January 2024 Legislative Update
And just like that everybody is back! If you’re anything like us, the holidays are a distant memory. We hope you’re revitalised and ready to take on the year.
This year is likely to be another busy one for accountable institutions (AIs), so it makes sense to get started on your projects as soon as possible.
THE FINANCIAL SECTOR CONDUCT AUTHORITY (FSCA)
Conduct of Business Returns for the financial services industry
The FSCA released Communication 33 of 2023 on 4 December 2023. The Communication summarises the feedback on the returns, and provides an update on the roll out of the cross-cutting Conduct of Business Return (Omni-CBR) as well as some revised timeframes for the release of the Conduct of Financial Institutions Bill (COFI).
The FSCA aims to publish a streamlined draft version as well as an industry survey of the anticipated effects of the Omni-CBR by 1 July 2024.
As it stands, a complete rollout of COFI and the Omni-CBR by 2026 is possible depending on the feedback from this phase.
Extension of exemption from Section 19(3) reports
FAIS Notice 80 of 2023 extended the exemption for premium collection entities collecting premiums under the authority of the product provider from conducting a section 19(3) report on their financial statements until 30 June 2026.
Extension of Juristic Representatives exemption
The FSCA extended the applicability of the exemption on Juristic Representatives to transact under the auspices of their ‘host’ Financial Services Provider (FSP) until 30 June 2026. So, it’s business as usual until COFI comes into force.
Extension of Compliance Officers Exemption
The FSCA extended the exemption for compliance officers in terms of its monitoring programmes.
As such, provided compliance officers follow the requirements of the exemption, they will be able to continue to amend their monitoring programmes for FSPs based on their scale and complexity (among other things) until 30 June 2026.
SCA judgement against Fusion Guarantees (Pty) Ltd
It has taken some time, but the FSCA’s investigations into the activities of entities providing guarantees, but aren’t licensed correctly (or at all in some instances) are starting to be finalised.
This case has already gone to the Supreme Court of Appeal (SCA) and been dismissed.
Given that the appellants are facing a R200 million fine, it’s no surprise that Fusion Guarantees will be taking the case to the Constitutional Court.
We expect a few more similar cases over the next few years.
Ongoing warnings
The FSCA continued to issue warnings to consumers regarding fraudulent operators in the financial services industry.
One was regarding Zwelibanzi Sibiya operating another WhatsApp scheme and purporting to be linked to Fedgroup Asset Management (Pty) Ltd.
Another noted an entity calling itself Immediate Matrix, which was using deepfakes of Elon Musk and Patrice Motsepe to elicit ‘investments’ from the public. The entity is not a registered FSP.
And another warns consumers about an entity calling itself Tumi Links Investments which is offering to trade in forex on behalf of investors but is not licensed to do so.
In another case of abuse of consumers’ lack of understanding of cryptocurrencies and the pervasiveness of social media, the FSCA issued a warning regarding MMM Krypto noting unrealistic returns and the fact that it is not an authorised FSP.
The trend continues with a warning about persons impersonating Rich Ideas Group (Pty) Ltd, International Capital Markets (Pty) Ltd, and Scope Markets SA (Pty) Ltd. In this case they are targeting victims through WhatsApp and Facebook.
A slightly different case involves Namco Capital (Pty) Ltd t/a Namco Guarantees which is providing guarantees without the proper licensing as an FSP or insurer. This is part of the FSCA’s ongoing investigations into entities acting in the guarantees market.
A warning was issued to the public regarding Livestock Wealth Financial Services (Pty) Ltd and Livestock Wealth (Pty) Ltd. The FSCA is investigating whether the entities are unlawfully offering financial products as well as why Livestock Wealth is using the FSP number of Livestock Wealth Financial Services.
FINANCIAL INTELLIGENCE CENTRE (FIC)
Extension of comment deadlines
The FIC extended the comment deadline for Public Compliance Communication 44A (Draft PCC44A) to 31 January 2024.
Draft PCC44A 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.
Comments on Draft PCC44A are to be submitted here.
Comments on Draft Public Compliance Communication 121 (Draft PCC121) have been extended to 16 February 2024.
Comments can be submitted here.
PRUDENTIAL AUTHORITY (PA)
SARB imposes administrative sanctions on banks
The PA is mandated to supervise and enforce compliance with the provisions of the FIC Act of the AIs it supervises. In line with these responsibilities, the PA inspects AIs to assess whether they have appropriate and adequate anti-money laundering and counter-financing of terrorism measures and controls in place that would enable them to effectively comply with the provisions of the FIC Act.
The South African Reserve Bank (SARB) has imposed administrative sanctions on Grindrod Bank Limited (Grindrod) and African Bank Limited (ABL) as a result of their non-compliance with the provisions of the Financial Intelligence Centre Act, 38 of 2001 (FICA), following FICA inspections conducted in 2020.
The administrative sanctions imposed are because of failure to comply with provisions of FICA, and not because Grindrod or ABL were found to have been involved in or facilitated transactions involving money laundering or the financing of terrorism.
Grindrod’s administrative sanctions imposed include reprimands, cautions, and a financial penalty of R10.73 million, of which R5 million is conditionally suspended for 24 months from 13 July 2023.
Grindrod failed to:
- Document and implement customer due diligence (CDD) requirements for its customers;
- Document and implement the identification and verification of ultimate beneficial owners for all customers;
- Document the rationale and calibrate its client ML/TF risk scoring model in line;
- Document its Risk Management and Compliance Plan (RMCP) processes and procedures to independently assess, understand, and monitor the ML/TF risks in relation to its shared clients and underlying clients of agent relationships;
- Comply with aspects of its CDD and enhanced due diligence obligation;
- Comply with its record keeping obligations;
- Ensure that its automated transaction monitoring system (ATMS) rules effectively monitored and generated alerts on unusual and potentially suspicious activity through scenarios (peer profiling) and threshold values and amounts reasonably designed to detect potential ML/TF, and was found to have inappropriately placed reliance on a third-party to conduct ongoing monitoring of its shared client relationships;
- Comply with governance obligations in terms of adherence to its documented CDD-related processes and controls;
- Comply with record keeping associated with suspicious transaction reports/suspicious activity reports (STRs/SARs);
- Adequately sustain terrorist property reporting, detection, and identification of domestic prominent influential person and foreign prominent public officials reports;
- Complete remediation of documented deficiencies specific to Grindrod’s reliance on a third-party AI to perform certain FICA obligations; and
- Complete remediation of agent relationships oversight in line with Grindrod’s risk acceptance and appetite and RMCP processes.
ABL’s administrative sanctions include cautions, reprimands, and a financial penalty totalling R19,75 million, of which R9,25 million is conditionally suspended for 36 months as from 30 November 2023.
ABL failed to:
- Conduct adequate CDD on the sampled customer relationships;
- Report in general, timeously report, and also provided incorrect data in cash threshold reports and cash threshold aggregation reports;
- Submit ATMS alerts before the prescribed period of 15 business days and incomplete STRs were submitted to the FIC;
- Timeously report STRs to the FIC and to provide evidence of STRs reported to the FIC;
- Comply with its training obligations in that it failed to provide induction and refresher training to its employees;
- Comply with governance obligations in that its compliance function failed to perform adequate oversight and monitoring of its FICA obligations, and its Anti-Money Laundering Compliance Officer did not have direct access to the Chief Executive Officer and the board of ABL, to report and advise on FICA compliance.
Following these cases, the PA released a Guidance Note (G4/2023) to all banks which provided the guidelines for prevention of terrorist financing. The cases and the guidance are not necessarily related, but it is necessary that banks review the document and ensure their systems are meeting the regulators’ expectations.
NATIONAL TREASURY (NT)
Fitch Rating
Fitch Rating Agency has maintained South Africa’s long-term foreign and local currency debt ratings at ‘BB-’ and maintain the stable outlook.
They note that growth is hampered by power shortages and a struggling logistics sector. Government has once again committed to fiscal consolidation through spending reductions and efficiency measures across government and moderate tax revenue measures.
COUNCIL FOR MEDICAL SCHEMES (CMS)
Industry Report
The CMS released its industry report in December (which is why you missed it – Ed.).
It provides demographic information, benefits paid and the financial performance of the medical schemes industry.
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