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BULLETINQUARTER 3: 2018/19 THE FSCA’S THREE-YEAR STRATEGY
BULLETIN
CONTENTS
The FSCA Bulletin is published quarterly
and distributed free of charge. Views
expressed by the contributors are not
necessarily those of the Financial Sector
Conduct Authority (FSCA). Reproduction, EDITOR’S NOTE 03
copying or extraction, by any means,
of the whole or part of this publication,
may not be undertaken without the
permission of the editor.
EDITORIAL TEAM
Tembisa Marele
Nokuthula Mtungwa
Reneilwe Mthelebofu
Boitumelo Manganyi
PAGE 04
Sibusiso Mondlane THE FSCA’s THREE-YEAR STRATEGY
REGULATORY FOCUS 08
SUBSCRIPTIONS Report by the FSCA on status of various investigations 08
All enquiries should be directed to
Reneilwe Mthelebofu using the contact An enhanced supervisory approach will go a long way in 12
preventing consumer complaints
details provided below.
Despite some global and domestic challenges, the South 14
DESIGN PRINTING & LAYOUT African financial system remains strong and stable,
according to the sarb’s financial stability review
Tirommoho Communications
(012) 343 4561 The Prudential Authority outlines its three-year regulatory 16
and supervisory priorities
CONTRIBUTIONS
Contributions to the FSCA Bulletin are INDEPENDENT PERSPECTIVE 19
welcomed and should be sent to Ensure your succession plan can be implemented 19
Reneilwe Mthelebofu at the address
below. The editor reserves the right to
WARNINGS AND/OR ENFORCEMENT 22
edit contributions. SANCTIONS
CONTACT INFORMATION
P O Box 35655
IN THE MEDIA 25
Menlo Park, Have your say on the Financial Institutions Bill 25
0102
Republic of South Africa CONSUMER EDUCATION 26
Tel: 012 428 8000
Don’t make silly decisions on the Stock Exchange 26
Fax: 012 346 6481
publications@fsca.co.za EPWP participants empowered with financial literacy 28
EVENTS 30
Money Smart Week 30
EDITOR’S NOTE
EDITOR: Tembisa Marele
T he publication of our Regulatory Strategy
marks a new phase in our transition
from the FSB to the FSCA a dedicated
In this issue we unpack the strategy, highlight
new functions and give a good sense of how
we will regulate the industry in the short-
conduct authority for the financial services medium term. We also look into what our
industry. The strategy outlines the objectives sister regulator, the Prudential Authority will
of the FSCA and sets out our regulatory and be focusing on during this period.
supervisory priorities for the next three years.
The South African Reserve Bank has
Our mandate has been extended, with a published its Financial Stability Review, which
number of new functions, such as having shows that the South African financial system
regulatory oversight over banks, credit remains strong and stable, despite global
providers and medical schemes among others. and domestic challenges, we cover these
Above all, we are stepping up our efforts to intricacies in this issue.
protect financial customers and ensure that
We value your feedback. Please get in touch
they are treated fairly. We hope our Regulatory
with us on publications@fsca.co.za
Strategy sheds some light on the approach we
will take in achieving this goal. Tembisa Marele
3 FSCA Bulletin | Quarter 3 2018/19
COVER STORY
THE FSCA’S
THREE-YEAR STRATEGY
BY RENEILWE MTHELEBOFU, • A robust regulatory framework
COMMUNICATION AND LANGUAGE that promotes fair customer
SERVICES, FSCA treatment
• Informed financial customers
T he recent transition of the
Financial Sector Conduct
Authority (FSCA) from a compliance
• Strengthening the efficiency and
integrity of our financial markets
• Understanding new ways of
driven entity into a proactive, pre-
doing business and disruptive
emptive, risk-based, outcomes
technologies
focused market conduct regulator has
been marked by the publication of a
According to Advocate Dube Tshidi,
three-year Regulatory Strategy that
a member of the Transitional
outlines the changes to the regulatory
Management Committee, the areas
approach and gives insight on the
the FSCA will focus on for the next
strategic priorities for the Authority
three years will be approached in a
going forward.
gradual manner. “Our strategy is for a
“The widened scope of the FSCA three-year strategy period. The most
mandate means that it now has in efficient way would be for us to focus
its regulatory ambit oversight over on two objectives every year, in order
retail banks and credit providers, to cover all six. For the first year we
among other new functions." This will have to start with the building the
move enables us to serve the industry new organisation and ensuring that
and our country even better, with a robust regulatory framework is in
the ultimate vision ensuring that place before to enable us to effectively
the financial sector is efficient, and tackle the other objectives.
customers are informed and treated
The strategy also outlines the FSCA’s
fairly,” says Abel Sithole, FSCA
new regulatory areas, such as:
Commissioner.
• Banking products and services
This strategy also narrates the
• Payment services
significant change that the
• Services in relation to credit,
organisation has undergone,
including debt collection
how the FSCA is structured, and
• Services related to the buying and
how regulatory and supervisory
selling of foreign exchange
frameworks will be designed in a way
• Medical schemes
that empowers the organisation to
• Supervising financial groups and
deliver on its mandate.
conglomerates and significant
The strategy outlines the priority owners
areas of the FSCA for the next three
years to be: One of the significant new functions
of the FSCA will be its regulatory
• Building a new organisation oversight over banking products
• An inclusive and transformed and services, however it has to
financial sector
FSCA Bulletin | Quarter 3 2018/19 4
COVER STORY
be noted that the rolling out of a non-banking products and services
comprehensive market conduct within existing bancassurance models
regulatory and supervisory (insurance products distributed
framework for the banking sector through banks and non-banking
for the FSCA will not happen financial institutions).
instantaneously but will be a gradual
process. For the FSCA to meaningfully Overseeing banking products and
supervise the conduct of banks, it services means giving attention
will require an enforceable market to issues such as supervising the
conduct regulatory framework conduct of banks they will focus
against which it can measure the on ensuring fair outcomes in the
conduct of financial institutions. design, servicing and performance
This will be done through the of transactional banking. Key to
Conduct of Financial Institutions Bill this will be the development of
(COFI) Bill which is currently under conduct standards for the sector in
consultation. National Treasury accordance with the standard set in
extended an invitation for public the FSR Act.
comments on the draft COFI Bill 2018,
The ultimate vision of the FSCA is
which was published together with
to see an efficient financial sector
an explanatory policy paper that sets
where customers are informed and
out the policy rationale for the Bill.
treated fairly. The strategy presents
Comments from the public on the Bill
an opportunity for all the Authority’s
were accepted until 1 April 2019.
stakeholders to engage with the new
Previously, the FSCA’s oversight mandate and approach of the entity
responsibility only extended to and help us protect the interests of
supervising banks in their capacity as financial customers.
financial services providers under the
To read more about the Financial
Financial Advisory and Intermediary
Sector Conduct Authority’s new
Services Act, 32 of 2002 (FAIS Act);
functions, click on the link below:
the provision of tax-free investment
products; and (to a certain degree) - https://www.fsca.co.za/Documents/
the relationship between banking and FSCA_Strategy_2018.pdf
5 FSCA Bulletin | Quarter 3 2018/19
COVER STORY
KEY DIFFERENCES BETWEEN THE FSB
SECTION AND THE FSCA:
1: INTRODUCING THE FSCA
FSB FSCA
Jurisdiction Non-banking financial sector All financial institutions
Focus Combined prudential and market Dedicated market conduct regulator
• Engaging with individual
conductbanks on specific
regulator and the SARB to coordinate work where we have
customerlegislation
Founding complaints orFinancial
complaint trends
Services or other
Board Act FinancialaSector
shared interest in
Regulation Actthe supervision of the banking
conduct concerns that are referred to us. sector – including exploring issues where it would
Legislation overseen A range of sector-specific laws Conduct-related aspects of existing sector-specific laws
• Establishing working relationships with the makeinsense
to be replaced to issue
due course joint
by an standards.
overarching Focus areas
Conduct
Banking Association South Africa (BASA) and include
of Financial bank governance
Institutions (COFI) Act. frameworks,
The FinancialFinTech
individual banks. These will continue the work of innovations
Markets Act is expected affecting banksbut
to be retained and conduct-related
amended to
the formal meetings set up between the previous deal withaspects
market infrastructures only,
of payment services. while the Pension
FSB Exco and the board of BASA, between •
Funds Act is expected to be amended to focus on
Applying learnings from our participation in a
prudential matters only.
the BASA Exco and the FSB Exco, and of the Bankseta/The Finance Union (SASBO) fact-
Rule-making powers Various
trilateral engagements of the powers to makethe
BASA Board, subordinate Power tofinding
make conduct
missionstandards,
to assessand
the joint standards
impact of digitisation
legislative instruments under a range of with the PA, under the FSR Act, in addition to powers
National Treasury and the FSB. on the banking sector.
sector-specific laws. under sector-specific laws. When the COFI Act comes
• Key points of engagement, in some cases with into operation, conduct standards under COFI will
the National Treasury, include: Identifying the Payment
replace services
instruments under sector-specific laws.
key banking sector conduct risks and priorities to The FSR Act extends the mandate of the FSCA to
Governance structure Overseen by a Board appointed by Overseen by an Executive Committee comprising
be addressed in our regulatory andwith
the Minister, supervisory
governance sub- include
the FSCAthe licensing and
Commissioner andsupervision of payment service
Deputy Commissioners
frameworks; how to customise
committeesthe outcomes of providers,bybythe
appointed including
Minister aofpayment
Finance, service in the definition
with governance
the work done by the G20 and G30 on banking of a ‘financial service’. In line with our overall objective,
sub-committees appointed by National Treasury.*
conduct
Regulatory and culture forExecutive
decision-makers the uniqueOfficer
South African
and (through our focus
The here will be
Commissioner is on the extent for
accountable to which the conduct
day-to-day
banking and financial services
delegation) landscape;
Deputy Executive Officers, of payment service
management of the providers
FSCA andis fordelivering fair outcomes
performing its
analysing the nature, appointed by theand
structure Minister,
valueperformed functions, other than certain key functions (including
to financial customers. This includes a focus on the
the role of Registrars
proposition of specific banking products to agree and Deputy standard
extent tosetting
whichandthelicensing
conductpowers) to beservice
of payment performedproviders
Registrars in terms of each sector- by the Executive Committee as a collective.
how best to address them in the market conduct supports our aims of financial inclusion and fair access to
specific law.
licensing framework; enhanced disclosure and financial services.
Organisation design Sector-specific divisions focused on Largely functional design, with cross-cutting licensing,
other conduct standards for banking products and
sector-specific laws. enforcement and conduct of business supervision
their costs, including key information documents The FSCA, National Payment System Department
divisions. Specific focus to be retained for retirement
and product standards; and resourcing the FSCA (NPSD)
fund of the SARB
supervision and the
and market National
integrity Treasury are
supervision.
with appropriate banking skills. working together to identify activities and role-players
Strengthened research and technical analysis capacity. in
• Engagement with the National Treasury, the PA the payment system that will fall under the ambit of the
* A process is underway for the appointment of the Commissioner and Deputy Commissioners. In the interim, Mr Abel Sithole has been appointed to fulfil the
Commissioner’s functions and a Transitional Management Committee is in place to manage the FSCA’s operations.
Source: FSCA Regulatory Strategy
14
SETTING CONDUCT STANDARDS FOR THE BANKING SECTOR:
The FSR Act (s.106) empowers the FSCA to make conduct standards for financial institutions, including banks, on a wide range of conduct-
related matters. In developing such standards, we will consider:
• The findings of the World Bank’s Retail Banking Diagnostic (on the basis discussed above)
• What we learn from our wide-ranging stakeholder engagement programme described above
• The existing provisions of the industry’s voluntary Code of Banking Practice - recognising, however, its gaps and limitations
• The future conduct framework proposed in the draft COFI Bill
• Alignment, where appropriate, with existing conduct standards for other sectors – such as the Policyholder Protection Rules under
the insurance laws and the Codes of Conduct under the FAIS Act
• Applicable international standards for the conduct of business of banks.
Any proposed conduct standards will, in the normal course, be subject to thorough stakeholder consultation.
Source: FSCA Regulatory Strategy
FSCA Bulletin | Quarter 3 2018/19 17
6
Our Vision
To ensure an efficient
financial sector where
customers are informed
and treated fairly
7 FSCA Bulletin | Quarter 3 2018/19
REGULATORY
FOCUS
REPORT BY THE FSCA ON STATUS
OF VARIOUS INVESTIGATIONS
T he Financial Sector Conduct
Authority (FSCA) held a meeting
on 30 November 2018 to decide on
These funds are distributed, after
recovery of costs, to persons who
may have been prejudiced by the
and Securities Services Act) was
contravened. In 91 cases the FSCA
or /DMA decided to proceed with
various market abuse investigations. offending transactions. In addition, enforcement action. The penalties
the FSCA may impose a range of imposed on offenders to date
The FSCA is mandated to
administrative sanctions on the amounts to approximately R138
investigate, and in appropriate
alleged offenders. million.
instances, take enforcement
action in cases of market abuse on Market abuse transgressions are The FSCA’s investigations into share
the financial markets. Three kinds criminal offences in terms of the trading patterns and complaints
of market abuse are prohibited Financial Markets Act, No. 19 of should not be construed as an
in South Africa, namely insider 2012) (FMA). The Director of Public indication that any violation of a
trading, market manipulation Prosecutions may institute criminal law has occurred, or as a reflection
(prohibited trading practices) action against any person. It is not upon any person, entity or security.
and false reporting relating to the the function of the FSCA to institute The FSCA has the responsibility to
affairs of a public company. Our criminal prosecutions; instead, investigate these matters in an
investigation procedures include it would provide all information impartial and objective manner.
interviews under oath, acquiring necessary to assist the Director of If no evidence of wrongdoing is
documentary evidence and Public Prosecutions uncovered, the investigations are
obtaining assistance from foreign closed.
Since 1999, the FSCA and its
Regulators.
predecessors, the Directorate Below is a list detailing the current
In matters of insider trading the of Market Abuse and the Insider status of investigations on insider
FSCA may order that the alleged Trading Directorate, have trading and prohibited trading
offender pay an amount equal investigated a total of 416 cases. practices. It should be noted that
to the profit made or the losses 304 cases were closed because these investigations are not into the
avoided as a result of the offending there was either no or insufficient, affairs of the companies listed but
transactions, and a penalty of evidence that the FMA (or the into trading in shares on the stock
up to three times such amount. now-repealed Insider Trading Act exchange.
FSCA Bulletin | Quarter 3 2018/19 8
REGULATORY FOCUS
POSSIBLE INSIDER TRADING CASES
Security JSE Code Period investigated Case status
1. Capitec Bank Holdings Limited CPI 2018-01 – 2018-07 Ongoing
2. Dis-Chem Pharmacies Limited DCP 2017-12 Ongoing
3. EOH Holdings Limited EOH 2017-11 – 2017-12 Ongoing
4. Esor Limited ESR 2018-07 – 2018-08 Ongoing
5. Fortress Income Fund Limited FORT 2017 – 2018 Ongoing
6. Greenbay Properties Limited GRP 2017 – 2018 Ongoing
7. Murray & Roberts Holdings Limited MUR 2018-03 Ongoing
8. Nepi Rockcastle PLC NRT 2017 – 2018 Ongoing
9. Resilient REIT Limited RES 2017 – 2018 Ongoing
10. Steinhoff International Holdings N.V. SNH 2017-11 – 2017-12 Ongoing
11. Steinhoff International Holdings N.V. SNH 2017-12 Ongoing
12. Times Media Group Limited TMG 2014-02 – 2014-03 Ongoing
13. Vodacom Group Limited VOD 2017-10 Closed
14. WG Wearne Limited WEA 2017-09 Ongoing
15. Wheat Futures Contracts WEAT 2017-04 – 2017-05 Ongoing
POSSIBLE PROHIBITED TRADING PRACTICES (MARKET MANIPULATION) CASES
Security JSE Code Period investigated Case status
1. 15 June 2016 ALSI Futures Contract 15June16 ALSI 2016-04 Ongoing
2. Capitec Bank Holdings CPI 2018-01 – 2018-02 Ongoing
3. December 2016 WEAT WEAT 2016-09 Closed
4. Fortress Income Fund Limited FORT 2017-2018 Ongoing
5. Greenbay Properties Limited GRP 2017-2018 Ongoing
6. Nepi Rockcastle PLC NRT 2017-2018 Ongoing
7. Oakbay Resources and Energy Limited ORL 2014-11 – 2015-04 Ongoing
8. Resilient REIT Limited RES 2018-01 Ongoing
9. Resilient REIT Limited RES 2017 – 2018 Ongoing
10. SABMiller PLC SAB 2016-03-09 Closed
11. The Foschini Group Limited TFG 2016-03-09 Closed
12. Trustco Group Limited TTO 2017-12 – 2018-02 Ongoing
13. Trustco Group Limited TTO 2018-06 Ongoing
14. White Maize Futures Contract 24 March 2017 WMAZ 2017-03-24 Closed
POSSIBLE FALSE OR MISLEADING REPORTING CASES
Below is a list detailing the current status of investigations with possible false or misleading reporting:
Security JSE Code Publication Case status
1. Capitec Bank Holdings CPI 2018-01 – 2018-02 Ongoing
2. Lewis Group Limited LEW 2015-01 – 2016-10 Ongoing
3. Nepi Rockcastle PLC NRT 2017-2018 Ongoing
4. Resilient REIT Limited RES 2018-01 Ongoing
5. Resilient REIT Limited RES 2017 – 2018 Ongoing
6. Steinhoff International Holdings N.V. SNH 2015, 2016 & 2017 Ongoing
7. Steinhoff International Holdings N.V. SNH 2017-12 Ongoing
Investigations are "Closed" once it becomes evident that no, or insufficient evidence has been obtained to
warrant administrative action.
9 FSCA Bulletin | Quarter 3 2018/19
REGULATORY FOCUS
NOTES: companies: Greenbay Properties Limited, Resilient
REIT Limited, Nepi Rockcastle Limited and Fortress
The FSCA has decided to provide more detail on the REIT Limited. In addition, allegations of a possible
cases mentioned below due to the extent of public contravention of Section 81 (false and misleading
interest and impact on the market. statements) of the FMA were made relating to Resilient.
The potential contraventions and the respective
STEINHOFF INTERNATIONAL HOLDINGS N.V. securities referred for investigation are listed hereunder:
The FSCA has registered three cases of market abuse Price manipulation (Resilient REIT Limited, Fortress REIT
involving insider trading and publishing false and Ltd, Greenbay Properties Ltd and Nepi Rockcastle
misleading statements. Limited) – Section 80 of the FMA
Investigation One: Insider Trading The FSCA is investigating a possible contravention
of section 80 (prohibited trading practices) of the
This investigation focuses on seven trading accounts
FMA across all four shares. The investigation period is
that sold Steinhoff (Steinhoff
between 1 October 2017 and 31 March 2018.
International Holdings N.V.) shares during the period
Insider Trading (Resilient REIT Limited, Fortress REIT Ltd,
from November to December 2017. The trading
Greenbay Properties Ltd and Nepi Rockcastle Limited)
accounts (currently under investigation) belong to
– Section 78 of the FMA
individuals, trusts and corporate entities. We have
investigated the share trading on these accounts to The FSCA is focusing on transactions before the
establish whether it may have been undertaken by following announcements:
parties who were in possession of inside information
regarding the alleged accounting irregularities and Mr • Greenbay – SENS announcements dated 31
Jooste’s resignation as CEO. May 2016, 21 September 2016, 30 May 2017,
16 March 2017 and 8 August 2017. All these
We are close to finalising this investigation. SENS announcements relate to book builds by
Greenbay.
Investigation Two: False and misleading statements
• Resilient and Fortress – SENS announcement
This investigation focuses on the 2015 and 2016 dated 7 March 2018, which relates to inter alia
Steinhoff financial statements and the 2017 interim the unwinding of the cross shareholding between
results. We are aware that PwC is conducting a Resilient REIT Limited and Fortress.
forensic investigation, and its findings will be taken into • Resilient – SENS announcement dated 22 August
account in our investigation. 2017, which relates to a book build by Resilient.
The FSCA has interviewed numerous individuals and • Nepi Rockcastle – SENS announcement dated 3
has obtained extensive documentation. We have October 2017, which relates to a book build by
made good progress regarding this investigation. Nepi Rockcastle.
False and misleading statements (Resilient REIT Limited
Investigation three: Insider trading and false and and Nepi Rockcastle Limited) – Section 81 of the FMA
misleading statements
The FSCA is investigating:
This investigation deals with the Viceroy report, which
was published on 7 December 2017 after Steinhoff • possible false statements made or published in
announced on 6 December 2017 that it has launched respect of Resilient;
an investigation into alleged accounting irregularities • a complaint relating to rumours that were
and that its CEO had resigned. circulated on Twitter and other social media about
the imminent publication of a report on Resilient by
The report was published by Viceroy (a foreign
Viceroy; and
research company), which allegedly held short
positions in Steinhoff. • allegations of possible false and misleading
reporting regarding Nepi Rockcastle pursuant to
We are receiving assistance from foreign Regulators the Viceroy report.
and are making good progress in this investigation.
CAPITEC BANK HOLDINGS LIMITED
Once the PwC forensic investigation has been
concluded it is possible that further investigations into The FSCA received a complaint regarding possible
insider trading and false and misleading statements contraventions of sections 78 (insider trading), 80
may be initiated based on the findings of that (price manipulation) and 81 (false and misleading
investigation. statements) of the FMA. The initial period of the
investigation was from 1 January 2018 to 30 January
RESILIENT REIT LIMITED, FORTRESS INCOME FUND LIMITED,
2018, but this period has been extended to 29 June
GREENBAY PROPERTIES LIMITED, NEPI ROCKCASTLE PLC
2018.
Allegations of possible contraventions of Sections 78
The FSCA is investigating allegations of possible false
(insider trading) and 80 (price manipulation) of the
and misleading reporting regarding Capitec Bank
FMA (Financial Markets Act No.19 of 2012) were made
Holdings Limited pursuant to the Viceroy report.
relating to share trades in securities in the following
FSCA Bulletin | Quarter 3 2018/19 10Our Mission
To ensure a fair and
stable financial market,
where consumers are
informed and protected,
and where those that
jeopardise the financial
well-being of consumers
are held accountable
11 FSCA Bulletin | Quarter 3 2018/19REGULATORY
FOCUS
AN ENHANCED
SUPERVISORY APPROACH
WILL GO A LONG WAY IN
PREVENTING CONSUMER
COMPLAINTS
BY NOKUTHULA MAKWETLA, manner, meaning supervision teams The FSCA has elevated the
MEDIA AND STAKEHOLDER for sectoral financial industries complaints monitoring function as
RELATIONS MANAGER, operated independently. a key supervisory area, which will
COMMUNICATION AND LANGUAGE enable the regulator to gain insights
This led to fragmentation of issues
SERVICES DEPARTMENT: FSCA into all the regulated entities’
because of a lack of a holistic
internal complaints management
Supervision is a key aspect of the approach to regulations. Under the
and dispute resolution systems
new functional design structure new regime, all of this has fallen
and procedures. This effectively
of the Financial Sector Conduct away and there is now a central
means that as part of the pre-
Authority (FSCA). Its intention is to point of supervision. The newly
emptive and proactive approach
ensure that consumer complaints established Conduct of Business
to regulation, the Authority will be
are minimised by being pre-emptive Supervision Division withing
in a better position to identify and
and proactive in its approach. the FSCA consists of a dedicated
monitor market trends, governance
team using a holistic co-ordinated
The supervisory tools at the disposal and management failures as
supervisory framework for the
of the FSCA are as a result of espoused by the FSCA’s Regulator
following segments:
statutory powers conferred by the Strategy. This will enable the
Financial Sector Regulation Act • Banks and payment providers; Authority to effectively hold the
to the FSCA and have enabled the • Insurers and retirement fund entities it regulates to account by
organisation to develop supervisory administrators; requesting them to show how they
methods and approaches that are • Micro and access product have dealt with findings identified
based not only on the experience providers; from their internal complaints
of supervising regulated entities, • Financial advisors; management systems in order to
but on best international practice. • Investment providers; and find better remedies for dealing
Previously, the erstwhile Financial • Financial Intelligence Centre with and preventing poor consumer
Services Board (FSB) conducted Act supervision. outcomes. The governance and
its supervisory duties in a sectoral business processes of financial
institutions have been identified
FSCA Bulletin | Quarter 3 2018/19 12REGULATORY FOCUS
in the International Association of risks to prevent further consumer specific issues in the market,
Insurance Supervisors paper on complaints. In a mystery shopping understand customer experiences
Conduct of Business Risk (and its study in Zambia, most shoppers were following the rollout of new services
management) as one of the many able to register for a digital financial or regulations, and measure
factors that are a source of conduct services account without showing continual compliance with existing
risk, which may lead to customer the necessary identification. These regulations.”
dissatisfaction. These are factors, shoppers were able to bypass over-
Sanele Magazi, Specialist Analyst at
according to the FSCA regulatory the-counter transaction limits. And
the FSCA, explains that the reformed
strategy, where aspects of the most agents who quoted transaction
approach to supervision has placed
regulated entity’s own governance fees to shoppers gave them the
emphasis on customer experience
frameworks, distribution models and wrong amounts. According to one
and risks associated with how
business processes or assurance shopper’s experience: “I was initially
regulated entities conduct their
maturity can heighten the conduct informed that the transfers attract
business end to end, from product
of business risk exposures. This may zero charges, but I later incurred
design to after sales services. “The
further weaken the way complaints charges after the transfer was
consumers must get value for
are handled and result in further complete, and the agents were
money”, he said. To monitor this,
complaints. unable to explain this.”
the FSCA, through its supervisory
One of the additions to the Findings like these are critical offsite/onsite monitoring, will
supervisory toolkit is the targeted for regulators and supervisors supplement periodic statutory
mystery shopping exercise the charged with monitoring markets conduct of business reporting with
regulator will explore. This tool for regulatory compliance and a combination of other targeted
will assist in obtaining real-time with identifying emerging risks in routine and ad hoc information and
consumer experience insights. How customers’ experience. According report requests. Insights gained from
the concept will be pragmatically to the Consultative Group to Assist this type of enhanced and ongoing
applied to enhance supervision the Poor (CGAP), (https://www.cgap. monitoring will allow the Authority
efforts is explained below. org/research/publication/mystery- to be pre- emptive in responding
shopping-digital-financial-services), to emerging risks, which will go a
The risks identified from such an
“mystery shopping is a powerful tool long way in positively dealing with
exercise will enable the regulator
a regulator can use to investigate consumer complaints.
to assess how best to address such
WHAT IS MYSTERY SHOPPING?
During a “mystery shopping” exercise, an employee of the after the event what was said or how the customer
FSCA (usually a supervisory team member) or an external was treated during the actual customer interaction. By
individual appointed by the FSCA may approach a financial recording how a financial institution deals first-hand
institution, its agents or its appointed representatives in with a “mystery shopper”, the FSCA can get valuable
the role of a potential customer to understand first-hand insights into the financial institution’s “real life” practices
what a typical customer experience would be in a specific and customer culture in a way that it would not otherwise
scenario in relation to that financial institution. be able to through traditional supervisory mechanisms.
The objective of mystery shopping is to identify specific The FSCA may use the information it obtains from
risks facing financial customers and to assess how best mystery shopping in support of both its supervisory
to pragmatically address such risks. This could be done and enforcement functions. However, any such use
by assessing a particular practice across a number of will be done in accordance with defined guidelines and
financial institutions or a specific practice or practices procedures consistent with principles of transparency
of a particular financial institution. Generally when and procedural fairness.
consumers complain about a specific experience with a
Source: FSCA Regulatory Strategy: 2018
financial institution, it can be very difficult to establish
13 FSCA Bulletin | Quarter 3 2018/19REGULATORY
FOCUS
DESPITE SOME GLOBAL AND
DOMESTIC CHALLENGES,
THE SOUTH AFRICAN
FINANCIAL SYSTEM
REMAINS STRONG AND
STABLE, ACCORDING TO THE
SARB’S FINANCIAL STABILITY
REVIEW
BY HENDRIK NEL, HEAD OF THE FINANCIAL STABILITY DEPARTMENT – SOUTH AFRICAN RESERVE BANK
T he primary objective of the
South African Reserve Bank
(SARB) is to protect the value of
sole custodian of financial system
stability, but that it contributes
significantly towards the system and
of retail depositors guaranteed by
National Treasury. However, these
mechanisms would not be adequate
the local currency in the interest of coordinates a larger effort involving to deal with large and more complex
balanced and sustainable economic government, financial regulators, financial institutions. The failure of
growth in South Africa. Consensus self-regulatory agencies and such institutions would require a full
has, however, been growing financial market participants. set of resolution tools aligned with
internationally that central banks the Financial Stability Board’s Key
and regulatory frameworks should Following the implementation of the Attributes of Effective Resolution
focus more on mitigating the risks FSR Act on 1 April 2018, the SARB Regimes for Financial Institutions.
to the financial system as a whole, and National Treasury developed
as significant risks can build up and amendments to this new legislation A key component of a resolution
threaten the stability of the financial that will facilitate the orderly framework is the establishment
system even if individual financial resolution of systemically important of an explicit deposit insurance
institutions appear to be stable and financial institutions in the event scheme for banks in order to protect
sound. In pursuing this goal, the of a failure, which is an important depositors from losses in the event
Financial Sector Regulation Act pillar of the SARB’s expanded of a bank failure, without having
9 of 2017 (FSR Act) confers on the mandate. This legislation will be to use taxpayers’ funds or create a
SARB an explicit statutory mandate effected through amendments to contingent liability for government.
to protect and enhance financial the FSR Act. The failures of both The need for an explicit deposit
stability. African Bank and VBS Mutual Bank insurance scheme again became
(VBS) underscored the need to clear when, in order to relieve some
In pursuit of this financial stability strengthen South Africa’s resolution of the hardship experienced by
objective and to promote a stable framework in line with international VBS depositors, the SARB, with the
financial system, the SARB best practice. Both these banks backing of a guarantee from National
publishes a Financial Stability were small relative to the size of Treasury, funded the repayment of
Review (FSR) twice a year. This the total banking sector and had retail depositors up to a maximum
publication communicates the fairly simple business models. As of R100 000 per depositor. The
SARB’s assessment of vulnerabilities a result, orderly resolutions could SARB is currently in the process of
and possible systemic risks in the be achieved through a curatorship planning for the establishment of a
domestic financial system. The process involving agreements with Corporation for Deposit Insurance,
SARB recognises that it is not the creditors and the compensation which will become fully operational
FSCA Bulletin | Quarter 3 2018/19 14REGULATORY
FOCUS
after the promulgation of the (iv) cybersecurity risks related to the negatively on its premium income,
Financial Sector Laws Amendment disruptive impact of breaches lapses and surrenders.
Bill, which will amend the FSR Act that could result in substantial
and other relevant legislation to losses for financial institutions, Given the size of their bond holdings,
establish the resolution framework, with possible global spillovers defined-benefit pension funds are
including the deposit insurance as a result of cross-border subject to risks stemming from
scheme. interconnectedness. possible sovereign credit rating
downgrades. Their large exposure to
The FSR of November 2018 also Institutional soundness remains a this asset class does not, however,
elaborates on the assessment of feature of the financial system in present a financial stability risk, as
risks to financial stability with a South Africa. The analysis presented these pension funds normally hold
view to identifying and mitigating in the November 2018 edition of bonds to maturity.
any vulnerability that may be the FSR confirms that banks are
present in the domestic financial well capitalised and profitable, and In conclusion, near-term global
system. The identified risks, which that they hold sufficient levels of financial stability risks remain
form part of the SARB’s assessment, liquidity. In addition, the SARB elevated, reflecting pressures in
include: conducted a common scenario several emerging markets, subdued
stress test during 2018 to evaluate growth, tighter global financial
(i) risks related to weaker and the resilience of the six largest conditions, and escalating trade
uneven global economic growth, South African banks. A baseline and tensions. Financial conditions could
which in turn emanates from two severely adverse but plausible tighten further if political and/or
factors such as escalating macroeconomic scenarios were policy uncertainty and concerns
trade tensions, generally lower developed by the SARB, designed about emerging markets intensify.
commodity prices, higher bond to simulate changes in the credit, Possible amplification mechanisms,
yields in the United States market and liquidity risks of banks the level of interconnectedness
(US), US dollar appreciation, in different types of stress scenarios. as well as contagion effects will
and spillover effects from the Based on these scenarios, the determine whether the identified
economic and market turmoil participating banks had to perform risks will become systemic.
in Turkey and other vulnerable bottom-up stress tests. Separately,
emerging markets; Despite these challenges, the South
the SARB conducted a top-down African financial system continues
(ii) risks related to unanticipated stress test based on the same to efficiently facilitate financial
and faster-than-expected scenarios to validate the results intermediation and mitigate
changes in US monetary of the bottom-up stress tests. The negative spillovers and disruptions.
policy, further US tax cuts, a final results of the exercise indicate Overall, despite some headwinds
misalignment between US that the participating banks are in the form of low economic
fiscal and monetary policy, and adequately capitalised and have growth and fiscal challenges, the
continued US dollar liquidity sufficient cash flow to withstand South African financial sector is
shortages; these stress scenarios. assessed as strong and stable,
An analysis presented in the with no evidence from a wide set
(iii) risks related to low domestic of indicators that are continually
economic growth, partly November 2018 FSR also indicates
that the insurance sector is sound. assessed of any severe systemic
caused by a weaker global financial imbalances building up.
economy and domestic policy A selection of indicators commonly
used to identify macroprudential The sector is also characterised by
uncertainty, which give rise to well-regulated, highly capitalised,
negative domestic sentiment risks in the industry did not reveal
any significant concerns from a liquid and profitable financial
and confidence levels that could institutions, supported by a
spill over to the financial sector systemic risk perspective. However,
the subdued level of economic robust regulatory and financial
and impact on the asset quality
growth remains a challenge for infrastructure.
and profitability of financial
institutions; and the insurance sector, impacting
15 FSCA Bulletin | Quarter 3 2018/19REGULATORY
FOCUS
THE PRUDENTIAL
AUTHORITY OUTLINES ITS
THREE-YEAR REGULATORY AND
SUPERVISORY PRIORITIES
RENEILWE MTHELEBOFU, The strategy outlines the PA’s • Strengthening the regulation
COMMUNICATION AND LANGUAGE approach to regulation and and supervision of banking
SERVICES, FSCA supervision, principles that will institutions;
guide its regulatory and supervisory • Implementing prudential
T he Prudential Authority
(PA), is tasked with setting
prudential regulatory requirements
decisions, key priorities over the
next three years and key outcomes
regulation and supervision of
financial conglomerates;
that the organisation intends • Prudentially regulating
for the financial sector. Its role
to achieve in order to realise its and supervising Market
is to promote and enhance the
objectives. Infrastructures through
safety and soundness of financial
the implementation of the
institutions that provide financial According to Kuben Naidoo, Chief
framework;
products, securities services and Executive Officer of the PA the
• Prudentially regulating
Market Infrastructures (MIs), while Authority will follow a risk-based
and supervising insurers
simultaneously ensuring the and proportional, forward-looking,
with critical outcomes, by
protection of financial customers outcomes-focused and integrated
implementing Insurance
against any risks presented by supervisory approach in its micro
Solvency Assessment and
financial institutions. Prudential prudential supervision. “This
Management (SAM); and
regulation and supervision ensures approach will ensure that financial
• Establishing a regulatory and
that financial institutions comply institutions are aware of the risks to
supervisory framework for
with the minimum prudential their businesses and have adequate
significant owners.
requirements related to capital, corporate governance frameworks
liquidity, leverage and other metrics and risk management processes in
The most significant reforms
that assist in measuring financial place to appropriately mitigate these
to prudential regulatory and
health. risks,” says Naidoo.
supervisory oversight relate to
With the adoption of its regulatory This approach to prudential financial conglomerates. The
strategy, the PA will assist market supervision will play itself out in implementation of the framework
participants and the public in the core regulatory and supervisory for the financial regulation
understanding the approach it strategic areas the PA will focus on and supervision of financial
will employ in overseeing the over the next three years. These are: conglomerates (any group of
financial stability of the markets. companies under common control
FSCA Bulletin | Quarter 3 2018/19 16REGULATORY
FOCUS
“The FSRA has created an empowering framework that provides for stronger
oversight of financial conglomerates, and allows the PA to make prudential
standards for the regulation and supervision of financial conglomerates in South
Africa,”
whose exclusive or predominant the increased functional integration reduces regulatory arbitrage (a
activities consist of providing between the business of banking, practice whereby firms capitalise on
significant services in at least two insurance and market infrastructure. loopholes in regulatory systems in
different financial sectors such as order to circumvent unfavourable
“The FSRA has created an
banking, securities, insurance) will regulation). Another outcome is
empowering framework that
be significant. For example, the to mitigate contagion (a situation
provides for stronger oversight of
globalisation of financial markets where a shock in a particular
financial conglomerates, and allows
has led to the development of economy or region spreads out and
the PA to make prudential standards
internationally active financial affects others by way of, say, price
for the regulation and supervision
groups, which have increased in movements) and helps address the
of financial conglomerates in South
number, complexity and size and risks that arise from unregulated
Africa,” says Naidoo.
which provide a broad range of parts of a financial conglomerate.
products and services, including The PA intends applying a multi-
The PA will on an annual basis
banking, insurance, securities tiered supervisory framework
review the regulatory strategy and
and investment services. These which includes the supervision of
make any necessary amendments,
particular products and services individual stand-alone institutions,
ensuring that any changes are
are often provided in multiple specialist group institutions and
communicated in a transparent
jurisdictions and critical functions conglomerate groups which will
manner to assist with the transition
are dispersed in various legal focus on depositor, policy holder
of the South African financial sector
entities, both nationally and globally. and member protection. Here, risks
regulatory landscape into the Twin
will be managed carefully due to the
As a result, the adoption of financial Peaks architecture.
broad scope of the environment in
conglomerate supervision has
which the financial conglomerates To read more about the Prudential
emerged internationally as a
operate. Authority’s focus areas and access
critical supervisory area where
their strategy on the link below:
internationally active financial The PA’s intended outcome
groups need to be efficiently for this focus area is ensuring https://www.resbank.co.za/Lists/
regulated. a set of finalised criteria for News%20and%20Publications/
the designation of financial Attachments/8800/Prudential%20
The emergence of financial
conglomerates and establishing a Authority%20Regulatory%20
conglomerates is a key feature of the
financial conglomerate regulation Strategy%20for%202018-2021.pdf
evolution of financial systems and
and supervision framework that
17 FSCA Bulletin | Quarter 3 2018/19Our Values
Agility
Camaraderie
Diligence
Fairness
Integrity
Perseverance
FSCA Bulletin | Quarter 3 2018/19 18INDEPENDENT
PERSPECTIVE
ENSURE YOUR SUCCESSION PLAN
CAN BE IMPLEMENTED
BY MIMI PIENAAR, HEAD OF Successor from another Financial • are not obliged to grant your
PRACTICE MANAGEMENT, Service Provider (FSP) successor a contract. If they
MASTHEAD don’t grant a contract, your
If your successor is from another
clients will be left as ‘orphans’
A re you, as the owner of a
financial services business,
aware of the difference between a
FSP, the succession plan is likely
to fail because this involves many
different role players, which makes
and they may well be passed on
to the tied agents of the provider.
continuity plan and a succession succession difficult to execute. • Your clients may be unfamiliar
plan? A continuity plan is an FSCA In addition, ensuring everyone with the successor’s brand
requirement that ensures your is aligned and plays their part in and processes. With no strong
clients are taken care of after you successfully executing the plan is a personal relationship to go on,
exit the business. A succession plan gruelling exercise. This could leave client transferability will be low.
is broader and focuses on more than many successors and beneficiaries
• The executor of your estate
the continuation of service to your out in the cold.
would need to attend to a
clients. It ensures that the value you
Some of the challenges that may mountain of paperwork to
have accumulated in your business
arise at the time of succession: approve the commission code
after many years of hard work is
transfer for each product
realised when you exit, either as • Your successor must have
provider. But with little or no
retirement capital for yourself or an broking contracts with the same
connection to your business, the
inheritance for your beneficiaries. product providers with whom
executor would not understand
you deal, so that your clients
You may have nominated a the business and its value, and
can be transferred to his or her
successor and regard your this causes lengthy delays.
commission code. Without this,
succession plan as sorted, but
there will be no revenue flowing • Delays may also result if
having a successor does not
from your business to that of details of the succession are
guarantee you will reap the rewards
your successor. If there are no not fully documented, the
of the value you have built in your
existing broking contracts, on beneficiary is unhappy or if
business.
your exit your successor will other complications arise. While
What options will give you the best have to apply for a contract this happens, your beneficiaries
chance of realising capital value on with any product providers with have to wait, and your clients
your exit? whom he or she does not have may contact another financial
contracts. Product providers advisor.
19 FSCA Bulletin | Quarter 3 2018/19INDEPENDENT
PERSPECTIVE
Successor from within Executors will know and understand If your succession plan involves
the business, so it will be easier and an external successor, you should
your FSP quicker for the executor to execute understand there will be increased
• Choosing an internal successor the plan. complexities. You can then make
(i.e. a person who is in the same your own arrangements to ensure
Checklist to ensure your your succession plan can be
FSP as you) means your clients
will probably have had contact
succession plan is practically implemented or get professional
with the person, and your implementable: assistance to ensure maximum
clients’ relationship with your value is transferred.
• Identify a successor from
business goes on with little or no
within your business. If you don’t want the complexities
disruption when you exit.
of an external successor and do
• Your broking contracts with • Ensure your business is not want to bring a successor into
product providers remain in registered as a private your business, another alternative
place, and it is unnecessary to company, also known is to join a brokerage that provides
transfer commission codes, as a (Pty) Ltd, which a succession plan, but also enables
because your successor should you to operate pretty much
will permit the entity to
be registered with a commission independently.
continue.
sub-code of the FSP. Your
Complexity lies within the various
successor would simply need • Clearly specify in your elements, but a good succession
to notify product providers of succession plan the plan that is set up properly will
an intermediary change in your amount your successor ensure a transparent, unbiased
business.
should pay you or your transfer when you exit the industry,
• Your beneficiaries are more beneficiary when you exit. just as it was intended – so you or
likely to know about the your beneficiary, your clients and
• Specify in your successor benefit.
arrangement and the amount
that was agreed as payment. succession plan how the
This minimises disruption and purchase should be paid
stress for beneficiaries. In fact, (e.g. as a lump sum or in
it gives them peace of mind instalments).
that there is uninterrupted
continuity. • Include your succession
plan in your will.
FSCA Bulletin | Quarter 3 2018/19 20www.fsca.co.za Are you feeling unfairly treated by your financial service provider? LEARN MORE about how FSCA can help you
WARNINGS
AND/ OR
ENFORCEMENT
SANCTIONS
FSCA WARNS THE PUBLIC TO ACT WITH CAUTION
WHEN DEALING WITH THE FOLLOWING ENTITIES:
DYNASTY CAPITAL MANAGEMENT
Dynasty Capital Management (DCM) is not authorised in terms of the Financial Advisory and Intermediary Services
Act, 2002 (“FAIS Act”), to render any financial advice and intermediary services. DCM is fraudulently using FSP
number 20722, which belongs to Dynasty Asset Management (Pty) Ltd. Dynasty Asset Management (Pty) Ltd has
confirmed that no relationship exists between them and Dynasty Capital Management.
The FSCA received information that there is a company named Dynasty Capital Management which purports to be
a financial services provider. DCM is owned by Yusuf Patel and he offers Financial Investments and Hedge Funds
to the public. DCM asserts that it is a registered financial services provider and it accepts money, then trades it on
behalf of clients on Forex. It is the FSCA’s view that the abovementioned entity is conducting unregistered business
and provides advisory and intermediary services without the necessary authorisation.
BULL N BEAR INVESTMENTS (PTY) LTD
Bull N Bear Investments (Pty) Ltd is not authorised in terms of the Financial Advisory and Intermediary Services Act,
2002 (“FAIS Act”), to render any financial advice and intermediary services.
The FSCA received information that there is a person/s soliciting funds from people, purporting to act for a company
named Bull N Bear Investments (Pty) Ltd. This entity asserts that it is a registered Financial Services Provider of
FSP number 48969 with the FSCA. According to our records, there is no authorised FSP with the above number. Bull
N Bear Investments (Pty) Ltd applied for a licence in November 2017 and was assigned the FSP number 48969 for
application purposes; the application process was not completed and the FSP number was subsequently cancelled.
Bull N Bear Investments (Pty) Ltd takes the client’s money with promises to invest it and when the said client wants
to withdraw their funds, they are told the funds are not available for withdrawal as they are being reinvested. It is
the FSCA’s view that the abovementioned entity is conducting unregistered business and providing advisory and
intermediary services without the necessary authorisation.
STONE WEALTH MANAGEMENT’S AGENT
The FSCA received information that an unknown person/s is/are unlawfully using Stone Wealth Management of
FSP number 29494, purporting to be Stone Wealth Management agents on their website https://stonewealth1manage.
wixsite.com/mysite and on WhatsApp.
These so-called agents are allegedly running a scam where they guarantee exceptional returns on small investments
using an old promotional video that has been used for the last four years. In their messages, they identify Sisa
Cwabisa and Thandeka Magudulela as persons who are involved in the business advertised on WhatsApp. We wish
to state that both Sisa Cwabisa and Thandeka Magudulela are employed at Stone Wealth Management and have no
connections with the said investment scam.
FSCA Bulletin | Quarter 3 2018/19 22FSCA WARNS THE PUBLIC TO ACT WITH WARNINGS
AND/ OR
CAUTION WHEN DEALING WITH THE ENFORCEMENT
FOLLOWING ENTITIES: SANCTIONS
FINANCIAL BROKING CIRCLE CC
Financial Broking Circle CC is not authorised in terms of the Financial Advisory and Intermediary Services Act, 2002
(“FAIS Act”), to render any financial advice and intermediary services. The FSCA received information that FBC CC
advertises its business on Facebook under the profile ‘Bucks Circle South Africa’. FBC CC asserts that it is a registered
Financial Services Provider with FSP Number 12878.
According to our records, the licence for this Financial Service Provider has lapsed. FBC CC takes clients’ money
with promises to invest it. When the said clients want to withdraw their funds, they are being blocked and FBC CC
does not respond to the correspondence received from investors. It is the FSCA’s view that the abovementioned
entity is conducting unregistered business and provides advisory and intermediary services without the necessary
authorisation.
FIDELITY LOAN INVESTMENT (PTY) LTD
Fidelity Loan Investment (Pty) Ltd is not authorised in terms of the Financial Advisory and Intermediary Services
Act, 2002 (“FAIS Act”), to render any financial advice and intermediary services.
The FSCA received information that there is a company named ‘Fidelity Loan Investment (Pty) Ltd’ which purports to
be a Financial Services Provider. Fidelity Loan Investment (Pty) Ltd asserts that it is a registered Financial Services
Provider. It is fraudulently using Stanlib’s FSP number 590. Stanlib has confirmed that no relationship exists between
them. Fidelity Investment Loan (Pty) Ltd offers people loans and requests them to pay an initial payment. It is the
FSCA’s view that the above-mentioned entity is conducting unregistered business and providing advisory and
intermediary services without the necessary authorisation.
The FSCA again reminds consumers who wish to conduct financial services with an institution or person to check
beforehand with the FSCA on either the toll-free number (080 0110 443) or on the website www.fsca.co.za as to
whether or not such institution or person is authorised to render financial services.
ENFORCEMENT SANCTIONS
HARMONY GOLD MINING COMPANY LIMITED
The Enforcement Committee (EC) of the former Financial Services Board (now the FSCA) has imposed an
administrative penalty of R30 million on Harmony Gold Mining Company Limited (HGM) for publishing misleading
financial statements during 2007. The company contravened section 76 of the Securities Services Act No. 36 of 2004.
On 25 April 2007, Harmony Gold Mining published its financial statements for the quarter ending on 31 March 2007
(hereafter referred to as the statements), which were inaccurate and misleading in that they omitted costs to the
value of approximately R250 million, thereby overstating profits and headline earnings. As a result, the Directorate of
Market Abuse referred the matter to the EC.
In arriving at the administrative penalty, the EC took several circumstances into account, including that HGM
cooperated during the enforcement process; that the misleading statements were not deliberate but as a result of
shortcomings in the process employed in connection with the implementation of Harmony; that there was a newly
installed accounting and software system; and that the penalty imposed would serve as a deterrent.
23 FSCA Bulletin | Quarter 3 2018/19You can also read
