Covid-19: Providing essential financial services? – here's a summary of everything you need to know

​The regulations published to give effect the national lockdown directed the Prudential Authority and Financial Sector Conduct Authority (FSCA) to issue directives and guidance to all financial institutions under its jurisdiction in respect of precautionary measures to be taken when performing essential financial services. For more on this, read our update Covid-19: Directive to financial institutions on precautionary measures when performing essential financial services.

Essential financial services include services necessary to maintain the financial system as well as call centres necessary to provide financial services, debt restructuring services and access to certain short-term insurance products.

Notably, these requirements apply to all aspects of the business of financial institutions including call centre operations. The Prudential Authority and the FSCA confirmed on 19 April 2020 that the directions regarding call centres providing essential services (and which includes financial services, debt restructuring and access to short-term insurance products) issued by the Minister of Health and the Minister of Trade, Industry and Competition on 9 April 2020 also to the directives set out in the joint directive. For more on this, read our update: Covid-19: Key considerations for call centres.

The Prudential Authority has also acknowledged that the reduced staff attending work premises and other measures taken to prevent the spread of Covid-19 will impact on operational aspects of financial institutions. This includes the ability of management to review and sign off on reports required related to internal controls and governance processes, as well as the ability of auditors (whose procedures include physical verification of certain audit evidence and the consideration of reliability of significant estimates and judgements made by management), to conduct a quality audit without material limitations or hindrances.

Recognising these difficulties, the Prudential Authority (PA Communique 1 of 2020) extended the financial institutions' periods of compliance with specific reporting requirements as follows:

  • Banks, bank controlling companies (in respect of a group of banks) and branches of foreign institutions with a financial year end from 31 December 2019 to 31 March 2020 are granted an extension of 60 days (from 120 days to 180 days after its financial year-end) to submit its consolidated annual financial statements in terms of Regulation 45 of the Banks Act, 1990.
  •  

    • This extension also applies in respect of the submission of audit reports by banks in accordance with Regulation 46 as well as in respect of public disclosures required in terms of Regulation 43 and Directive D1/2019.
    •  

    • Similar extensions were also granted to mutual banks in respect of the submission of annual financial statements in terms of Regulation 5 of Mutual Banks Act, 1993 and the submission of audit reports in terms of Regulation 6 of that Act.
    •  

  • Although insurers are still required to submit annual financial statements to the Prudential Authority within 6 months after the financial year end-of such insurer, insurers are granted a 2-month extension in respect of the submission of audited information required by the Prudential Authority (being information similar to that had been required as part of the comprehensive parallel run in 2016), and which extension means that such audited information is also now only required to be submitted 6 months after the financial year end of the insurer.

The Prudential Authority has, however, warned that except for the reporting requirements set out above (and failing any specific extensions granted), all other statutory reporting requirements remain applicable. The Prudential Authority has undertaken to consider further challenges related to reporting requirements on a case by case basis.

The extensions granted by the Prudential Authority on 8 April 2020 set out above, should be read with the extensions published by the FSCA on 21 April 2020 (FSCA General Notice 2 of 2020), in terms of which the FSCA extended the period of compliance of with various requirements related to the submission of statutory returns in respect of financial services providers, managers of collective investment schemes, pension funds, pension fund administrators and long-term and short-term insurers respectively.

For listed companies, the JSE also advised in a letter dated 25 March 2020 that it would on a case by case basis consider requests by issuers for a variation in respect of the reporting requirements imposed on such issuer in accordance with the JSE Listing Requirements. For more on these, read our update: Covid-19: relief for JSE-listed companies in relation to certain financial reporting obligations.

In addition the directions, guidance and extensions provided by the Prudential Authority and/or the FSCA in respect of financial institutions, the Prudential Authority and the FSCA also issued a specific communication (Joint Communication 1 of 2020), setting out their current position concerning Covid-19 and its impact of the insurance industry, including insurers, policyholders and other stakeholders. 

The communication does not have legal effect, but merely serves as an indication of the regulatory and supervisory responses to the effects of the Covid-19 as follows:

  • The Prudential Authority will permit insurers that are experiencing conditions of financial unsoundness, that is a Solvency Capital Requirement ratio (SCR) below 100%, attributable only to the impact of Covid-19, to continue operations without exercising regulatory action. Such insurers will however be subject to intensified supervisory activities in line with supervisory intervention triggers determined by the Prudential Authority in respect of each insurer. Notwithstanding the above, the Prudential Authority confirmed that Minimum Capital Requirement ratios below 100% will not be tolerated and will be met by the Prudential Authority with stringent supervisory intervention;
  •  

  • In addition to the reporting requirements dealt with under PA Communique 1 of 2020 and FSCA Communication 2 of 2020, the Prudential Authority also reminded insurers to consider its internal Own Risk and Solvency Assessment (ORSA) policy, and to the extent that Covid-19 triggers an out of cycle ORSA in terms of such policy, that an out of cycle ORSA be submitted to the Prudential Authority at an insurer's earliest convenience;
  •  

  • The Prudential Authority requested insurers to ensure that the assessment of its overall solvency remain forward-looking, taking into account the impact of Covid-19 on the economy and the uncertainty of their solvency position. In this regard, the Prudential Authority specifically urged insurers to take all steps necessary to maintain financial soundness, including the temporary suspension of discretionary dividend distributions, share buybacks and cash bonus payments to senior management as well as to ensure that distribution of dividends declared and the accrual, vesting and payment of variable remuneration remain aligned with remuneration policies and applicable regulatory requirements;
  •  

  • Where specific premium relief measures are implemented by insurers, the Prudential Authority confirmed that it will put in place measures on a case by case basis to ensure that any increase in outstanding premiums pursuant to such relief will be excluded from the default risk SCR calculations. The FSCA furthermore issued two exemption notices relating to premium relief measures, particularly in respect of the accessibility for investors to their investments as well as the payment of commission to intermediaries in respect of outstanding premiums;
  •  

  • The Financial Surveillance Department of the South African Reserve Bank (FinSurv) will grant over-exposed institutional investors, including linked and non-linked insurers, a dispensation where they will not be required to realign their foreign asset holdings to be in line with the respective foreign portfolio investment limits, for a specific period and subject to certain conditions; and
  •  

  • Insurers must continue to ensure that their disclosures to policyholders are clear and in plain language, as required by the Policyholder Protection Rules, and to ensure that all information are readily accessible on their websites and through other communication channels as relevant to the target markets. Where there are any policy options in respect of Covid-19, policyholders must also be advised of the applicable contact details to obtain further information on such options.