 Introduction In a significant development, the Financial Sector Conduct Authority (FSCA) has issued Communication 27 of 2023, outlining their plans to initiate a thorough verification process regarding certain designated individuals and significant owners within financial institutions. This communication is designed to enhance the transparency and integrity of the financial sector. Who does this apply to? The FSCA's verification process will focus on specific categories of individuals within financial institutions. Those subject to this scrutiny will include significant owners, key individuals, directors, shareholders, members, and trustees of authorized Financial Services Providers (FSPs) as defined in the Financial Advisory and Intermediary Services Act, No. 37 of 2002, with a few exceptions. Significant owners and directors of collective investment scheme (CIS) managers as defined in the Collective Investment Schemes Control Act, No. 45 of 2002 are also part of this verification process. Who is excluded? It's essential to note that the following entities licensed by the Prudential Authority (PA) will have a separate verification process determined by the PA:
The Historical Context The FSCA has already taken steps to verify information, including criminal records, for all new license applicants since June 1, 2022. New license applicants have been required to provide comprehensive verification information concerning various key individuals and stakeholders as part of the license application process. Now, the FSCA is expanding its scope and intends to continuously verify existing information, including criminal records of significant owners, directors, shareholders, members, and trustees of FSPs and CIS managers already holding licenses. The Verification Partner: Managed Integrity Evaluation (Pty) Ltd (MIE) To facilitate this extensive verification process, the FSCA has enlisted the services of an independent service provider, Managed Integrity Evaluation (Pty) Ltd (MIE). MIE will be responsible for verifying records, including qualifications and criminal histories, on behalf of the FSCA. This collaboration underscores the FSCA's commitment to ensuring thorough and impartial verification. The Verification Process As part of the verification process, MIE may directly contact the individuals whose information needs verification. Impacted individuals will receive a link from MIE, delivered via the latest contact details as recorded in the FSCA's system. This link will allow individuals to book appointments at the closest MIE fingerprint zone or satellite office, most convenient to their location. During the appointment, individuals must bring their official identification documents (ID book/card or passport) for verification purposes. When Does it Start? The commencement of the verification process and the outreach to impacted individuals is scheduled to begin on November 1, 2023. 
In June the Financial Sector Conduct Authority (FSCA) published the Open Finance Draft Position Paper (Draft Position Paper) for comments. The position paper sets out the policy approach by the regulator when it comes to regulating Open Finance in South Africa.
The FSCA now requests certain information from all financial institutions and Third Party providers that participate in Open Finance. This was requested in the FSCA Information Request 2 of 2023 (General) in October. The information must be submitted to the FSCA by no later than 10 November 2023. Where do I submit the Information? Click HERE to access the online form through the Authorities’ website. What is Open Finance? Open Finance supports financial institutions in sharing their customers financial data with third party providers (TTPs) for the provision of Open Finance Services. It relies on open APIs (Application Programming Interfaces) and data sharing to facilitate third-party developers and fintech firms in accessing and integrating financial information and services from multiple sources to assist a third party in the development of financial services for a financial customer. This empowers individuals and businesses to authorise the sharing of their financial data with external service providers, moving away from the traditional control of banks and financial institutions over customer data and services. This allows for the development and provision of innovative and personalised financial services and products to customers by third parties.
What Happens If I Don’t Submit the Information? If an entity participates in Open Finance and fails to submit the requested information within the specified timeline it will be seen as an offence under section 267 of the Act and will, therefore be liable on conviction to a fine not exceeding R1 000 for each day during which the offence continues. I Have Some Questions, Please Help! For more information regarding this Information Request please contact the Financial Technology Department of the FSCA at Nolwazi.Hlophe@fsca.co.za. We are also here to answer any questions that you may have.  In accordance with the Protection of Personal Information Act 4 of 2013, the Information Regulator is a statutory body tasked with various responsibilities, including monitoring and enforcing compliance with the Promotion of Access to Information Act 2 of 2000 (PAIA) by both public and private entities.
Recently, the Minister of Justice and Correctional Services, on 27 August 2021, introduced the PAIA Regulations. These regulations, under regulation 17(1), have repealed several forms, including: • Form A (Request for access to record of a public body), • Form B (Notice of Internal Appeal), and • Form C (Request for access to record of private body). However, the Information Regulator has observed that certain public and private organizations still have these outdated forms on their websites. This practice is obstructing the right of access to information, which is a fundamental right. Therefore, in line with section 83(3)(d) of PAIA, a notice has been issued to ensure compliance. Public and private bodies are hereby required to upload the following prescribed forms to their websites promptly: • Form 02: Request for Access to Record in terms of Regulation 7 - Applicable to both Public and Private Bodies. • Form 03: Outcome of Request and Fees Payable in terms of Regulation 8 - Applicable to both Public and Private Bodies. • Form 04: Internal Appeal Form in terms of Regulation 9 - Applicable to Public Bodies only. This action is taken to guarantee that access to records, both in the public and private sectors, is provided promptly, cost-effectively, and with ease. All public and private bodies are expected to comply with this directive by uploading the prescribed PAIA Forms to their websites within a fourteen (14) day period from the publication of this notice, i.e. on / before Friday 20 October 2023.  On 18 August 2023, following the issuance of a notice in the Government Gazette, the amendment of Section 56 of the Financial Intelligence Centre Amendment Act of 2017 came into effect. This amendment is explained by the FIC’s Draft Guidance Note 104A, issued on 18 January 2023, as well the FIC’s International Funds Transfer Reports user guide, dated 9 February 2023. In essence, Section 43 of FICA introduces an amendment to Section 56 within the Act. This Section deals with the repercussions when an accountable institution, as mandated, fails to report the prescribed information concerning cross-border electronic funds transfers (EFT’s). This amended Section 56 now includes a sub-section (2) which specifies that if an accountable institution fails to report the prescribed information related to an electronic money transfer in accordance with Section 31, it not only becomes liable for an offense but is also considered non-compliant and subject to an administrative penalty. The requirements Section 31 of FICA imposes an obligation on accountable institutions to submit an international funds transfer report (IFTR) - • within three days of the transaction or transfer date, when conducting electronic money transfers. • This report must be submitted directly to the Financial Intelligence Centre (FIC). • These electronic money transfers must be moved on behalf, or on the instruction, of another person, • across South African borders, • involving amounts of R20 000 and above (excluding transaction fees). Who must Report? The obligation to report international fund transfer transactions exceeding the prescribed threshold applies solely to specific categories of accountable institutions authorized to conduct the business of cross-border electronic funds transfers, for example authorised dealers (banks), the Post Office, authorised dealers with limited authority (remittance and forex dealers), FSP’s that have a direct reporting dispensation under the Exchange Control Regulations and the South African Postbank, etc. These FSP’s will, in terms of the Exchange Control Regulations, be authorised by the Treasury in accordance with conditions as the Treasury may impose, to do the following: • Take or send out of the Republic any bank notes, gold, securities or foreign currency, or transfer any securities from the Republic elsewhere. • Send, consign or deliver any bank notes, gold, securities or foreign currency to any person for the purpose of taking, sending or removing such bank notes, gold, securities or foreign currency out of the Republic. • Take any South African bank notes into the Republic or send or consign any such notes to the Republic. • Make any payment to, or in favour, or on behalf of a person resident outside the Republic or place any sum to the credit of such person. • Draw or negotiate any bill of exchange or promissory note, transfer any security or acknowledge any debt. • Grant any financial assistance to any person in the Republic, where as security for such financial assistance, the person granting the financial assistance in turn relies on any security, guarantee, undertaking or financial assistance, directly or indirectly furnished by – (i) any person resident outside the Republic; or (ii) an affected person. • Grant any financial assistance to any person in the Republic, where such person – (i) is not resident in the Republic; or (ii) is an affected person. Failure to Report? The IFT Report must contain the specified details as stipulated in Regulation 23E of the Money Laundering and Terrorist Financing Control Regulations. Failure to adhere to these provisions constitutes an offense, subject to potential penalties including imprisonment for up to three years or a fine of up to R1 million. Additionally, failure to submit an IFTR within the stipulated timeframe classifies the entity or individual as non-compliant and subjects them to administrative sanctions, which may involve financial penalties reaching up to R10 million for individuals and R50 million for legal entities.  In the financial sector, transformation and compliance with BBBEE (Broad-Based Black Economic Empowerment) codes play a significant role in promoting economic inclusion and diversity. Recently, we've been receiving queries from clients about BBBEE communication related to the Financial Sector Transformation Council (FSTC) and the Financial Sector Conduct Authority (FSCA). To clear up any confusion and provide clarity, let's delve into the key requirements and application of BBBEE reporting for financial institutions.
What is the FSTC and its Mandate? The FSTC, or Financial Sector Transformation Council, is tasked with obtaining BBBEE statistical data from entities operating in the financial services sphere. Their objective is to monitor and assess progress concerning BBBEE within the financial sector. Annually, the FSTC sends out requests for statistical data to compile a comprehensive report on the advancement of financial institutions with respect to the Financial Sector BBBEE codes. Applicability: Who Needs to Report? Various sectors and companies within the financial domain are required to report their BBBEE progress to the FSTC. The entities asked to report include, but are not limited to: • Banking institutions • Long-term and short-term insurance companies • Re-insurance companies • Retirement fund administrators • Collective investment scheme asset managers • Financial services intermediaries and brokerage firms (FSP's) • Public entities involved in the financial sector (e.g., DBSA, Land Bank) • Asset management, consulting, and administration firms • Private equity, venture capitalist, and impact investor firms • Entities managing investments on behalf of the public (including those listed in financial indexes) The reporting scope also encompasses underwriting management agents and industry trade associations operating within the financial sector. What are the Penalties for Non-Compliance? There are currently no financial penalties or criminal sanctions if you do not comply. However, If BBBEE compliance is important to you it's crucial for financial institutions to meet the reporting requirements on time. Failure to submit the necessary reports to the FSTC will result in an automatic discount of one BEE level in the next rating period. Although the Council has the right to name non-compliant institutions, there has been no such action taken yet. Any Exclusions from the Amended FSC? There are certain exemptions from the Amended FSC (Financial Sector Charter) reporting. It does not apply to: • natural or juristic persons who do not have trading operations within the Republic of South Africa • trading operations of such persons outside South Africa • managers of investments on behalf of the public who are not subject to regulation by the FSCA (such as lawyers who hold money in intermediate trusts etc.) Reporting Process: How to Comply The reporting process varies depending on the size and status of the financial institution:
Deadline and Contact Information Full and final verification reports must be submitted to the FSTC no later than the end of the business day on Friday, 13 October 2023. The submission is to be done electronically via email to reporting@fstc.org.za with the subject line: "FSTC 2021/22 Reporting – (name of entity])." While entities have sometimes been allowed to submit after this date in the past, it's essential to adhere to the specified deadlines. Should any entity face difficulties in providing the requested information, they can reach out to the FSTC at reporting@fstc.org.za or call (011) 838 6696 or call us for assistance.  The Financial Sector Conduct Authority (FSCA) recently released FSCA FAIS Notice 32 of 2023, which extends several exemptions pertaining to Private Equity Funds. These exemptions, which were originally set to expire on the 30th of June 2023, have now been prolonged until the 30th of June 2026. Notice 32 of 2023 comes into operation on the 1st of July 2023.
These exemptions include: • Exemption for Financial Service Providers (FSPs) Dealing with Private Equity Funds • Exemption for FSPs Dealing with Private Equity Funds from Section 13(1)(c) of the FAIS Act • Exemption for Certain Juristic Representatives from Liquidity Requirements Considering that these exemptions are nothing new, we will only provide you with a basic overview of such. Exemption for Financial Service Providers (FSPs) Dealing with Private Equity Funds The exemption for Category II FSPs dealing with Private Equity Funds solely applies to older mandates concluded before the 13th of December 2012. This exemption entails that, for discretionary investment mandates entered into before the aforementioned date, there is no obligation to include a general statement addressing risks associated with investing in local and foreign financial products, including currency risks. However, investors must have been informed in writing about these risks within six months of the publication of Board Notice 208 of 2012 (i.e., by the 13th of June 2013). This exemption also states that a Category II FSP is exempt from meeting the liquidity requirement set out in the Determination of Fit and Proper Requirements of section 48(2) until 30 June 2026, on the condition that it only manages private equity funds. Exemption for FSPs Dealing with Private Equity Funds from Section 13(1)(c) of the FAIS Act Category II FSPs that provide financial services to private equity funds are also exempted from section 13(1)(c) of the FAIS Act, which prohibits individuals from offering financial services or entering into contracts related to financial services except in the name of the FSP they represent. Exemption for Certain Juristic Representatives from Liquidity Requirements Juristic representatives of Category II FSPs that exclusively provide financial services to private equity funds are exempted from complying with the liquidity requirements outlined in sections 48(2) and 48(4) of the Determination of Fit and Proper Requirements.  In recent years, Cryptocurrencies and Crypto Assets have gained significant attention and popularity. The Financial Sector Conduct Authority (FSCA) declared Crypto Assets to be financial products with immediate effect from 19 October 2022. The aforementioned means that anyone who provides financial services related to Crypto Assets will need to be appropriately licensed as a Financial Services Provider (FSP) and must apply to the FSCA for an FSP licence between 1 June 2023 and 30 November 2023.
Understanding the FSCA FAIS Notice 25 of 2023: Exemptions for Crypto Asset FSPs To regulate the financial services provided in relation to Cryptocurrencies and Crypto Assets, the FSCA has issued FAIS Notice 25 of 2023, which will apply to all licenses Crypto Asset FSPs and took effect on the date of publication, i.e. 11 May 2023. This notice outlines certain exemptions for persons rendering financial services involving Crypto Assets. In this blog post, we will explain the key points contained in the Notice. Exemption from General Code of Conduct and Regulatory Examinations Crypto Asset FSPs, its Key Individuals and Representatives are exempted from maintaining suitable guarantees or professional indemnity or fidelity insurance cover, as is required in terms of section 13 of the General Code of Conduct and Board Notice 123 of 2009. This exemption applies solely to the rendering of financial services in relation to crypto assets. Additionally, Crypto Asset FSPs and its Key Individuals are temporarily exempted from the regulatory examination requirements as captured in Part 5 of Chapter 3 of the Determination of Fit and Proper Requirements. This exemption lasts for a period of 18 months from the effective date of the notice. Exemption for Crypto Asset Supervised Representatives The notice also provides exemptions for Crypto Asset supervised Representatives, with different requirements based on their appointment status. If a supervised Representative was never appointed as a Representative of an FSP before the publication of this notice, they can be exempted from the Regulatory Examination requirements. However, the exemption is conditional upon the completion of the relevant regulatory examination within two years from their first appointment as a Representative for providing financial services in relation to Crypto Assets. For those supervised Representatives who were previously appointed only to render financial services for Tier 2 financial products or perform sales execution, they must comply with the applicable regulatory examination requirements within two years from the date they were first appointed as representatives for providing financial services related to crypto assets. Continuing Professional Development (CPD) Requirements It is a requirement that Crypto Asset FSPs, its Key Individuals and Representatives complete a minimum of 6 (six) hours of CPD activities per CPD cycle specifically relating to crypto assets. A Crypto Asset supervised Representative (including a supervised Representatives who were, before publication of this Notice, appointed only to render financial services for Tier 2 financial products or perform sales execution, and thereafter appointed as a representative to render financial services, other than the execution of sales, in relation to crypto assets) must also complete a minimum of 6 (six) hours of CPD activities relating to crypto assets per CPD cycle. The CPD cycle starts from the date when the supervised individual meets the applicable regulatory examination and qualification requirements for crypto assets, or after six years from their initial appointment as a crypto asset supervised representative, whichever occurs first. Non-Compliance It is essential for all parties involved, including Crypto Asset FSPs, its Key Individuals, Representatives and Crypto Asset supervised Representatives to comply with the conditions specified in the Notice. Failure to meet these conditions will automatically result in the exemption no longer being applicable to the respective individuals or entities. FAIS Notice 25 of 2023 therefore provides exemptions for individuals and entities involved in rendering financial services related to crypto assets. These exemptions are subject to specific conditions, including compliance with regulatory examination requirements and fulfilling CPD activities. It is important for those operating within this sector to stay updated with any amendments or withdrawals of the exemptions that may be published by the FSCA. Please also note that the new license application forms that now include Crypto FSP License Applications have now been published. For any help on getting licensed contact us today to get a quote!  South Africa's financial sector is undergoing significant regulatory changes to combat money laundering, terrorist financing, and proliferation financing. Accountable institutions (and others now) must adapt to these changes to ensure compliance and mitigate risks. We explore and summarise some of the more recent changes. The employee screening changes below are unrelated to the CIPC and Master's Office changes. Employee Screening - FICA Directive 8 and Public Compliance Communication 55
It is important to note that the employee screening changes are specific to all accountable institutions. Totally separate to that is the CIPC and Master's Office changes. They are not applicable to accountable institutions/financial services only but all companies and trusts and is a "once-off" and "when there are changes" exercise. So the next two headings applies to all Trusts and Companies in South Africa - note you cannot comply with it yet because the systems are not in place yet to be able to report. This is totally separate to FICA UBO screening/checks that accountable institutions have to do and must not be confused. In future this information might help accountable institutions to check this more easily to establish who the UBO's are.
Beneficial Ownership (BO) Transparency and the Companies Act
Beneficial Ownership and Trusts
In conclusion, South Africa's financial sector is taking significant steps to enhance transparency and combat financial crime. Accountable institutions must adapt in future to these regulatory changes to ensure compliance and mitigate risks. By understanding and implementing the requirements of Directive 8, beneficial ownership transparency, and trust regulations, accountable institutions can contribute to a more secure and transparent financial sector in South Africa. See the following links on the CIPC and Master of the High Court's websites: https://www.justice.gov.za/master/trust.html https://www.cipc.co.za/wp-content/uploads/2023/03/BO-Step-by-step-Guidelines.pdf  Compliance with the Financial Advisory and Intermediary Services (FAIS) Act and the Financial Intelligence Centre Act (FICA) regulations is crucial for Financial Service Providers (FSPs) when dealing with clients. To meet regulatory requirements, FSPs must maintain a comprehensive compliance file for each client. In this blog post, we provide a general checklist of the items that should be included in a compliance file for a retail client in accordance with FAIS and FICA regulations. Please note this might not cover all instances and each client and product type has some changes
Compliance File Checklist: Disclosure documentation: A letter of engagement outlining the services provided, fees and commissions charged, and any potential conflicts of interest. Record keeping: A record of all client interactions, including meetings, telephone calls, emails, and correspondence. Needs analysis: A thorough needs analysis to ensure that the products and services offered are suitable for the client's needs, objectives, and risk profile. Risk profiling: A risk profiling assessment to determine the client's risk appetite and tolerance. Product information: A detailed explanation of the products and services being offered, including any risks involved. Compliance requirements: All compliance requirements related to FICA KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations. Record of advice: A record of all advice given to the client, including the rationale behind the advice. Quotations: A record of all quotations provided to the client. In conclusion, maintaining a comprehensive compliance file is essential for FSPs in the financial services industry. By ensuring that all necessary documentation and records are kept, FSPs can demonstrate their commitment to meeting regulatory requirements and providing clients with the necessary protection and information to make informed decisions. As a compliance outsourcing firm, we remind our clients to keep a detailed compliance file for each retail client in accordance with FAIS and FICA regulations. By doing so, our clients can have peace of mind knowing that they are meeting regulatory requirements and promoting ethical business practices within the industry.  In an effort to deal with the possible grey listing of South Africa and strengthening the fight against money laundering, terrorist financing and proliferation financing, the FIC recently made some changes. With effect from 19 December 2022, the list of Accountable Institutions in Schedule 1 was amended, and the updated list is as follows:
1. (a) A person who is admitted and enrolled to practise as a legal practitioner as contemplated in section 24(1) of the Legal Practice Act, 2014 (Act 28 of 2014) who is:
2. (a) A person who carries on the business of preparing for, or carrying out, transactions for a client, where– (i) the client is assisted in the planning or execution of
(d) A person who carries on the business of preparing for or carrying out transactions (including as a trustee) related to the investment, safe keeping, control or administering of trust property within the meaning of the Trust Property Control Act, 1988 (Act 57 of 1988). 3. An estate agent as defined in the Estate Agency Affairs Act, 1976 (Act 112 of 1976). 4. An authorised user of an exchange as defined in the Financial Markets Act, 2012 (Act 19 of 2012). 5. A manager registered in terms of the Collective Investment Schemes Control Act, 2002 (Act 45 of 2002), but excludes managers who only conduct business in Part VI of that Act. 6. A person who carries on the “business of a bank” as defined in the Banks Act, 1990 (Act 94 of 1990) 7. A mutual bank as defined in the Mutual Banks Act, 1993 (Act 124 of 1993). 7A. A co-operative bank as defined in the Co-operative Banks Act, 2007 (Act 40 of 2007). 8. A person who carries on a life insurance business as defined in the Insurance Act, 2017. This excludes a reinsurance business, as defined in this Act; 9. A person who carries on the business of making available a gambling activity as contemplated in section 3 of the National Gambling Act, 2004 (Act 7 of 2004) in respect of which a license is required to be issued by the National Gambling Board or a provincial licensing authority. 10. A person who carries on the business of dealing in foreign exchange. 11. (a) A person who carries on the business of a credit provider, as defined in the National Credit Act, 2005; (b) A person who carries on the business of providing credit in terms of any credit agreement that is excluded from the application of the National Credit Act, 2005 by virtue of section 4(1)(a) or (b) of that Act. 12. A person who carries on the business of a financial services provider requiring authorisation in terms of the Financial Advisory and Intermediary Services Act, 2002 to provide advice or intermediary services in respect of the investment of any financial product (but excluding a non-life insurance policy, reinsurance business as defined in the Insurance Act, 2017 and the business of a medical scheme as defined the Medical Schemes Act, 1998) 13. A person who issues, sells or redeems travellers’ cheques, money orders or similar instruments. 14. The South African Postbank Limited referred to in section 3 of the South African Postbank Act, 2010 (Act 9 of 2010) 15. A person who carries on the business of a money or value transfer provider 16. A person who carries on the business of dealing in high-value goods in respect of any transaction where such a business receives payment in any form to the value of ZAR100 000 or more, where "high-value goods" means any item that is valued in that business at ZAR100 000 or more. This specifically relates to tangible items that are traded, sold or bought in the ordinary course of business of that entity. For example, an audit firm that is downsizing and selling their fleet of vehicles for R135 000 each would not be part of the regular feature of the audit firm’s business. However, a tanzanite dealer who has items that are over R100 000 each, would fall within the ambit of the HVGD. 17. The South African Mint Company (RF) (Pty) Ltd, only to the extent that it distributes non-circulation coins in retail trade and where in respect of such transactions it receives payment in any form to the value of R100 000,00 or more, whether the payment is made in a single operation or in more than one operation that appears to be linked. 18. A person who carries on the business of one or more of the following activities or operations for or on behalf of a client: (a) exchanging a crypto asset for a fiat currency or vice versa; (b) exchanging one form of crypto asset for another; (c) conducting a transaction that transfers a crypto asset from one crypto asset address or account to another; (d) safekeeping or administration of a crypto asset or an instrument enabling control over a crypto asset; (e) participation in and provision of financial services related to an issuer's offer or sale of a crypto asset; and where “crypto asset” means a digital representation of perceived value that can be traded or transferred electronically within a community of users of the internet who consider it as a medium of exchange, unit of account or store of value and use it for payment or investment purposes, but does not include a digital representation of a fiat currency or a security as defined in the Financial Markets Act, 2012 (Act 19 of 2012). 19. A clearing system participant as defined in section 1 of the National Payment System Act, 1998 that facilitates or enables the origination or receipt of any electronic funds transfer and or acts as an intermediary in receiving or transmitting the electronic funds transfer. These entities now have a responsibility to do the following:
The FIC further stated that it and supervising bodies are not intending to issue any fines for non-compliance during the first transitional 18-month period until May 2024. Thereafter, non-compliance by these entities can lead to imprisonment for a period not greater than 15 years or a fine that does not exceed R100 million. To read further on the amendments click here |
by: Horizon Compliance teamCompliance Experts Archives
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