Financial Services Regulation - Monthly Update - May 2021

Keep up to date on the most important Financial Services Regulatory developments in South Africa in May 2021.

Webber Wentzel attends the Pension Lawyers’ Association Conference

Webber Wentzel partners, Zelda Swanepoel and Safiyya Patel, and senior associate, Seshree Govender, delivered a presentation at the 25th annual Pension Lawyers' Association (PLA) conference held virtually on 13 and 14 May 2021. The PLA conference provides attendees with expert legal and practical discussions on topical issues affecting the financial services and retirement funds industries.

On the first day of the conference, the Webber Wentzel trio chaired the workshop on transformation and financial inclusion in the retirement funds industry. They looked specifically at the regulatory provisions in the Financial Sector Code, the Conduct of Financial Institutions Bill (COFI Bill) and the Financial Sector Regulations Act 9 of 2017 (FSR Act), and whether these legislative enactments actually align to bring about the transformation of the industry.

The presentation included an overview by Zelda on the draft Financial Inclusion Policy published by National Treasury on 28 October 2020. Safiyya continued the conversation by canvassing the requirements for retirement funds under the Financial Sector Code published on 1 December 2017 and the extent of transformation and financial inclusion it requires. Lastly, Seshree shared insights on the proposals in National Treasury's Financial Inclusion Policy, the FSCA Financial Inclusion Strategy paper and the Open Finance for Retirement Funds Research paper published towards the end of 2020.

To access information on the PLA conference, click here.

Financial Sector Conduct Authority (FSCA)

FSCA Press Release: the FSCA imposes an administrative penalty on ABSA Bank Limited

The FSCA imposed an administrative penalty of ZAR 100 000 on ABSA Bank Limited Over the Counter Derivatives Provider (ABSA ODP) after it failed to meet a licence condition. ABSA ODP was granted a licence to operate on 1 September 2020.
One of the licence conditions stipulates that an ODP must submit a report from its independent auditors on its systems, processes, procedures and capacity to report all its OTC derivatives transactions to the Authority within six months of licensing, and then annually.  ABSA ODP contravened this condition and did not request any extension to comply with it.  ABSA ODP accepted the administrative penalty.  To access this press release, click here.

FSCA Press Release: the FSCA warns the public against FSCABUD

FSCABUD is using the FSCA logo and website to mislead members of the public.  FSCABUD offers to help the victims of fraud to get their money back by advising them to download the computer software AnyDesk onto their personal or professional computers. FSCABUD then attempts to use the software to access features on the victim’s computer. It is important to note that the FSCA does not recover lost money on behalf of individual customers, nor does it request them to install any software on their devices for any purpose. The FSCA warns customers that any emails that are not from an “fsca.co.za” domain are fake and potentially a scam.  To access this press release, click here.

Notice of publication: Draft exemption of managers of Collective Investment Schemes from certain requirements in Board Notice 92 of 2014

The FSCA invites submissions on the draft Notice: Exemption of Managers of Collective Investment Schemes from certain requirements in Board Notice 92 of 2014, which is to be made under section 22 of the Collective Investment Schemes Control Act, 2002 read with section 281(3)(b) of the Financial Sector Regulation Act 2017. This is set out in the Schedule.

This Notice and the Schedule are available on the FSCA website. Submissions on the draft exemption must be made using the submission template available on the FSCA’s website and submitted in writing on or before 30 June 2021 to the FSCA at FSCA.RFDStandards@fsca.co.za.

South African Reserve Bank (SARB)

Invitation from the SARB to comment on the proposed principles and requirements for Flac instruments

The SARB has issued an invitation to the public to comment on the discussion paper entitled: "Proposed principles and requirements for Flac instruments".

The discussion paper sets out the SARB's proposed principles and requirements for Flac instruments, which, after promulgation of Financial Sector Laws Amendment Bill of 2018 (FSLAB), will be incorporated into a Prudential Standard.

The discussion paper expands on the 2019 resolution paper entitled: "Ending too big to fail: South Africa's intended approach to bank resolution". It outlines the powers of the SARB, which will be the established Resolution Authority once FSLAB is promulgated. Under this function, the SARB will be responsible for the orderly resolution or winding down of failed or failing designated institutions.

According to the discussion paper, designated institutions are required to, amongst other requirements, maintain sufficient levels of unsecured subordinated debt to absorb losses and to recapitalise themselves during a resolution, without disrupting their critical functions and core business.

For legal simplicity, the SARB requires that the Flac instruments are located in one entity. This will make the creditor hierarchy clear to investors and avoid unintended structural subordination. The discussion paper also covers the proposed qualifying criteria for Flac instruments and the calculation of the minimum Flac requirement. The framework will be phased in over six years.
The closing date for comments on the discussion paper is 30 June 2021. To access this press release, click here.

SARB commences feasibility study for a general-purpose retail central bank digital currency

The SARB will explore the feasibility, desirability, and appropriateness of a central bank digital currency (CBDC) as an electronic legal tender, for general-purpose retail use, complementary to cash. A retail CBDC can be defined as a digital form of cash aimed at providing the best attributes of both cash and electronic payments.

In addition, the feasibility study will include practical experimentation across different emerging technology platforms, considering a variety of factors, including policy, regulatory, security and risk management implications. The SARB said that the feasibility study is different to Project Khokha. Project Khokha focuses on the settlement of high-value transactions between commercial banks and other stakeholders at the wholesale level.  Both studies are expected to result in better policy alignment and co-ordination.

The SARB has downplayed the possibility that it might launch a digital currency soon.  It stated that it has "made no decision to issue a retail CBDC". The CBDC feasibility study is expected to be concluded in 2022. To access this press release, click here.

Case Law Developments

Financial Services Tribunal

Application for reconsideration of Pension Funds Adjudicator determinations


Oasis Group Holdings (Pty) Ltd v PFA and Others Case No: PFA74/2020

The Financial Services Tribunal dismissed an application to reconsider a decision by the Pension Funds Adjudicator (PFA). The PFA had ordered a pension fund to pay a member the withdrawal benefit it was withholding at the behest of the member's employer, pending the finalisation of legal proceedings against the member.

The fund withheld the payment of the withdrawal benefit without asking for the member's input and thus did not comply with the audi alterem rule.

In dismissing the application, the Tribunal repeated its previous rulings on the issue, namely that a pension fund may not refuse to pay a member the withdrawal benefit on the application of an employer without complying with the audi alterem rule.

The Tribunal also held that the intention behind such applications can only be to delay payment by the fund. It ordered the applicant to pay the costs of the first respondent in opposing the application on the High Court scale. To access the decision, click here.

Zinia Beleggings t/a Tappans Electrical (Zinia) and PFA and others Case No: PFA6/2021

The Financial Services Tribunal dismissed an application to reconsider a determination by the PFA.

In summary, the matter concerned the quantum of the complainant's withdrawal benefit after his employment with the applicant, Zinia, had ended. On 3 September 2016, the complainant re-entered employment with Zinia, but was only registered as a member of the applicant's provident fund on 1 September 2018.

The PFA had to consider whether Zinia was entitled to delay the registration of the complainant as a member of the provident fund, and consequently, not to pay the required contributions to the fund during that period.

The Tribunal agreed with the PFA's determination that the applicant had to register the complainant as a member retrospectively from 3 September 2016 and pay the outstanding contributions to the fund for the period 3 September 2016 to 31 August 2018. It had to pay all outstanding amounts to the respondent, based on the recalculated withdrawal benefit.

The reasoning behind the Tribunal's finding was that both the PFA and the Tribunal were bound to apply the rules of the fund, which were that an "employee who enters employment on or after the participation date must become a member".

To access this decision, click here.

NUMSA and PFA and Others Case No: PFA32/2021

The applicant applied for the reconsideration of a decision by the PFA under section 30M of the Pension Funds Act 1956 (the Act).  It was unnecessary to consider the merits of the matter, because it was apparent that the determination of the PFA was made without notice to the applicant.

In casu, there was a clerical error on the email address cited.  In terms of section 30A (2) of the Act: "A complaint so lodged shall be properly considered and replied to in writing by the fund or the employer who participates in a fund within 30 days after the receipt thereof."  The applicant was not afforded this opportunity.  The determination was set aside and referred to the PFA for reconsideration. To access this decision, click here.

Enon Brick (Pty) Ltd and PFA and Others Case No: PFA100/2020

The applicant applied for the reconsideration of a decision by the PFA under section 30M of the Act.  The application concerned the non-payment of the complainant's withdrawal benefits.  In addition, the complainant was dismissed for theft.

The Tribunal considered that the applicant had received notice of the complaint and the return date but failed to respond.

Consequently, the argument for reconsideration based on a failure to comply with the audi alteram partem rule had failed.  The Tribunal referred to the Supreme Court of Appeal (SCA) case: Highveld Steel and Vanadium Corporation Ltd v Oosthuizen (103/2008) [2008] ZASCA 164, which dealt with the withholding of payment pending the finalisation of civil proceedings. It did not hold that a Fund is entitled to withhold payment because a criminal case has been opened or even upon conviction. The Tribunal found that a conviction is not a judgment against a member that quantifies compensation in respect of damage caused, and the costs are not awarded against the persons convicted.  The application was dismissed.  To access this decision, click here.

SATL Freight (Pty)Ltd and PFA and Others Case No: PFA3/2021

This application dealt with the audi alterum partum rule, specifically in respect of an improper notification of the complaint to the respondent.  The PFA alleged that registered letters were sent to the applicant, but there was no proof on file that the letters were sent.  The Tribunal considered that registered letters have a tracking number and there was no indication that the letters were delivered.  In addition, it was unrealistic to send a letter during the height of the pandemic and expect a response within two weeks.  The determination was set aside, and the matter was referred back to the PFA for reconsideration.  To access this decision, click here.

Applications for the reconsideration of debarment of Financial Services Providers

Charmaine Shamla Moodley v Liberty Group Ltd Case No: FSP23/2021

This application was brought in terms of section 230 of the FSR Act, with both parties waiving their right to a full hearing.
The applicant, Ms Moodley, faced several disciplinary hearings for the alleged contravention of policies, rules and regulations of her employer, and the debarment proceedings were held at the same time as these disciplinary hearings.

The Adjudicator found her to be guilty of two of the transgressions, and she was dismissed by Liberty.  She was debarred on the basis that she was grossly dishonest.

Her charges were twofold:


  • She failed to attend joint calls with Mr Dwayne Naicker, a financial adviser under her supervision whose advice process she was supposed to scrutinise.  In this regard, Ms Moodley failed to exercise the necessary care and skill expected of someone in her position in discharging her duties in terms of her employment contract.
  • Ms Moodley, as branch manager, was dishonest in that she informed Ms Priya Naicker (a compliance specialist) that Ms Naledi Lerumo in the admin hub was capturing all new business cases for Mr Dwayne Naicker.  It is probable that Ms Moodley told Ms Naicker that the cases were loaded by the admin hub as she did not confirm with Ms Lerumo.

On the second charge, the Tribunal found that the evidence was that of Ms Naicker only, and Ms Moodley disputed the charge.  The chairperson did not say why the applicant's evidence was rejected, and the corroboration relied on by the chairperson (i.e. the probability that Ms Moodley told Ms Naicker as she did not confirm with Ms Lerumo) does not even establish prima facie dishonesty. It may show that she was wrong in her assertion, but that is a far cry from dishonesty.

Poignantly, the Tribunal concluded the judgment by noting that: "The FAIS Act deals with honesty and integrity, not saintliness and over-fastidiousness."

Ms Moodley's application succeeded, and the debarment was set aside. To access this decision, click here.

Ntobeko Godfrey Mdluli and FNB Case No: FSP18/2021

The applicant applied for the reconsideration of his debarment as a financial service representative in terms of section 14 of the Financial Advisory and Intermediary Services Act 37 of 2002 (the FAIS Act).  He was accused of dishonesty for recording the incorrect sign-in and sign-off times in the attendance register and for failing to capture his leave on the bank's system.  he respondent relied on an extract from the SCA case: Financial Services Board v Barthram, [2015] 3 All SA 665, 2018 (1) SA 139 (SCA):

"The debarment of the representative by a FSP is evidence that it no longer regards the representative as having either the fitness and propriety or competency requirements. A representative who does not meet those requirements lacks the character qualities of honesty and integrity or lacks competence and thereby poses a risk to the investing public generally. Such a person ought not to be unleashed on an unsuspecting public and it must therefore follow that any representative debarred in terms of section 14(1), must perforce be debarred on an industry-wide basis from rendering financial services to the investing public."

The Tribunal considered that the issue was more of a labour issue than a FAIS issue and it appeared that the respondent conflated the two.  The Tribunal reiterated that the test was whether the dishonesty, negligence or incompetence or mismanagement was sufficiently serious to impugn the honesty and integrity of the person concerned.  The Tribunal found that it was not. The debarment was set aside. To access this decision, click here.

Parliamentary Monitoring Group

The Standing Committee on Finance held a virtual public hearing for submissions on the Pension Funds Amendment Bill. PMG has issued a meeting report of the hearing.

Six industry stakeholders made submissions to the Standing Committee on Finance on 19 May 2021 on the Pension Funds Amendment Bill, 2020.

National Treasury did not support the Bill because it went against its policy of savings (which it is hoping to legislate through a Money Bill). Treasury submitted that the Bill's proposed use of pension funds for loans was open to abuse and that the Bill did not deal with the consequent indebtedness arising from this proposal.  Treasury proposed that the Bill be delayed until a Money Bill could be introduced by the Minister of Finance.

COSATU has, on the other hand, welcomed the Bill and believes that it is a positive response to the economic crisis resulting from the Covid-19 pandemic.  Despite this, COSATU agreed with National Treasury that much work is still needed on the Bill and has agreed to give Treasury until the end of the year to introduce the Money Bill.

Submissions were also made by SAICA, the Association for Savings and Investments South Africa, the Institute of Retirement Funds Africa and Batseta Counsel of Retirement Funds. To access the meeting report and the other submissions, click here.

To access Webber Wentzel's previous discussion on the Pension Funds Amendment Bill, click here.




Webber Wentzel > News > Financial Services Regulation - Monthly Update - May 2021
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