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 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!  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 19 October 2022 Crypto Assets were declared a financial product in terms of FAIS. This is defined as: a digital representation of value that – (a) is not issued by a central bank, but is capable of being traded, transferred or stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility; (b) applies cryptographic techniques; and (c) uses distributed ledger technology. One can argue this included crypto currencies, nodes as well as NFT art as well as you'll see below. It is important to note that currently this practically does not mean much and this was likely done in an attempt to avoid possible greylisting of South Africa by the FATF. This is because one is exempt from licensing as an FSP or Financial Services Provider (section 7(1) of the FAIS Act) and can obtain a license between June 2023 and November 2023 in terms of FAIS Notice 90 of 2022. It is important to note that included in this notice is the mention of currencies, NFT's, miners and nodes specifically. But the notice also states that one must in the meantime comply with Chapter 2 of the Determination of Fit and Proper requirements of FAIS, which is too long to repeat here verbatim but generally states: A person must have honesty and integrity and the chapter also states in which instances one is deemed to no longer have that (i.e. convicted of fraud etc). One must also in the meantime comply with section 2 of the General Code of Conduct which states: A provider must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry. Full compliance with the General Code kicks in on 1 December 2023, ostensibly after licensing has been concluded. It is important to note that included in this notice is the mention of currencies, NFT's, miners and nodes specifically. There is also a Draft Notice out for comment on exempting persons rendering a crypto financial service from:
Submissions on the draft Exemption must, using the submission template attached, be submitted in writing on or before 1 December 2022 to the FSCA, at FSCA.RFDStandards@fsca.co.za. Please reach us on our Contact Us page for any assistance on licensing matters related to crypto. We are here to help you.  The FIC has updated the cash thresholds from R25 000.00 to R50 000.00. The reporting timeframes have also been updated from reporting within 2days to reporting within 3days after the company or any of its employees become aware of the transaction. This will become effective on 14 November 2022.
Lastly the aggregation of amounts that together total above R25 000.00 is also abolished. Generally this can be seen as a relaxation of the requirements and it unknown how this fits into the prevention of the possible coming FATF greylisting.  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?  The FSCA finally published drafts of their new compliance reports and in line with all things bureaucratic decided to call them Conduct of Business Reports or CBR for short. This report seems like it will attempt to enable all financial institutions ranging from Banks to one-man run FSPs to fill it in. It will do this by changing the content of the report depending on the input of the person filling it in. At first glance the report seems broken as certain fields do not work and some of the auto selection an population content does not activate when it should. What we can see at this stage is that the information asked for is copious and some of it does not seem related to aspects of legislation. The content was informed by overseas regulators in western developed nations. Although this is a good base to start from, one must significantly adapt as we are not a western developed nation. We must still develop and overregulation will not get us there. Our President recently embarked on a campaign of cutting red tape to enhance business creation and operation. I do not think this complex reporting approach is in line with this goal. Much more action and responsibility needs to be taken by the authorities when malfeasance is brought to their attention instead of placing a heavy regulatory reporting burden on financial services providers. And in these economic times there is even less breathing space for businesses as it is. We'll publish our comments via our industry bodies in line with this approach but please feel free to comment on your own as well or via your industry bodies. Their documentation states that they will only commence Phase 2 of the Consultation in Q1 2023 and that first reporting will likely only start in 2024. There are workshops on the CBR reports and we will attend them on your behalf but anyone can attend them and voice their opinions if they’d like. Please see the links and documents at the end of this post. Their documentation states that they will only commence Phase 2 of the Consultation Process in Q1 2023 and that first reporting will likely only start in 2024. Written comments must be submitted via the secure FSCA “Comments” portal, available on the FSCA website under Home > Regulated Entities > E-services or by clicking here. The comments template is web-based and is available for completion by any individual on behalf of a licensed financial institution or industry association.
The “Comments” portal will only be available from 10 June 2022 and all written comments must be submitted by 10 August 2022. The portal will be closed for any further submissions after this date. Workshops can be booked for here: Large FSPs (turnover >R5) Smaller FSPs (turnover <R5m) For more information about this Communication please contact Ms Juanita Smit at Juanita.Smit@fsca.co.za and copy FSCA_Omni_CBR_Comments@fsca.co.za  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 reporting@fstc.org.za, or call (011)838 6696 or get in touch with their respective Trade Associations for more clarity Any Penalties?
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by: Horizon Compliance teamCompliance Experts Archives
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