you’re doing.
THE FINANCIAL SECTOR CONDUCT AUTHORITY (FSCA)
Joint Standard on IT Governance and Risk Management
The FSCA and Prudential Authority (PA) released Joint Communication 4 of 2023 which confirmed that Joint Standard 1 of 2023 – Information Technology (IT) Governance and Risk Management will come into effect from 15 November 2024.
The Joint Standard will require banks, insurers, Collective Investment Schemes (CIS) managers, exchanges, as well as discretionary and administrative financial services providers (FSPs) to implement suitable policies and controls as noted.
The controls will need to address IT risks at branches as well as third-party IT risks (including subsidiaries), and are required to address the following:
- IT strategy (aligned to overall business strategy)
- IT risk management framework
- Oversight of IT risk management
- IT operations
- Handling sensitive or confidential information
- Risks associated with financial products and services
- IT programme and/or project management
- IT resilience and business continuity
- IT assurance (independent review)
Crypto Assets Market Study results
The FSCA released a summary of the results of its market study into the crypto asset industry.
These are its key findings:
- The majority of Crypto Asset FSPs in South Africa provide financial services by making use of unbacked crypto assets, followed by stablecoins and security tokens.
- Most unbacked crypto assets are used for speculative purposes rather than as a medium of exchange.
- Business models generally mirror traditional financial activities such as operating an exchange or providing advice. This is contrary to the disintermediation function (cutting out the “middle man”) that crypto assets were designed for.
- Almost all Crypto Asset FSPs claim to disclose risks relating to crypto asset activities to their customers and the public.
- The majority of Crypto Asset FSPs earn their revenue from trading fees, and most of the remuneration models identified mirror traditional financial revenue models.
There were 128 applications for Crypto Asset FSP licenses submitted before the 30 November 2023 deadline.
The FSCA issued more warnings
The FSCA issued numerous warnings to consumers during November: one cautions consumers and notes that Branson Capital (Pty) Ltd and Brandon Naicker (Pty) Ltd are possibly conducting unregistered financial services by taking deposits from the public.
Another warns the public against dealing with Tebeza Trading which is falsely using the BI ME (Pty) Ltd brand, registration, and FSP number.
A third is a warning that Lereko Brokers (Pty) Ltd may be issuing guarantee insurance policies which were possibly not underwritten by an authorised short-term insurer.
Particular mention was made that a company must be authorised by the PA to issue insurance policies in South Africa.
In yet another case, a warning was issued to the public regarding Acqumen Fund Limited and Acqumen Group. Acqumen is reportedly offering investments to the public, but is not an authorised FSP as required by the FAIS Act.
And another regarding Kozoo Forex, as it is alleged that Kozoo FX is offering forex and other financial instruments to the public. Kozoo FX is not an authorised FSP.
A serious warning was provided regarding FX Squad (which isn’t even a registered company) and Petrus Rasmus Erasmus (known as Pierre Erasmus) who is offering to trade in forex on behalf of members of the public. The FSCA noted that it is investigating this case.
The FSCA warned consumers about Finco World (Pty) Ltd also known as SPV 1976 (Pty) Ltd for potentially conducting unregistered financial services.
Consumers were warned to exercise caution when dealing with GS Partners (also known as Gold Standard Partners or GSP) which is soliciting investments from the public. Several foreign jurisdictions have published warnings relating to the entity. GS Partners is not licensed to provide financial services in South Africa. The additional concern is the unrealistic returns offered by GS Partners.
Lastly, the FSCA provided a warning about persons impersonating MitonOptimal (Pty) Ltd. Individuals are targeted on Telegram and investment monies are solicited from members of the public by the impersonators.
Draft CIS Managers Standard
The FSCA released a Draft Standard for CIS Managers.
The aims are to ensure product governance, suitable disclosures, oversight of trustees, extension of risk management and internal audit functions responsibilities, amendment of the conflict of interest framework, and to define a list of operating rules that require prior notification and/or consent from financial customers.
Comments must be submitted to FSCA.RFDStandards@fsca.co.za by 16 February 2024.
FINANCIAL INTELLIGENCE CENTRE (FIC)
October meeting of the Financial Action Task Force (FATF)
The FIC participated in the recent FATF meeting in Singapore in October, and provided a summary of the revised plans and expanded controls.
Jurisdictions under increased monitoring:
The FATF noted the following jurisdictions under increased monitoring: Barbados, Bulgaria, Burkina Faso, Cameroon, Croatia, Democratic Republic of the Congo, Gibraltar, Haiti, Jamaica, Mali, Mozambique, Nigeria, Philippines, Senegal, South Africa, South Sudan, Syria, Tanzania, Türkiye, Uganda, United Arab Emirates, Vietnam, and Yemen.
High risk jurisdictions:
The FIC noted three jurisdictions as high risk, and advised that further countermeasures should be put in place to protect the international financial system. The three jurisdictions are: Democratic Republic of Korea, the Islamic Republic of Iran, and Myanmar.
Accountable Institutions (AIs) will need to once again update their Risk Management and Compliance Plans (RMCPs).
SAMLIT EWG Corruption Report
As one of the members of the South African Anti-Money Laundering Integrated Task Force (SAMLIT) Expert Working Group (EWG), the FIC provided a copy of the 2023 corruption report.
The report details case studies and the effects of corruption. Essentially, unless you live under a rock, you are all too aware of each case and the effects – so much so that it is becoming ‘background noise’.
To quote from the document: “The lack of accountability and appropriate consequences for identified perpetrators has become a key characteristic of the South African corruption landscape. This problem is so entrenched that South Africa faces the danger of corruption becoming institutionalised and normalised.”
As much as we support the role of SAMLIT and the FIC, it is only with proper political will that this will not become South Africa’s reality. Entities, owners, and managers relying on the authorities to get corruption under control are unlikely to see this happen and, in our opinion, need to be driving an anti-corruption stance or programme as part of their operations.
Draft Public Communication 121 – Beneficial Owners
The FIC issued Draft Public Compliance Communication 121 (Draft PCC 121) for consideration by AIs on 15 November 2023.
Draft PCC 121 provides guidance on the definition of beneficial ownership, and also aims to address areas of concerns as highlighted in the FATF’s 2019 Mutual Evaluation final report, and the resulting grey-listing action items. Identified shortcomings include that supervisory bodies have not provided enough guidance relating to beneficial ownership.
Comments are to be submitted to consult@fics.gov.za by 8 December 2023. The FIC intends to conclude the consultation on this Draft PCC 121 by publishing a final version no later than 26 January 2024.
Draft sector assessment for dealers in precious metals and stones
The FIC released draft sector assessment report for dealers in precious metals and stones on 17 November 2023.
The sector assessment provides information on the money laundering and terrorist financing risks facing these dealers when conducting business, and aims to assist dealers in understanding their money laundering and terrorism financing risks. It is planned to introduce measures in the sector to mitigate and manage these risks.
Guidance on international funds transfer reports
The FIC issued Guidance Note 9 (GN9) on 17 November 2023, with the aim of assisting AIs to understand their responsibilities in terms of international funds transfers (IFTR).
Institutions that are authorised in terms of the Currency and Exchanges Act, 1933 (Exchange Control Regulations) are affected. Specifically, they are: authorised dealers, authorised dealers with limited authority, FSPs that have a direct reporting dispensation under the Exchange Control Regulations, and the South African Postbank Limited.
The key elements of an IFTR are: Electronic cross-border flow of funds (inbound and outbound), above the prescribed threshold and on behalf of, or on the instruction of another person.
The prescribed threshold amount to trigger an IFTR is set at an amount above R19,999.99 which should be built into AIs’ automated reporting procedures.
The guidance goes on to provide some examples to assist in understanding the scenarios.
Compliance registration and return extension
In a strongly-worded notice issued by the FIC on 22 November 2023, it was noted that AIs that have not submitted a risk and compliance return as instructed by Directive 7 are non-compliant and could face administrative sanctions.
The FIC has nonetheless made allowance for the affected AIs that have not registered with the FIC, and/or those that have not submitted their risk and compliance return, to register with the FIC and then to submit the outstanding risk and compliance returns by no later than 17:00 on 1 December 2023.
Targeted financial sanctions implementation
The FIC issued Draft Public Compliance Communication 44A (Draft PCC44A) on 23 November 2023 which provides guidance on the measures aimed at complying with the targeted financial sanctions obligations and risk-based approach to combating terrorist financing and proliferation financing.
Of importance will be the clear requirement for AIs to regularly review their client information rather than only at onboarding stage.
Comments are to be submitted to consult@fic.gov.za by 11 January 2024.
PRUDENTIAL AUTHORITY
PA communications on anti-money laundering (AML) observations
The PA released a communiqué to industry in its capacity as the designated AML supervisory body for banks and life insurers.
The PA expects AIs to implement suitable remedial controls to address the deficiencies noted in the communiqué.
Given the profiles of the bodies being examined, it is unfortunate that the shortfalls were regarding insufficient documented procedures, RMCPs that did not adequately address the entity’s obligations, insufficient scoring and risk profiling of clients, enhanced due diligence assessments insufficiently documented, cases where no procedures were in place to identify foreign or domestic politically exposed persons or prominent influential persons. The communiqué also details record keeping lapses, cash threshold and terrorist property reporting failures, suspicious and unusual transactions reporting failures (particularly when automated), various issues of insufficient training, and a simple lack of resources.
This covers nearly every aspect of the requirements, and it is quite distressing that there are so many simple requirements not being adhered to. All AIs can expect heightened monitoring as the various regulators endeavour to have South Africa removed from the FATF ‘grey list’.
Bank reporting requirements
The PA released a proposed directive to banks to specify the detailed references to the regulatory returns that have to be audited, reviewed, or concluded upon under a limited assurance framework in part fulfilment of the auditors’ reporting requirements.
The proposed directive incorporates the changes brought about as a result of the amendments to the requirements relating to securitisation exposures and the revised form BA 500 gazetted on 30 September 2022 (in Government Gazette No. 46996).
PA budget and fees
The PA released a draft of its budget and fees for comment on 13 November 2023.
The draft document notes that the PA intends to increase fees and levies by 6%, as well as impose a 7.5% special levy (in the same manner as the FSCA has recently).
Comments must be submitted to PA-Standards@resbank.co.za for the attention of Henna Strijdom by 29 December 2023.
RESERVE BANK
Corporation for Deposit Insurance (CODI)
As the controlling body for CODI, the Reserve Bank provided a short newsletter in November 2023.
It provides some further insight into the extent of cover and protections that will be applied.
NATIONAL TREASURY
South Africa’s progress in addressing FATF compliance deficiencies
National Treasury released a media statement summarising the recent updated FATF findings on South Africa’s compliance rating.
It seems we are making good progress as 35 of the 40 original recommendations have been rated as “not deficient” and the remaining five should be resolved by November 2024.
However, it should be noted that there has been no assessment of South Africa’s progress in improving the effectiveness of the policies and controls. This seems to be our hurdle in so many instances – actually getting things done!
The plans to meet the requirements will mean that the financial services industry, and AIs in particular, can expect a busy year.
NATIONAL CREDIT REGULATOR (NCR)
With the assistance of the Stellenbosch University Law Clinic, the NCR conducted a study of the credit industry. Circular 6 summarises its findings.
The concerns revolve around the observation of exploitation of consumers by unscrupulous credit providers, debt collectors, and even their legal representatives. The circular notes that there are excessive and unlimited legal fees where debtors are subject to emolument attachment orders, in many cases effectively charging fees in excess of the consumers’ debts.
The NCR will continue to monitor the sector, and noted that affected consumers can approach the NCR via info@ncr.org.za to report this conduct or complaints@ncr.org.za to file a complaint
COUNCIL FOR MEDICAL SCHEMES (CMS)
The CMS released its draft levies for Medical Aid Schemes on 27 October 2023. The proposal is that Medical Aid Schemes pay R48.62 per principal member. As usual, payment is in two tranches; one due by 30 April and the other by 30 June of the 2024/2025 levy year.
The levy year runs from 1 April 2024 to 31 March 2025.
OMBUDS
Appointment of Chairperson of Ombud Council Board
Eileen Meyer has been appointed as a board member and chairperson of the Ombud Council for a period of four years with effect from 1 November 2023.
Meyer was instrumental in establishing the office of the Ombud Council and performing functions as the interim Chief Ombud (CEO) for a period of 18 months, from 1 May 2021 until the appointment of Leanne Jackson as the full-time CEO on 1 November 2022.
Advocate Dikeledi Chabedi, Adam Horowitz, Emmanuel Lekgau, and Charmaine Soobramoney have been reappointed as members of the board of directors. Unathi Kamlana is an ex officio member of the board of directors in his capacity as the commissioner of the FSCA.
A-PROOFED
Hey there, fabulous readers! You know how life gets crazy, and sometimes you miss out on the last article in the brilliantly-documented Legislative Update from your favourite compliance officer? Well, fear not, because I’ve got you covered! I’ve rounded up the juiciest bits from those must-read A-Proofed articles you might’ve (accidentally) overlooked. Well, grab your favourite snack and buckle up, because we’re about to embark on a whirlwind tour of knowledge.
First up on the “Oops, I missed that” list is the June article, where we revisited the ever-important world of online meeting etiquette. I know, I know; you thought you were done with Zoom meetings in your pyjamas, but, surprise – they’re here to stay! I shared some serious stuff on how to navigate the digital space like a pro. From testing your tech to dressing appropriately (yes, pants are still required), I’ve got you covered. Because, let’s face it, showing up to an online meeting without pants is so last season!
Then, in July, we got a reality check on the power of precision in your written words. Turns out, a skilled proofreader is like having a secret weapon in your arsenal. I spilled the tea on how proofreaders eliminate costly errors, enhance clarity, and basically make your documents – and you – shine (bright) like a diamond. Because who needs embarrassing typos ruining your professional vibe? Not you!
Fast forward to August, where we embarked on a punctuation roller-coaster. Commas playing hide and seek, semicolons feeling a bit too sophisticated, and apostrophes being the jesters of the punctuation kingdom – it was a wild ride! If you read the blog, my article guides you through the precarious paths of punctuation pandemonium. So next time you’re wondering where that apostrophe should go, just remember, I’ve got your back.
September brought us a taste of the AI revolution. While ChatGPT is impressive, I reminded everyone that it’s not the superhero of proofreading. Contextual understanding, style preferences, industry knowledge – these are all things that our friendly AI might struggle with. So, when in doubt, stick with the human touch. After all, my expertise is the secret sauce your documents have been craving.
And now, for the grand finale – a tale from Complianceville! Our protagonist, Kim, armed with her proofreading superpowers*, saved the village from the perils of confusing texts. In a land where the written word holds the key to knowledge, Kim’s precision and clarity transformed manuscripts into masterpieces. It’s a story of happily ever after, all thanks to the remarkable proofreading talents of our hero.
So there you have it! The highlights you didn’t know you needed. But hey, don’t be a stranger – send me an email and let’s see how I can help you and your business. You know you wanna!
Have a safe and restful festive season. Looking forward to connecting in 2024.
Kim Hatchuel
(*I’m a proofreader. What’s your superpower?)
