This is where we usually have a brief look at the Minister of Finance’s budget speech. Well, not this year; the habit of not having to answer to anyone seems hard to break and the members of the government of national unity seem to be keeping an eye on each other. For our two (per)cents, as Winston Churchill famously said, “For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.”
The regulators have clearly gotten back on track after their December leave and there is plenty to get to grips with.
THE FINANCIAL SECTOR CONDUCT AUTHORITY (FSCA)
Requirements when adding Representatives
The FSCA sent a letter to its database informing Financial Services Providers (FSPs) that Representatives are to be added to FSP registers and the central register using the individuals’ full names as they appear in their identity documents.
The FSCA will be running verification checks with the Department of Home Affairs’ records and will generate notifications to FSPs where there are discrepancies.
Our understanding is that the FSCA has been conducting verifications for a few years now, but get in touch if you have any issues.
Request for information
The FSCA issued a request for information on personal lines claims for the 2024 calendar year.
Specifically, all licensed non-life insurers that are members of the National Financial Ombud Scheme (NFOS) are required to provide the number of personal lines claims reported in the 2024 calendar year via the FSCA’s “Conduct of Business upload facility” by no later than 10 March.
Enquiries can be sent to Caswell.Motumisi@fsca.co.za.
Requirements for financial institutions providing financial education initiatives
Following on from the draft standard on financial education initiatives released in 2023, the FSCA has released a new draft. The document sets out the FSCA’s expectations on institutions providing financial education to consumers. It is clear that ‘education initiatives’ are often used as a marketing exercise and the draft conduct standard aims to prevent institutions from this activity.
In practice it means that those institutions doing so are setting themselves up for further scrutiny which is likely to discourage honest institutions as well as unscrupulous ones.
Market study on decentralised finance
The FSCA released the results of its market study into decentralised finance (DeFi) in South Africa. DeFi applications or protocols are blockchain based and are typically built using smart contracts which are given effect through pieces of code that determine the rules of the DeFi product.
The market study reveals that DeFi activities are gaining traction in South Africa predominantly through retail customers. The report highlights benefits such as enhanced financial inclusion, increased transparency, and reduced transaction costs. However, there are risks associated with DeFi such as security vulnerabilities in smart contracts, market manipulation, and the potential for significant financial losses due to fraud or platform failures – all of which will be seen by regulators as reasons for intervention.
Warnings
South Africa is clearly an easy target for online scammers! In a recent case, the FSCA released a warning regarding Gold Earnings Hub and Africa Gold Capital. As usual, they are offering unrealistic returns on investments – in this case 46% on investments from R2,000 to R100,000.
Gold Earnings Hub and Africa Gold are using images and videos involving, among others, Dr Patrice Motsepe having created deep fake videos where he allegedly promotes the investments.
A further warning was issued to consumers regarding persons offering to assist investors who lost funds with Banxso (Pty) Ltd. The persons contacting members of the public falsely claim to be representing legitimate entities and regulators.
A public warning was issued against JoziEx and Richard Mouton who are soliciting funds from the public by inviting them to an online trading platform. Members are recruited through WhatsApp and Instagram and, as usual, unrealistic returns are offered.
Scammers are impersonating Phil Roux, the chief executive of Nampak, as well as Nampak. The individuals have created a Telegram group to solicit funds from members of the public by offering unrealistic returns.
A group calling itself World Option Crypto is impersonating Consort Technical Underwriting Managers (Pty) Ltd, or at least misrepresenting itself as a Juristic Representative of Consort.
As we know, there are many fraudsters operating scams, and the number is growing. The FSCA’s list of red flags relating to fraudulent investments should be part of any investment training and comprises of the following:
- Offers of unrealistic returns.
- Requirements to pay for services upfront.
- Requirements to pay more money to have investments returned.
- Requirements to pay for training.
- Creating a sense of urgency.
- Vague information about the investment product.
It is difficult to ascertain due to a lack of records, but we wonder whether the majority of defrauded investors recover from the financial (and emotional) distress caused.
The FSCA also issued two warnings about Sanda Funeral Home (Pty) Ltd and Malachi Funeral (Pty) Ltd that are both purported to be providing unlicensed life insurance to members of the public.
FINANCIAL INTELLIGENCE CENTRE
Administrative sanctions issued to accountable institutions (AIs)
No less than six AIs were issued with penalties by the FSCA for contraventions of the FIC Act.
The parties range from attorneys to portfolio managers, and financial penalties range from R15,000, R125,000, to R300,000.
In all cases, the AIs have not paid sufficient attention to implementing a suitable Risk Management and Compliance Programme (RMCP) and then following the processes it requires.
Under its mandate to supervise and enforce compliance with FICA, the Prudential Authority imposed administrative sanctions on The Standard Bank of South Africa. Inspections found instances where Standard Bank had failed to conduct due diligence, had poor records of suspicious and unusual transaction reports, failed to report 1,466 cash transactions, and failed to report suspicious transactions timeously. The penalty seems in line with the bank’s balance sheet.
A financial penalty of R13 million was issued.
FIC issues RMCP guidance
The FIC released Guidance Note 7A (GN 7A) on 13 February. The document provides guidance on compliance with the RMCP requirements for AIs.
GN 7A replaces Chapter 4 of Guidance Note 7 and provides further guidance for boards of directors, senior management or the highest authority level in AIs.
The Guidance Note does not require a replacement of RMCPs, but should be used as a reference when conducting the annual review.
Court order issued under POCDATARA
South Africa has issued its first court order in terms of the Protection of Constitutional Democracy Against Terrorist and Related Activities Act (POCDATARA).
Section 23 primarily deals with the freezing of terrorist-related property by an application to court for a freezing order. The South Gauteng High Court issued the prohibition upon two individuals and two companies as there were reasonable grounds “to believe that they have committed, participated in, or facilitated the commission of the offence of terrorism”.
AIs are required to take note of the contents of the court order and immediately “freeze” the property of the designated persons: Abdirizak Mohamed Abdi Jimale; Bashir Abdi Hassan (7904106385186); Almisbaax Pty Ltd previously known as Heeryo Trading Enterprise (Pty) Ltd (reg. 2012/189591/07); and Heeryo Trading Enterprise, referred to as Heeryo Trading Enterprise registered in Somalia as an “unincorporated association”, an “incorporated association”, or “other legal person”.
FATF greylisting update
It’s barely news that South Africa did not meet the Financial Action Task Force (FATF) deadline of February to resolve the outstanding issues and be removed from the ‘greylist’.
Two issues remain and the FIC as well as National Treasury have stated that they are comfortable that the October plenary sitting will see South Africa removed from the list.
PRUDENTIAL AUTHORITY (PA)
Liquidation of Ithala
The PA has applied for the liquidation of Ithala SOC Limited. The PA believes this action is in the best interests of the depositors of Ithala, as the liquidator will be able to utilise insolvency legislation to recover and distribute funds to the depositors.
In a related media statement, National Treasury has assured depositors of Ithala that their deposits will be protected by a government guarantee, subject to the provision of a further government guarantee being provided to one or more banking institutions.
Revised BA forms
The PA has released a Directive to banks instructing them to complete returns using the revised forms (as noted in the Directive). It comprehensively covers the returns submitted by banks.
As usual, it is required that the chief executive and auditors provide written confirmation of receipt.
Illegal deposit-taking scheme reporting form
The PA released a form that it would like parties to use when reporting illegal deposit taking.
We wonder how consumers will know where to find the document.
Increases to insurer penalties
The FSCA confirmed that the penalties in short- and long-term insurers for non-submission of returns is now R8,576 per day.
COUNCIL FOR MEDICAL SCHEMES (CMS)
Increased broker payments
The CMS has increased the amount medical schemes can pay brokers for placing medical aid policies to R121.84 with effect from 1 January 2025.
Comments invited on CMS low-cost benefit option report
The Minister of Health invited comments on the Low-Cost Benefit Option Report prepared by the CMS. The minister has taken the opportunity when issuing the letter, ostensibly intended to invite comment, by including his own unsubstantiated opinions. Interested parties should take the opportunity to comment if they do not want to be steamrolled. Comments should be submitted to LCBO@health.gov.za by 17 May 2025.
OMBUDS
NFOS: Increase in jurisdiction limits
There was no announcement, just a new set of rules where the limits of the NFOS’s jurisdiction have been increased. (It reminds us a little of the budget speech – Ed.)
The jurisdiction limits are now as follows: R5 million for general short-term insurance complaints excluding homeowners and R10 million for homeowners. Banking complaints and credit complaints are included but limited to R5 million. Natural persons and small businesses with turnover less than R10 million per year may have their complaints considered by the NFOS.
Banks could be required to pay R10,000 to complainants should the NFOS feel the banks are unduly delaying resolution of the complaint.
Financial institutions will once again have to revise their complaints policies and train their staff.
Case review
The NFOS issued a press release which describes a recent case handled by its office and explores the materiality of policy conditions that have no bearing on the claim.
In this case, a short-term insurance claim was rejected by the insurer as a commercial vehicle driver’s Professional Driving Permit (PrDP) had expired and the insurer was of the opinion that this meant the vehicle should not have been on the road.
The NFOS stated that the matter did not turn on this aspect as the vehicle was hijacked and the driver’s actions did not contribute to the hijacking. The recommendation stated that “the insurer must demonstrate how not having a valid PrDP led to the loss, rather than merely relying on the fact that a law was broken.” (The driver subsequently renewed the PrDP, only adding to the insurer’s woes.)
We hear of cases like this regularly; luckily most of them are handled by the product providers and intermediaries without having to approach the NFOS.
