March 2024 Legislative Update
We hope that you have a peaceful time with current spate of public holidays – unlike our editor who has devoted the weekend to watching the very best of school-boy rugby!
The regulators have been busy recently so there is plenty to catch up on…
THE FINANCIAL SECTOR CONDUCT AUTHORITY (FSCA)
Premium collection extension
The FSCA released two notices extending the exemption for Financial Services Providers (FSPs) collecting premiums bundled with other purchases (such as vehicle finance). Provided the entities are licensed FSPs and are collecting premiums under the authority of the product provider, they will continue to be able to collect premiums with the other payments and then pay them across to insurers.
The exemption has been extended until 31 March 2027.
Exemption of life micro-insurers
The Notice issued to life micro-insurers by the FSCA granted an exemption from Rule 2A6.1 of the Long-term Policyholder Protection Rules.
The exemption allows life micro-insurers to impose a maximum six-month waiting period on new policies provided the policies have a minimum contract term of 12 months. However, micro-insurers may not impose this on policies that came into force prior to the effective date of 4 March 2024.
This puts micro-insurers on the same footing as conventional life insurers.
JP Markets SA fined R100,000
The FSCA fined JP Markets SA (Pty) Ltd R100,000 for contravention of the Over-the-Counter Derivative Provider Regulations.
Put simply, JP Markets SA provided clients with an opportunity to trade in Contracts for Differences but was not licensed to do so. This is on top of the liquidation application in September 2020 which was overturned in October 2021.
A warning against Jacobus Stephanus Geldenhuis
The FSCA has come across a repeat offender (Jacobus Stephanus Geldenhuis) and released a warning to consumers.
Geldenhuis was previously found to be in contravention of the FAIS and Banks Acts while operating a Ponzi scheme. He was debarred for 20 years and fined R143 million. But he’s back and doing the same thing under the name of Pecunia Systems (Pty) Ltd, which is not his FSP. In addition, Pecunia has applied for its FAIS licence to be lapsed!
As much as legal action is underway against Geldenhuis, we would advocate that the FSCA should have seen to the lapsing of Pecunia’s licence (and all such applications) more rapidly, thus limiting such abuses.
FINANCIAL INTELLIGENCE CENTRE (FIC)
Financial Action Task Force (FATF) Update
South Africa attended the FATF meetings in Singapore from 21 to 23 February.
During the meeting the FATF confirmed that Barbados, Gibraltar, Uganda, and the United Arab Emirates are no longer subject to increased monitoring.
However in the same meeting it was noted that the following jurisdictions remain or have been included under the increased monitoring requirements: Bulgaria, Burkina Faso, Cameroon, Croatia, Democratic Republic of the Congo, Haiti, Jamaica, Kenya, Mali, Mozambique, Namibia, Nigeria, Philippines, Senegal, South Africa, South Sudan, Syria, Tanzania, Türkiye, Vietnam, and Yemen. (The notable addition being that of Kenya.)
Accountable Institutions (AIs) are required to update their Risk Management and Compliance Plans (RMCPs) to accommodate these changes.
Targeted Financial Sanctions (TFS)
The FIC issued Public Compliance Communication 44A (PCC44A) as part of its efforts to meet the FATF recommendations and remove South Africa from the “grey list”.
PCC44A provides the measures to be put in place by AIs to meet the TFS requirements. Specifically, it provides guidance on the risk-based approach to be adopted when scrutinising client information against the TFS lists, freezing client assets, and reporting to the FIC.
The FIC will now be releasing its own TFS list but it is recommended that the United Nations list continue to be monitored.
In addition, the FIC has provided a manual to assist AIs in conducting their TFS scrutiny, processing, and reporting duties.
These requirements will necessitate a series of changes to RMCPs.
Administrative sanction imposed on Ashburton Fund Managers (Pty) Ltd
The FSCA has imposed an administrative fine of R16 million on Ashburton Fund Managers (Pty) Ltd in its capacity as the regulatory authority.
The sanction was imposed as the FSP had not implemented and maintained a RMCP. In addition, the FSP wasn’t screening its clients in terms of anti-money laundering risks, or checking their status against the financial sanctions list of the UN Security Council.
Despite the size of the FSP, these are the same areas of non-compliance that saw a brokerage fined R400,000 previously.
It is clear that the regulators mean to ensure that AI meet the requirements of the legislation or face the consequences.
An amount of R10 million of the penalty was due to be paid by 28 February 2024, while R6 million is suspended for three years provided the FSP remediates the deficiencies.
Administrative sanction imposed on Du Toit Advisors CC
The FSCA has imposed an administrative sanction on Du Toit Advisors CC for failure to comply with provisions of the FIC Act.
The usual list of errors was again the reason for the R473,000 fine:
- No RMCP was in place.
- No client money-laundering risk profile assessments were conducted.
- Insufficient client transaction and identity verifications were conducted.
- Ongoing due diligence of clients in respect of their money-laundering risk profile and identity verification was not conducted.
An amount of R223,000 of the fine has been suspended for three years, on condition that the FSP complies with the Directive to remediate the deficiencies and remains fully compliant.
There has been several similar cases recently and AIs should ensure their RMCPs are documented and followed in practice.
Draft Risk Assessment for Crypto Asset Providers
The FIC issued a draft sector risk assessment report for crypto asset service providers (CASPs).
The assessment provides information on the money laundering and terrorist financing risks facing these businesses.
The FIC aims to apply traditional financial transaction standards to also cover blockchain-based financial services. The regulator’s ultimate plan is to put an end to anonymous virtual transactions.
Despite arguments from CASPs, there is no doubt that crypto assets are being used to facilitate money laundering. As such, the regulators are adamant that there should be tools to verify the identity of people who transact in crypto assets. (The regulators and crypto industry are likely to be at odds with each other on this! – Ed.)
The regulator’s final comment is a clear indication of its determination to get to grips with the crypto asset markets: “Due to the potential for abuse and the fact that mitigating supervisory measures are still in the process of being introduced, the overall inherent risk of money laundering and inherent terrorist financing risk for the CASPs sector in South Africa, based on national and international experience, can be classified as high.”
“Beware the Ides of March!”
On 15 March the FIC issued a warning to ‘high-risk’ business sectors once again – the sectors being the legal and estate agency professions.
Directives 6 and 7 of 2023 instructed affected AIs to submit risk and compliance returns. At the time of the publication, approximately 55% of registered legal practitioners and 60% of registered estate agents have submitted the returns.
The FIC noted that failure to submit a risk and compliance return can lead to administrative action and that it had already issued 264 notices of intention to sanction, with particular emphasis on legal practitioners and estate agents for non-compliance with Directive 6.
PRUDENTIAL AUTHORITY (PA)
Guidance for banks
The PA released three documents at the end of February with the intention of guiding banks and mutual banks on which Guidance Notes, Circulars, and Mutual Banks Circulars are in effect.
Essentially, new Guidance Notes and Circulars will be issued at the beginning of the year noting which previous Notes and Circulars remain in force. (Sounds simple enough… – Ed.)
As usual, auditors and chief executive officers are required to acknowledge receipt of the Notice and applicable Circular.
Banks Pillar 3 disclosure requirements for interest rate risk
The PA issued Directive 1 of 2024 to banks on 5 March.
The purpose is to direct banks to comply with the Pillar 3 disclosure requirements related to interest rate risk.
Banks are required to disclose the information as contained in Annexure A.
Chief executive officers and auditors are required to acknowledge receipt of the Directive.
Updated reporting requirements for banks
Another Directive issued by the PA, in this case Directive 2 of 2024, was released informing banks of their revised requirements in terms of annual reporting.
The auditors of banks are now required to meet the revised requirements as per Annexure 1 when submitting the BA returns.
As usual, chief executive officers and auditors are required to acknowledge receipt of the Directive.
Flavour-of-the-year topic
The PA released its flavour-of-the-year topic of “Strategic business growth and resilience of the regulated financial institutions’ business models in the current environment” to banks, insurers, co-operative financial institutions and banks, and financial market infrastructures.
This will form part of the discussions at any annual reviews with the PA.
Financial Soundness Standards for Insurers – Technical Supervisory Observation
The PA released a Supervisory Observation to insurers regarding the implementation of the Credit Quality Steps as noted in the Prudential Standards.
The PA is concerned about the varied approach and results to the requirements, particularly in cases where all insurers should have applied the same standards. There are also concerns that the information supplied is incomplete or incorrect.
CODI Fund liquidity
The PA released Prudential Standard CODI 1 on 6 March.
The Standard sets out the required amounts banks are to hold in the account of the Deposit Insurance Fund for purposes of the Fund Liquidity of the Corporation for Deposit Insurance.
NATIONAL TREASURY
Greylisting Action Plan
In a media statement released on 29 February, National Treasury provided its impression of where South Africa had reached in relation to the FATF’s recommendations.
The statement explains which areas South Africa has achieved, but more importantly notes that the FATF’s deadlines for the outstanding items are May 2024, September 2024, and January 2025.
National Treasury stated that it understands the challenges ahead in addressing the 17 outstanding action items by February 2025. We can expect continuing changes to requirements in the anti-money laundering legislative space.
COMPANIES AND INTELLECTUAL PROPERTY COMMISION (CIPC)
Data breach
Do we want to mention this massive data breach? Everyone knows about it so it’s not news, but it is important to remind directors, shareholders, accountants, and the like to log in to the CIPC website and change their password. The new system requires a few more confirmation responses so be warned it will take a few minutes.
It is also important to be aware that hackers may use the information to falsify invoices, identities, or use payment details. Everyone will have to be on their guard for anything that is out of the ordinary for the next few years (yes, years!).
INFORMATION REGULATOR (IR)
Direct Marketing Enforcement Notice
The IR issued its first Enforcement Notice as a result of a direct marketing complaint. The Enforcement Notice was issued to FT Rams Consulting for blatantly ignoring requests to halt the direct marketing contact, unlawful processing of personal information, and contravention of section 69 of the Protection of Personal Information Act which regulates direct marketing of unsolicited electronic communications.
The Enforcement Notice instructs FT Rams Consulting to immediately stop sending unsolicited direct marketing messages to anyone that has not consented to receive them, and to implement some data management changes within 90 days. Failure to comply with the Notice could result in a penalty up to R10 million and/or imprisonment for 10 years.
OMBUDS
A Simpler, Stronger Financial Sector Ombud System
National Treasury published its Policy Position Statement entitled “A Simpler, Stronger Financial Sector Ombud System”. This was done in response to a diagnostic study conducted by the World Bank in 2021.
The diagnostic study identified potential overlaps, gaps, and inconsistencies in the overall financial ombud system and individual ombud schemes and recommended further reforms.
The key elements of the proposed reform include:
- Structural reform of the ombud system, that will reduce the seven ombud schemes to two: A consolidated ombud scheme: National Financial Ombud (NFO) – a body independent of industry and government, replacing six of the current seven schemes (all the industry schemes plus the FAIS Ombud). A Retirement Funds Ombud (RFO) – a renamed Pension Funds Adjudicator. The NFO would eventually absorb the work of the RFO.
- A modified Ombud Council – modifications to the title and appointment of its chief executive and a review of its powers in light of the simplification of the ombud system.
- Improved consistency across the ombud system on visibility and accessibility, eligibility of complainants, processes, powers and enforceability of decisions, and improved coverage to significantly reduce jurisdictional gaps and overlaps.
Full implementation of the above reforms will require legislative amendments. In the interim, the credit, banking, long-term insurance and short-term insurance industry schemes have voluntarily amalgamated to form the National Financial Ombud Scheme of South Africa (NFO). The NFO is expected to commence operations after recognition by the Ombud Council.
A-PROOFED
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