Does your FSP participate in Open Finance? The FSCA requires certain information relating to Open Finance
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.
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 This amendment is explained by the FIC’s Draft Guidance Note 104A, issued on 18 January 2023, as well the FIC’s International Funds Transfer Reports user guide, dated 9 February 2023.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.
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 email@example.com 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 firstname.lastname@example.org 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.
Checklist for Compliance: What Brokers Need to Keep on File for Retail Clients According to FAIS and FICA Regulations
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.
On Thursday, 17 November 2022, one of our Compliance Officers, Adriaan van Wyk, was invited to a discussion on Money Laundering at the radio station POWER FM 98.7 hosted by Faith Mangope.
You can listen to the Podcast here: omny.fm/shows/power-lunch/money-laundering-in-south-africa#description
There is nothing in the FAIS Act that suggests that a Key Individual needs to be positioned internally within the FSP and by this statement, the Authority is an overreach.
Over the past few years, the FSCA has been very inconsistent when reviewing Key Individual applications. It seems as if the Authority is weary of approving Key Individual applications where the Key Individual is already approved on another license. One analyst will start questioning a person’s operational ability once the Key Individual is approved on more than 1 license, while another analyst will only raise operational ability concerns after 3 approvals. At face value, the case-by-case approach that seems to be the modus operandi at the moment is prejudicial as there is really no set criteria for the operational ability test.
Yes, the role of the Key Individual is one that is critical to ensure that the management and oversight role in respect of the financial services and activities is carried out and performed by the FSP. This entails ensuring that the financial services are rendered with utmost good faith, due care, skill and diligence. We also understand that the recent strictness in the application of the operational ability requirement stems from the FSCA seeking to curb rent-a-KI situations within the industry. However, the manner in which the Authority has opted to go about doing so, is more burdensome and somewhat inefficient.
What was also very enigmatic in a recent application, was when an analyst said:
“There is also a clear intent that the FAIS Act requires a key individual to be positioned internally within the FSP to oversee the activities of that FSP as well those of the appointed representatives of the FSP and as such can therefore not be too far removed from the day-to-day activities of the business of the FSP.”
There is nothing in the FAIS Act that suggests that a Key Individual needs to be positioned internally within the FSP and by this statement, the Authority is an overreach.
My suggestion is for the Authority to decide and place on record the exact maximum number of licenses a Key Individual can be on, instead of moving the goal post as and when it is suitable. Otherwise, the “unintended consequence” would be that there will be a vast shortage in the industry thereby limiting access even to new entrants. I say “unintended consequence” because at this rate, we are not really certain of the Authority’s intention. Also, what happened to progressively “cutting the red tape” and ensuring access as stated by the President of the Republic?
What is this?
The FSTC recently sent out important reporting changes and information. See the original communication here. To be clear, the FSTC is not to be confused with the FSCA. Although this does not fall in the realm of FAIS compliance, we thought it is a good idea to perhaps just summarise the requirements and application thereof.
Usually the BEE components of a business is handled internally/with HR or accountants in consultation with Verification Agents (BEE Compliance Officers) if need be.
The FSTC is mandated to obtain BBBEE statistical data from entities operating in the financial services sphere on their progress relating to BBBEE. They send out a request once a year for statistical data so they can compile their annual report on the progress of Financial Institutions with the Financial Sector BBBEE codes.
Who does this apply to?
The sectors/companies asked to report are:
This does not apply to:
How do I report if I need/want to?
Changes in Submission of Reports:
It is extremely important to note that the FSTC changed the method for companies to submit reports. The FSTC will NO LONGER accept reports via the reporting email.
The reports and supporting documents should be submitted as a folder through Drop Box. All report should now be submitted electronically to the Drop Box link: https://www.dropbox.com/request/YYZggWgIZT3BwJrh4AP5 with the folder named: FSTC 2020/21 Reporting– (name of entity).
FIs were requested to submit the full final verification reports, to the FSTC no later than the end of the business Friday, 12 August 2022. All reports are to be submitted electronically to the Drop Box link.
***Avoid editing and saving online into one drive. ***
Should an entity encounter difficulty in providing the above-requested information they should contact the FSTC at email@example.com, or call (011)838 6696 or get in touch with their respective Trade Associations for more clarity
Category 1 FSPs may no longer subtract subordinated loans from the current liabilities
What are the financial soundness requirements?
The FAIS Act explains the Financial Soundness requirements for FSPs in Chapter 6 of the Fit and Proper Board Notice 194 of 2017. The FSP must meet the financial soundness requirements at all times.
There are different requirements for different types of FSPs, however the three main categories for most of the FSPs are as follows:
What important changes took place regarding subordinated loans?
The most important change that we come face to face with almost monthly is the change where Category 1 FSPs may no longer subtract subordinated loans from the current liabilities in the working capital requirements. This requirement is applicable to Category 1 FSPs Holding Client Funds, and Category 1 FSPs Not Holding Client Funds.
How can an FSP ensure it meets the requirements?
The FAIS Act states that all FSPs should maintain monthly management accounts if these accounts are continuously monitored and compared with the financial soundness requirements the FSP should be able to maintain the financial soundness requirements.
What can an FSP do if they suspect that the requirements are not being met?
It is immensely important that the FSP follow one of these two steps as soon as the FSP suspects or foresees that the financial soundness requirements are not being, or will not be met, these are listed and explained as follows:
In addition to the above, the FSP must submit the following items every 6 months from the date that
the FSP relied on the exemption:
How to calculate an FSPs Financial Soundness Requirements?
The Financial Soundness requirements can be explained and calculated as follows:
*Liquid Assets are calculated as follows:
*Annual Expenditure is calculated as follows:
Contact us for any information on the Compliance Officer services we provide for information on the financial soundness requirements, our team at Horizon Compliance are always keen to help.
by: Horizon Compliance team