Keep up to date on the most important Financial Services Regulation developments in South Africa during March 2021.
Government Gazette: Notice No. 118 and 119 of 2021
The Financial Sector Conduct Authority ('FSCA'), under Government Notice No. 118 and 119, published amendments to the Short-Term Insurance Act 53 of 1998 and the Long-Term Insurance Act. The amendments set the penalty payable for the failure to furnish the authority with returns etc at ZAR6 950.00 p/d, as at 26 February 2021. To access Notice No. 118, click here. To access Notice No. 119, click here.
Department of Health Notice 74 of 2021
The Registrar of Medical Schemes notifies that in accordance with section 25 of the Medical Schemes Act 131 of 1998, the 75 medical schemes mentioned in the Government Gazette have been registered as indicated. This list replaces the list published in Government Notice No. 43015 dated 14 February 2020, which contained 76 medical schemes. The Naspers Medical Fund is no longer a registered medical aid. To access this notice, click here.
Financial Sector Conduct Authority
FSCA FAIS Notice 15 of 2021
The FSCA has sought to extend the date of compliance of certain juristic representatives from section 13(1) of the Financial Advisory and Intermediary Services Act 37 of 2002 ('FAIS Act'). In terms of this Notice, a juristic person is exempted from section 13(1) of the FAIS Act when rendering a specific financial service on behalf of a particular Financial Services Provider ('FSP'). The exemption is extended to 31 December 2023. To access this notice, click here.
FSCA Press Release: The FSCA shares update on JP Markets case
The FSCA reported previously that it had successfully applied for a liquidation order against JP Markets SA (Pty) Ltd ('JP Markets') and that it assisted the Asset Forfeiture Unit of the National Prosecuting Authority to obtain a preservation order for approximately ZAR258 million in bank accounts under the control of JP Markets and its CEO.
In response, the company and some of its officials launched several proceedings, challenging the outcomes of the FSCA’s actions. It launched proceedings before the Financial Services Tribunal ('Tribunal') on the basis that the FSCA’s liquidation application amounted to a decision to withdraw JP Markets' FAIS licence. JP Markets also launched business rescue proceedings in the High Court effectively requesting the Court to replace the liquidation with a business rescue process. Both applications have since been dismissed. Lastly, JP Markets has filed an application for leave to appeal against the liquidation order. This application must now be heard by the High Court.
The FSCA has also reminded the industry that an FSP licence is not sufficient to conduct over-the-counter derivative provider ('ODP') business and that it amounts to a criminal offence to do so. If you are concerned that you might be conducting ODP business without the necessary licence, please contact us so that we can assist with your application. To access this press release, click here.
FSCA issues a public warning against Forex Brokers
On 26 February 2021, the FSCA warned the public to act with caution when dealing with Forex Guru Investment (Forex Guru). On 17 March 2021, the FSCA issued a warning against FWT Markets and Forex Kings. The FSCA suspects these forex brokers of conducting unauthorised financial services business and breaching various financial sector laws. The public is reminded always to check that an entity or individual is registered with the FSCA to provide Financial Advisory & Intermediary Services and what category of advice the entity is registered to provide. To access these press releases, click here and here.
Johannesburg Stock Exchange
Board Notice 8 of 2021 Amendments to the Listings Requirements
The definition of a Real Estate Investment Trust ('REIT') in the Act has been amended twice, with the result that the substantial requirements applicable to REITS must now be specifically approved by the Minister of Finance and included in an Exchange’s Listings. A REIT approved on the Main Board of the JSE with a secondary listing on A2X before 1 January 2021 is considered to have complied with the applicable provisions and to be categorised as a REIT in terms of these requirements. To access this notice, click here.
South African Reserve Bank
Call for the nomination of candidates for election as non-executive directors to the Board of Directors of the South African Reserve Bank ('SARB')
The SARB has invited nominations of candidates for consideration as shareholder-elected non-executive directors to the Board of Directors of the SARB. At 30 July 2021, three vacancies will arise at the SARB's annual Ordinary General meeting. Nominated candidates must comply with the minimum requirements of the South African Reserve Bank Act 90 of 1989, and must be nominated using the prescribed nomination form, which is to be submitted by 16h00 on Friday, 26 March 2021.
National Credit Regulator
NCR Circular No. 2 of 2021 on ADR Agents
In its second Circular for 2021, the National Credit Regulator ('NCR') has reiterated that credit providers should not provide consumer documents and information to, or interact with, any unregistered Alternative Dispute Resolution Agents ('ADRs'). Credit providers who are in doubt about the registration status of any entity or person can contact the NCR for verification. This follows Circular No. 16 of 2016 in which the NCR sets out the legislative requirements, in terms of section 13A read with Regulation 10B of the National Credit Act 35 of 2005, for entities who are operating as ADRs for the resolution of consumer complaints on credit agreements to be registered with the NCR. To access this circular, click here.
Financial Intelligence Centre
Consultation Note: Public Compliance Communication No. 112 (PCC 112)
On 19 February 2021, the Financial Intelligence Centre ('FIC') issued the Draft PCC 112 for consideration by all accountable institutions in terms of 42B of the Financial Intelligence Centre Act 38 of 2001 ('FICA'). The FICA was amended with effect from 2 October 2017. Exemptions 8 and 9 of the FICA were removed as part of these amendments and there was a shift towards a risk-based approach. The stockbroking industry, as authorised users of an exchange in terms of item 4 of Schedule 1 to the FIC Act, relied on exemptions 8 and 9 from a customer due diligence ('CDD') perspective. This draft PCC focuses on the application of money laundering and terrorist financing ('ML/TF') risk identification and the resulting risk-based approach towards CDD of an authorised user’s client. The deadline for comments on Draft PCC 112 was 10 March 2021. The final version of this publication is intended to be issued on 31 March 2021. To access this notice, click here.
Consultation Note: Public Compliance Communication No. 113
The FIC has called for comments on draft Public Compliance No. 113 ('PCC 113'), setting out measures relating to foreign prominent influential persons ('FFPO') and domestic prominent influential persons ('DPIP'), their family members and known close associates. the FIC has identified inconsistencies in accountable institutions' understanding of when and how they determine if the client is a DPIP or FFPO; the implications when a family member or close known associate of a client is a DPIP or FFPO; or where a legal entity as a client has a beneficial owner or an appointed person with authority that holds the position of DPIP or FFPO. Written comments on draft PCC 113 are invited by Friday, 26 March 2021, after which the FIC will finalise PCC 113 by publication on 31 March 2021. To access draft PCC 113, click here.
Outcomes of the February 2021 Meeting of the Financial Action Task Force ('FATF')
South Africa participated in the FATF meeting, under the German Presidency, which took place virtually from 11 to 25 February 2021. Key considerations include: (i) improving risk-based supervision; (ii) mitigating the ML/TF risks of virtual assets; (iii) strengthening measures to prevent the financing of proliferation of weapons of mass destruction; (iv) improving terrorist financing investigations and prosecutions; (v) tackling illicit arms trafficking and terrorist financing; (vi) Mutual Evaluation Matters, Mutual Evaluation of New Zealand and Impact of COVID-19 on Mutual Evaluation processes; (vii) jurisdiction under Increased Monitoring; and (viii) strengthening the Global Network. To access this notice, click here.
Case Law Developments
Financial Services Tribunal
Applications for the reconsideration of debarment of Financial Services Providers
Kevin Jagesur v Discovery Limited Case No. FSP38/2020
Mr Jagesur was debarred as a financial service provider in terms of section 14 of the FAIS Act. Where an FSP acts contrary to fit and proper standards and raises the defence of duress, the onus is on the FSP to discharge that any legally-recognised duress induced his admission. The application was dismissed. To access this decision, click here.
AON SA v FSCA and Others Case No. A18/2020
The Tribunal had to reconsider whether the complainant was "a person aggrieved" by a decision in relation to the debarment of Financial Service Representatives ('FSR'). Section 230(1) of the Financial Sector Regulation Act 9 of 2017 states that "a person aggrieved by a decision” of the FSCA may apply for it to be reconsidered. The complainant relied on old judgments in the field of trademark law. The Tribunal held that the phrase “substantial interest” is not absolute and it was difficult to draw an analogy between trademark registrations and debarment proceedings to settle that the complainant had a legal interest in the outcome. The application was dismissed. To access this decision, click here.
Osman v FNB Case No. FSP44/2020
Ms Osman was an FSR and debarred in terms of section 14 of the FAIS Act. The Tribunal held that the representative’s dishonesty, negligence or incompetence must be sufficiently serious to dispute the honesty and integrity of the representative. Also, it is necessary to know as much as possible about the individual before the inference of good or bad character could be drawn, amongst other things. The debarment order was set aside. To access this decision, click here.
Application for reconsideration of Pension Funds Adjudicator determinations
Fakazile Anna Khela v Toyota Provident Fund and others Case No. PFA46/2020
The Applicant challenged the decision of the Prudential Funds Adjudicator ('PFA') upholding the Fund’s allocation of benefits to various family members of the deceased. The basis of the challenge was that the Fund’s investigation into the dependency of the deceased's mother, common-law wife and children was inconclusive. The issue for determination was whether the decision of the PFA was justified. In terms of section 37C of the Pension Funds Act 24 of 1956, ('Pension Funds Act') the Board is statutorily obliged to undertake its own investigation and ensure that there is an equitable distribution of the death benefit to the beneficiaries. Section 37C also requires that trustees actively trace dependants and investigate the extent of their dependency on the deceased member. This includes those dependants who were not necessarily related to the deceased, but factually depended on the deceased, i.e. those to whom the deceased owed no obligation but took care of anyway. To access this decision, click here.
Sonotha Transport Services (Pty) Ltd v the PFA and others Case No. PFA19/2021
The application for reconsideration was summarily dismissed. The Tribunal held that where a determination by the PFA has been made an order of court, it cannot, by way of reconsideration, set aside the order. To access this decision, click here.
Application for reconsideration of a decision taken by the FSCA
JP Markets SA (Pty) Ltd v FSCA Case No. A42/2020
The applicant, JP Markets, applied for reconsideration of a 'decision" of the FSCA. The FST had to determine whether the lapsing of a FSP's licence in terms of section 11(1)(b) of the FAIS Act amounted to a decision by the FSCA that the FST could reconsider. The Tribunal held that the lapsing of the applicant’s licence was a direct result of the successful application for liquidation in terms of section 11(1)(b) of the FAIS Act. The FSCA had not take a decision to withdraw the applicant’s licence, but it lapsed automatically as a matter of law. the application was dismissed. To access this decision, click here.
Sodexo Provident Fund v FSCA Case No. A3/2021
The facts of this decision were that the fund failed to comply timeously with its duty in terms of section 16 of the Pension Funds Act which require a fund to file its actuarial valuations and do so timeously. The application for reconsideration was brought on two grounds. First, that the valuations were actually submitted to the FSCA in 2018, via a letter and annexure. The FST held that the submission did not comply with Board Notice 149 of 2010, and the submission was therefore not valid. Second, that it was the administrator of the fund and not the fund itself that should be held liable for the late filing of its valuations. Again, the Tribunal dismissed the grounds for reconsideration and held that the obligation to comply with its statutorily imposed obligation rests with the fund. Failure to comply will result in the fund being held liable, not a third party. To access this decision, click here.
Makgale Gwangwa (Pty) Ltd v the Financial Sector Conduct Authority Case No. A25/2020
The Regulator has the power to withdraw FSP licences if levies are not paid in terms of section 9(1)(c) and (d) read with section 9(2) of the FAIS Act. When an FSP fails to pay their levies for their FSP licence and do not communicate when a payment can be received, the Regulator will not tolerate a blanket extension without a timeframe. To access this decision, click here.
Application for reconsideration of a determination made by the FAIS Ombud
PD & PJ Swanepoel NNO v LSI Makelaars CC and others Case No. FAB118/2019
The application considered the duty of the FAIS Ombud to act with a certain standard of care. The Tribunal found that the Ombud's Providers' statutory mandate is to consider and dispose of complaints under the FAIS Act and complaints for which the Adjudicator is designated in terms of section 211 of the Financial Sector Regulation Act 9 of 2017. It is required to do so in a procedurally fair, informal, economical and expeditious manner and by referring to what is equitable in all the circumstances. To access this decision, click here.