Several significant regulatory changes were introduced to the financial services industry this year. Here are some of the highlights, as well as a heads-up for some of the changes which come into effect in 2020.
December 2018 / January 2019
- FAIS Notice 86 of 2018, published by the FSCA in December 2018, impacted FSPs that have representatives under supervision. The Exemption of Services under Supervision Notice came into effect on 1 February 2019, however, the provisions relating to Supervision Agreements only came into effect on:
– 1 March 2019 – for supervised representatives appointed on or after 1 December 2018 and
– 1 June 2019 – for supervised representatives appointed before 1 December 2018.
All supervised representatives should have their Supervision Agreements in place by now. In addition, representatives appointed under supervision before 1 February 2019 are reminded that they have until 31 January 2020 to meet the class of business training requirements.
- Another hot topic was the Conduct of Financial Institutions (COFI) Bill, which was also published in December 2018 with an explanatory policy paper. Interested parties were given until 1 April 2019 to comment on the proposals. Masthead’s commentary is accessible to members via Masthead Connect. A second draft of the COFI Bill is eagerly awaited by the industry.
Following the Financial Sector Regulation Act, the COFI Bill is the next phase in legislative reforms that aim to strengthen regulation on the financial services industry’s treatment of customers. The Bill outlines what customers and industry players can expect of financial institutions. It also aims to streamline the legal framework to regulate the conduct of financial institutions and give legislative effect to improving market conduct and customer protection. Once it comes into effect, the COFI Bill will repeal the FAIS Act and regulate the activities and conduct of financial services providers (FSPs).
- The Minister of Health approved an increase on the maximum fee payable by medical schemes to brokers with effect from 1 January 2019, to R94.77 plus VAT per month or 3% plus VAT of the contributions payable in respect of that member, whichever is the lesser. FSPs licensed for health service benefits were reminded to adjust the fees, which they needed to disclose to clients.
February / March 2019
- The Council for Medical Schemes (CMS), regulator of the medical schemes industry, announced the appointment of Dr Sipho Kabane as the Chief Executive and Registrar for the regulator in February 2019.
- The Financial Services Tribunal, previously the FSB Appeal Board, published new rules in March 2019. These set out the rules and procedures to follow when applying for reconsideration of a “decision” by the “decision-maker”, as defined in section 218 of the Financial Sector Regulation Act. The Rules have since been updated, with effect from 1 August 2019. The Financial Services Tribunal also changed its physical premises to Kasteel Office Park in Pretoria. The Tribunal decided on 86 cases during 2019.
- The CMS published the Demarcation Exemption Renewal Framework. The exemption of indemnity products that are doing the business of a medical scheme expired on 31 March 2019. Entities that were granted an exemption on their indemnity products in 2017 could reapply to extend the exemption for another two years up to 31 March 2021. FSPs rendering financial services on indemnity products that are doing the business of a medical scheme were advised to ensure their product providers have sought exemption.
April 2019
April saw many changes from the Financial Intelligence Centre (FIC).
- Accountable institutions had until 2 April 2019 to implement and adopt a Risk Management and Compliance Programme (RMCP) to replace their FICA Internal Rules.
- The FIC proposed draft regulations which were open for public comment until 1 April 2019. The draft regulations proposed changes to International Funds Transfer Reporting and Cash Threshold Reporting and Aggregation. These are yet to be finalised. FSPs should keep a close eye on these proposed changes, as they will need to update their RMCP processes in line with the changes.
- Sections of the FIC Act relating to the identification of persons and entities by the United Nations Security Council and the imposition of financial sanctions commenced on 1 April. The FIC also made the Targeted Financial Sanctions List available on its website. FSPs are advised to use the updated TFS Lists on the FIC website as part of their customer due diligence process.
- The FIC published Appeal Board Rules in April 2019.
May 2019
- May 2019 saw many advisors and representatives scrambling to beat the clock ahead of the CPD deadline of 31 May. As it was the first CPD cycle, the FSCA extended the deadline to 31 July 2019. The FSCA said this was a once off extension and the 31 May 2020 deadline for the 2019/20 CPD cycle remains at 31 May 2020. FSPs are advised to plan ahead and ensure the CPD hours attained meet the needs identified in their CPD Training Plans and that they meet the fit and proper requirements.
- The FSCA ‘cancelled’ the 2019 compliance reports and instead called for a General Request for Information from certain FSPs where incorrect or incomplete information was identified. There is still uncertainty about the 2020 compliance reports. The FSCA is looking to introduce Conduct of Business Reports at some stage, and Masthead will keep you updated as further details are made available.
- The FSCA published a Draft Conduct Standard, which prescribes the minimum skills and training requirements for board members of pension funds. The proposals will come into effect on 1 January 2020.
- The FSCA published FSCA FAIS Notice 36 of 2019, which contains 12 lists of recognised qualifications for FSPs, key individuals (KIs) and representatives to assist with qualification requirements for each licence category.
- The FSCA also published FSCA Communication 1 of 2019: Scripted Execution of Sales for Category I FSPs. This document provides guidance on the process to follow when amending representatives’ profiles to include scripted execution of sales.
June 2019
- During June 2019, comments were invited on the proposed amendments to Regulations 31 and 32 of the Medical Schemes Act. The proposals related to the fees applicable for FSPs and/or advisors to apply for or renew their accreditation, and Penalties respectively. Masthead submitted input on the proposed changes to the fees payable to the director-general.
- The FSCA published Guidance Notice 1 of 2019 on Debarment, which provides general guidance on the debarment process in section 14 of the FAIS Act. It further clarifies the obligation on FSPs to debar persons, requirements for debarment, duties of FSPs after debarment and the recourse available to debarred persons. The Financial Services Tribunal made several decisions during the year regarding debarments where FSPs had not followed the correct process. FSPs are advised to implement a debarment process and policy in line with the Guidance Note.
- KIs and representatives were advised to develop CPD Training Plans for the new CPD cycle. If you still do not have this in place, speak to your Masthead Compliance Officer for assistance.
- FSPs, KIs and representatives were advised to update their Competence Register with CPD activities from the 2018/19 CPD cycle. This is an ongoing requirement and FSPs, KIs and representatives are reminded to maintain an updated Competence Register.
September 2019
- The new Replacement Advice Record prescribed by the FSCA for individual life risk policies (excluding assistance policies, funeral policies or microinsurance policies) came into effect on 1 September 2019. It is important to be familiar with the new format, as an inadequate Replacement Advice Record may impact commission payments.
- Chapter 14 of the FSRA relating to Ombuds was due to commence on 1 September 2019, but was postponed to take effect on 1 April 2020.
October 2019
- This is when payment of FSCA and Ombud levies become due. FSPs were reminded to check that their information and contact details on the FSCA’s website are up to date and correct ahead of the annual deadline of 31 October, to ensure levy invoices are received and paid in time.
- The Financial Action Task Force (FATF), together with representatives from the International Monetary Fund and the Eastern & Southern Africa Anti-Money Laundering Group, visited South Africa towards the end of October and in early November to complete its evaluation of the country’s compliance with international anti-money laundering standards. The outcome of the assessment will be released in 2020.
November 2019
- The new FAIS Ombud, Advocate Nonkumbulo Tshombe, assumed her role with effect from 1 November 2019.
December 2019 / January 2020
- FSPs that have binder agreements in place with insurers are reminded that the integration of IT systems between insurers and binder holders must be in place by 1 January 2020. Binder holders will need to provide insurers with access to up-to-date, accurate and complete data at the following intervals:
– Daily – in respect of policies other than funeral and assistance policies;
– Monthly – in respect of funeral and assistance policies.
This access will enable insurers to comply with their data management requirements and the Policyholder Protection Rules. Insurers will have to ensure that binder holders have the operational ability to comply with this requirement.
2019 Enforcement actions
The FSCA published 10 orders in 2019: 1 debarring an individual for 10 years and administrative sanctions totalling R153,837,000 were imposed on nine financial institutions for breaching various sectoral laws. When the FSCA took over its mandate from the Financial Services Board, it announced its intention for more proactive and intrusive supervision, which has been demonstrated through heftier fines.
Although compliance takes time, money and energy, the consequences of not taking the regulatory requirements seriously can be costly. As we approach 2020, it is a good time to reflect on the compliance gaps and risks in your business and plan for the compliance requirements of 2020, as no doubt there will be new challenges and new regulations in the new year.