Financial Sector Conduct Authority (FSCA) commissioner Unathi Kamlana says the financial sector watchdog has not hesitated to throw the book at funeral schemes, cryptocurrencies and other financial sectors flouting regulations, warning that the global economic outlook exposes South Africa to more compliance risks.
“We successfully completed over 400 investigations, resulting in 420 licence withdrawals and 984 suspensions," Kamlana said in the FSCA's 2022-23 annual report tabled recently.
"In addition, we issued over 47 scam alerts to protect financial customers against any potential harm. Notably, fines exceeding R100m were imposed on persons and entities who violated regulatory rules, demonstrating our resolve in dealing with non-compliance.”
The commissioner said the authority he leads needed to be especially vigilant after the Financial Action Task Force (FATF) decision to place South Africa on its greylist due to concerns over its capacity to combat money laundering, terrorist financing and proliferation financing.
“During the reporting period, the financial sector has faced numerous hurdles, both domestically and globally. The global economic recovery faced significant headwinds amid weaker commodity prices, rising inflationary pressures and the ongoing Russia-Ukraine conflict,” said Kamlana.
In the 2021-22 financial year, the FSCA raised R86.5m in fines and penalties. The watchdog's enforcement division finalised 48 investigations for contraventions of the Financial Markets Act and other financial sector laws, and opened 667 cases with 207 ongoing.
Kamlana said the economic growth outlook is expected to deteriorate domestically, with GDP projected to decrease over the medium-term, averaging 1.4%, due to factors including load-shedding impacting investment flows and the overall performance of the financial sector.
The FATF placing South Africa on its list of jurisdictions under increased monitoring has added an additional layer of challenges that the financial sector is facing
— FSCA commissioner Unathi Kamlana
“The FATF placing South Africa on its list of jurisdictions under increased monitoring has added an additional layer of challenges that the financial sector is facing.
“This designation underscores the necessity for heightened efforts to combat money laundering and terrorist financing, necessitating financial institutions to implement additional compliance measures and safeguards,” Kamlana said.
“During the reporting period, we have approved 584 licences authorising persons and entities to perform regulated financial services.”
Finance minister Enoch Godongwana said despite the challenges to the South African and global economic outlook, the FSCA showed resilience and determination in carrying out its responsibilities and enforcing the law.
“It has successfully met most of its performance targets during the year under review, demonstrating its capacity to adapt and respond to evolving economic conditions. These targets included publishing a regulatory actions report, undertaking a mystery shopping initiative, issuing market surveillance reports and establishing a consumer advisory panel,” said Godongwana.
Godongwana said the FATF greylist served as a warning signal indicating deficiencies in a country’s anti-money-laundering and counter-terrorism financing measures.
It also had broader implications for the integrity and reputation of the financial system.
“In preparation for the implementation of the pending Conduct of Financial Institutions (Cofi) framework, the FSCA has taken proactive steps to ensure a seamless transition,” he said. “Recognising the significance of this regulatory reform, the FSCA has developed a regulatory framework transition plan.
“This plan serves as a roadmap that will guide the FSCA in effectively transitioning all conduct regulatory instruments in existing legislation to the Cofi bill framework. The Cofi bill and the amendments to the Financial Sector Regulation Act will significantly alter the way the FSCA approaches market conduct regulation in the financial sector,” he said.
The Cofi framework is the second phase of the government’s twin peaks reform aimed at fighting inappropriate market practices. According to the Cofi bill policy paper, it seeks to facilitate better competition and participation in the financial sector as well as adherence to its guidelines.
“Market conduct regulation aims to prevent, and manage when prevention is not successful, the poor outcomes that arise from financial institutions conducting their business in ways that are unfair to customers or undermine the integrity of financial markets and confidence in the financial system,” the policy paper says.
Desiree Reddy, director at Norton Rose Fulbright, said the FSCA’s report and interventions showed the authority was being proactive in its work to deter further financial misconduct by institutions in South Africa.
“The report is comprehensive and insightful and is evidence of the proactive stance being taken by the FSCA to fulfil its mandate of ensuring the stability of financial markets and promoting fair treatment of financial customers through a robust regulatory framework,” said Reddy.
The National Treasury has set a target of January 2025 for South Africa to be removed from the FATF greylist, in line with the task force’s timeline to address shortcomings in law and policy aimed at fighting money laundering, terrorist financing and proliferation financing.
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