On 5 July 2024, the Financial Sector Conduct Authority (“FSCA”) issued its latest 3-year Regulation Plan (“2024 Regulation Plan”) which sets out (amongst other things) the FSCA’s key area of focus in the medium to long term, and sets out estimated timelines when industry may expect the relevant regulatory instruments to be implemented.
The 2024 Regulatory Plan follows the FSCA latest Regulatory Actions Report (“2024 Regulatory Actions Report”) issued on 28 June 2024, which gives an overview of the FSCA’s enforcement efforts between 1 April 2023 and 31 March 2024, and summarises the FSCA’s future focus areas based on identified trends and risks.
Overview of the 2024 Regulation Plan
The first Regulation Plan was issued in June 2022 for the period 1 April 2022 to 31 March 2025. The FSCA reviews and revises its rolling 3-year plan annually to ensure it remains up to date and effective, aligns with the FSCA’s broader strategic objectives, and considering emerging risks and developments.
The 2024 Regulatory Plan sets out, inter alia, the FSCA’s plans in relation to the following:
- Conduct of Financial Institutions Bill (“COFI Bill”):
- The FSCA is continuing in its efforts with the development of cross-sector, customer-focused regulatory frameworks for purposes of the COFI Bill (“COFI Bill”), and this remains a top priority for the FSCA. As noted in previous communications by the FSCA, it is adopting three phases to ensure a smooth transition to the COFI Bill:
- Phase 1: overall design of the new regulatory framework;
- Phase 2: harmonisation / themed frameworks; and
- Phase 3: transition work to align the regulatory instruments under the existing sectoral laws.
- In progressing the above phases, the FSCA notes in the 2024 Regulatory Plan that it has established an industry reference group known as the “COFI Bill Transition Working Group” which will seek to assist and provide support to the FSCA in refining the draft themed frameworks (amongst other things). Membership of the working group is in the process of being finalised, and it is envisaged that the working group will commence operations during the second half of 2024.
- The FSCA notes that work on the themed frameworks will be staggered based on priority, and will not be adopted simultaneously. One focus area for priority identified in the 2024 Regulatory Plan is the fit and proper themed frameworks.
- The FSCA is continuing in its efforts with the development of cross-sector, customer-focused regulatory frameworks for purposes of the COFI Bill (“COFI Bill”), and this remains a top priority for the FSCA. As noted in previous communications by the FSCA, it is adopting three phases to ensure a smooth transition to the COFI Bill:
- Insurance and FAIS Act:
- Of import, no specific Insurance and FAIS projects are identified. However, such projects are noted as having been incorporated into the COFI Bill transition work.
- 4 new projects to be included in the 2024 Regulation Plan:
- The following 4 new projects are identified as part of the 2024 Regulation Plan:
- Joint Standard - Third party service provision/outsourcing: there FSCA notes that there is a need to harmonise and strengthen requirements pertaining to third party service provision (outsourcing).
- Joint Standard - Capital requirements and risk management rules for ODPs: following South Africa’s last Financial Sector Assessment Program (FSAP), and after the World Bank Group’s recommendations that capital requirements, and risk management rules for ODPs need to be strengthened, the FSCA and Prudential Authority have initiated this project to focus on the aforementioned recommendation. Focus areas include, amongst others, market risk, counterparty credit risk and credit valuation risk. This aligns to the focus area of unlicensed ODP activities previously identified in the FSCA 2023 Regulatory Actions Report.
- Prudential Standard – Quarterly Regulation 28 reporting: the FSCA notes that there is a need to implement an additional layer of quarterly reporting for pension funds to ensure more proactive and pre-emptive supervision of compliance with Regulation 28.
- Amendments to FSRA Conduct Standard No. 1 of 2019 (PFA) – Conditions for amalgamations and transfers in terms of section 14 of the Pension Funds Act.
- The following 4 new projects are identified as part of the 2024 Regulation Plan:
Annexure A to the 2024 Regulatory Plan delineates the regulatory projects that will be the focus areas of the FSCA over the next three years (1 April 2024 to 31 March 2027), and provides estimated timelines, together with deliverables and when technical work and drafting will occur.
The 2024 Regulatory Plan can be accessed here: 2024 FSCA 3-year Regulation Plan.pdf
Overview of the 2024 Regulatory Actions Report
The FSCA’s 2024 Regulatory Action Report provides a detailed summary of the FSCA's activities, enforcement strategies, collaborative efforts, and key findings over the period 1 April 2023 to 31 March 2024.
Inter alia, the 2024 Regulatory Action Report provides some insightful trends. To mention a few:
- That the FSCA’s enforcement function has collaborated on 45 matters with international counterparts through multiple bi-lateral and multi-lateral memorandums of understanding. The FSCA also became a signatory to IOSCO’s Enhanced Multilateral Memorandum of Understanding that aims to enhance the effectiveness of cross-border investigations and enforcement.
- The FSCA imposed administrative penalties totalling approximately R943 million on 31 persons, which is a significant increase from the previous period. Major penalties included penalties of the following values: R475 million imposed on Mr Markus Jooste for publishing false financial statements and integrated reports, approximately R216 million imposed on Mr Coenraad Botha for contraventions of sections of the Banks Act following an investment scam and R143 million imposed on Mr Jacobus Geldenhuis, also for contraventions of the Banks Act and the FAIS Act, for illegal deposit taking and running a ponzi scheme. There has also been a significant increase in the value of penalties imposed for anti-money laundering and combating the financing of terrorism contraventions as illustrated by the R16 million penalty on Ashburton Fund Managers, underscoring the FSCA’s commitment to enhancing deterrence as well as the commitment to turning the tide on South Africa’s grey-listing. The FSCA notes that the substantial increase in the value of administrative penalties is primarily due to the FSCA’s approach to enhance effective deterrence, with penalties being paid over to the National Revenue Fund.
- The FSCA debarred 156 individuals from providing financial services, with the most common grounds emanating from dishonest conduct and fraudulent activities. The number of debarments has decreased from the previous period’s total of 210 debarments.
- There has been a substantial increase in the use of enforceable undertakings by the FSCA, compared to the previous year. The FSCA notes that the main driver behind this increase is that enforceable undertakings has proven to be an appropriate remedy in relation to many funeral parlour investigations, and is utilised as a means to encourage regularisation.
The FSCA has identified several focus areas and emerging trends, some of which include:
- the rising phenomenon of social media “finfluencers”- finfluencers, being persons who post financial and investment related content, and sometimes specifically promote financial products through social media, has raised concerns for the FSCA, as the public is influenced in their financial decisions by social media and the advice of these finfluencers, rather than by recommendations of authorised financial advisers. The FSCA notes that during 2024, it will closely monitor the impact of finfluencers and, where required, take action to safeguard financial customers from potential harm.
- lack of oversight by key individuals – the FSCA notes that there are numerous cases still arising where key individuals have significantly failed in their responsibilities, resulting in financial losses for clients. The FSCA emphasises that the duties of key individuals are the first line of defence against non-compliance by financial services providers and their representatives with applicable laws, and that the role of a key individual is not passive but requires active management and oversight of the financial services provided to clients.
- compliance with anti-money laundering regulations – the FSCA notes that the failure to implement a Risk Management and Compliance Programme (RMCP), failure to identify anti-money laundering and combating the financing of terrorism risks, and inadequacies in conducting customer due diligence, continue to be major concerns. To address the identified trends, the FSCA has noted that it intends to enhance awareness of anti-money laundering and combating the financing of terrorism compliance and intensify its supervisory activities. Moreover, the FSCA notes that it has increased the quantum of administrative penalties being imposed to reflect the severity of non-compliance, considering the broader impact on the country, and ensuring that the penalties serve as an effective deterrent.
- unauthorised crypto related financial services – Crypto assets were declared financial products during October 2022 by the FSCA, with the result that crypto asset providers had to apply for a financial services provider licence. The Enforcement Division of the FSCA has established an investigation team to deal specifically with persons or entities that have not applied for a licence or whose licence applications have been declined, and who are continuing to conduct crypto asset financial services without being suitably licensed. There are currently 30 cases under investigation.
- unregistered insurance business in funeral parlours – the FSCA has previously highlighted the creation of a dedicated investigation team within the Enforcement Division to deal with the proliferation of unregistered insurance and financial services provider businesses in the funeral parlour industry. The FSCA has observed a significant number of funeral parlours engaging in the self-underwriting of insurance policies and unauthorised collection of “premiums” from clients, contravening prevailing insurance legislation and exhibiting poor practices in relation to the distribution of funeral insurance. The 2024 Regulatory Action Report notes that the FSCA and the Prudential Authority have initiated a collaborative project that specifically seeks to address the concerns of the authorities, including (but not limited to) a review of the insurance regulatory framework affecting the funeral parlour market to identify areas for improvement and improved supervision and enforcement strategies to achieve appropriate compliance levels, ensuring sound prudential principles and fair customer outcomes while minimising compliance costs.
- issuing of guarantee policies by unlicensed persons - in the 2022/2023 Regulatory Actions Report, the FSCA noted that it had identified an issue of concern in the industry relating to persons issuing guarantee policies without being suitably licensed as an insurer. These areas are of particular concern for the FSCA due to their potential impact on financial stability and consumer protection.
The FSCA’s 2024 Regulatory Action Report can be accessed via FSCA Regulatory Actions Report - 28 June.pdf
Whilst the work to develop a new conduct regulatory framework under the COFI Bill remains underway, the recent trends in the 2024 Regulatory Action Report set out the expectations of the FSCA for good market conduct within the financial sector and some of the areas of particular focus for enforcement action in the coming period.