The financial services industry is one of the most tightly regulated industries in South Africa, and with good reason: your money is at stake. Regulations evolve as the industry evolves, and consumers of financial products and services need to keep up-to-date with the changes.
Recently, the Financial Sector Conduct Authority (FSCA) outlined where it would focus its enforcement actions in the year ahead and its regulatory plans for the next three years, while the Ombud Council published new rules on complaints to the Ombud for Financial Services Providers, widely known as the Fais Ombud.
Enforcement focus
In its FSCA Regulatory Actions Report 2023/24, the authority identified several focus points in the coming year, including the following:
- Assisted online trading and signalling. The FSCA says it has seen an increase in cases in which individuals assist online traders either by signalling potentially profitable trades or by letting them copy their trades, a practice known as copy trading. Trading in this way is highly risky and the individuals offering these services do not have the required authorisation to act as financial services providers.
- Investments in livestock. There has been a rise in schemes that offer investments in farming operations, such as livestock and harvests promising investors a share in the profits. For example, you may be invited to invest in a cow with a promise of a share in the profits on the sale of the cow or its offspring. In many cases the schemes are unlawful, as they are not registered as deposit-taking institutions, and some are outright scams. “We are actively investigating these activities and will prioritise enforcement actions in this area,” the FSCA says.
- Finfluencers. Social media influencers who publish financial and investment-related content, and sometimes promote financial products, play a positive role in enhancing financial literacy and encouraging participation in financial markets. However, the FSCA is concerned that consumers are making financial decisions based on the advice of celebrities, rather than through the recommendations of authorised financial advisers.
- Unauthorised crypto services. Crypto asset service providers (Casps) have been given the opportunity to register with the authority, and many Casps licences have already been issued. There remain, however, many entities providing these services unlawfully.
- Funeral parlours. In its previous report, the FSCA said it had formed a dedicated investigation team within its enforcement division to deal with the proliferation of unregistered businesses in the funeral parlour industry and illegal practices such as the “self-underwriting” of insurance policies and unauthorised collection of “premiums” from consumers. The FSCA and the Prudential Authority have since joined in a project that will review insurance regulations affecting the funeral parlour market; improve supervision and enforcement to achieve appropriate compliance-levels; ensuring fair customer outcomes while minimising compliance costs; and develop strategies to enhance financial literacy and awareness among funeral insurance consumers.
Three-year regulation plan
The FSCA’s 2024 Regulation Plan covering April, 2024 to March, 2027 also published recently, updates stakeholders on regulatory developments. Key strategies include the following:
- Aligning the regulatory framework with international standards. “Many of the projects reflected in the plan are aimed at ensuring greater alignment with international standards and remedying legislative deficiencies highlighted by the peer reviews,” the FSCA report says.
- Harmonising and consolidating legislation. This will ensure more consistent financial customer outcomes. “To achieve this and make the law more responsive to emerging risks associated with new and emerging technology and business models, it is pivotal that legislation moves to a more outcomes- and principles-based approach,” the report says.
- Dealing with trends and emerging risks. At both international and local-level, trends and risks include fintech, artificial intelligence and machine-learning, crypto assets, sustainable finance, culture and governance, open finance, cyber risk and resilience, operational resilience, the focus on vulnerable consumers, diversity, equity and inclusion. “Many of these require a response in the form of legislative interventions,” the report says.
- Dealing with identified sector-specific risks. Even though there is a focus on broader sector requirements, the FSCA says it still closely monitors industry-specific risks and developments, where legislative interventions may be necessary.
Fais Ombud rules
The Chief Ombud Leanne Jackson recently released updated rules on how the Ombud for Financial Services Providers or Fais Ombud (after the Financial Advisory and Intermediary Services Act), deals with complaints from the public. This came after a public participation process and consultation with industry stakeholders. The most significant changes are as follows:
- The compensation limit has been increased from R800 000 to R3.5 million. The new limit will not apply retrospectively, only to complaints received after July 1, 2024.
- There is a clearer procedure for dealing with uncooperative respondents. Financial services providers which are the subject of complaints and which do not cooperate with the ombud or with the requirements of the Fais Act must be reported to the FSCA.
- Complaints must relate to a registered financial services provider. Henceforth, the ombud will not deal with complaints from unlicensed or unauthorised entities. Such complaints should be directed to the FSCA.
- Complainants should still first approach their service providers to resolve their complaints before turning to the ombud. However, the rules no longer require that the complainant must produce a final response (if any) from the respondent, together with the complainant’s reasons for disagreeing with the response, as a strict prerequisite for having the complaint dealt with.
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