The Financial Sector Conduct Authority (FSCA), which regulates all financial services providers, is preparing to require transformation plans from participants, and will ultimately force companies that do not comply with certain Black Economic Empowerment (BEE) standards. licenses may be withheld.
Last week, the FSCA published a memorandum of understanding with the Department of Trade, Industry and Competition's B-BBEE Committee, which, although fairly short on details, said the committee was “concerned by the unacceptable level of B-BBEE compliance submissions. “There is,” he warns. Report by the Financial Sector”.
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The scope of the FSCA is broad and covers not only insurance companies, collective investment schemes and retirement funds, but also brokers, financial planners and wealth managers. All of these entities require a license to operate.
Under current law, there are no substantive penalties for not complying with the government's transformation goals.
CoFI is coming
However, once the Conduct of Financial Institutions Act (CoFI) comes into force, the FSCA will require itself to “set standards for change and take reasonable supervisory and enforcement actions against financial institutions that do not adhere to their change commitments.” We believe that we can be empowered to “make things possible.”
The legislation is the second wave of the government's Twin Peaks reforms and is currently before Parliament.
Prior to its implementation, FSCA has begun internal preparations across its licensing, oversight, investigation and enforcement departments. At this stage, we have signed memorandums of understanding with other relevant organizations and have begun collecting data on the ownership of licensed organizations in preparation for enforcement.
According to the report, financial institutions “will need to develop transformation plans and submit these plans to the FSCA at the licensing stage…Financial institutions that are already licensed will need to complete the COFI Bill within the relevant transition period. Plans must be submitted as part of the framework license conversion process.''
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The FSCA adds that “if a transformation plan is not submitted during the licensing process, the license application may be considered incomplete”.
It is reasonable to believe that this is a carefully hidden threat and that an incomplete application will likely result in your license being withheld.
In its Transformation Strategy published last year, the FSCA said one of its key strengths in supporting the transformation of the financial sector was its ability to take enforcement action against financial institutions.
“This is in contrast to other stakeholders such as the FSTC. [Financial Sector Transformation Council], institutions where administrative action is limited to cases of fraud or misrepresentation, and even the B-BBEE Board cannot be sanctioned. The FSCA will eventually be able to take action against financial institutions that fail to comply with their transformation plan commitments. ”
Command
The FSCA states that if a financial institution fails to achieve the goals identified in its transformation plan, it may issue legally enforceable business non-compliance directives or administrative penalties for non-compliance.
Its mandate remains “to enforce only the Financial Sector Act and not the B-BBEE Act or the FS.” [Financial Sector] Code, are the responsibility of the B-BBEE Committee and FSTC, respectively. ”
FSCA says it will “apply an approach proportionate to the transformation requirements”.
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“Entities that are not subject to the FS Code do not need to submit a transformation plan to the FSCA.”
Exempt micro-enterprises with an annual turnover of up to R10 million are considered to have B-BBEE level 4 contributor status.
If these businesses are black-owned, the score increases further to level 2 or 1.
Eligible small financial institutions are those with an annual turnover of between R10 million and R50 million. The Code states that these “must comply with all elements of B-BBEE for measurement purposes unless compliance with any element or sub-element is exempted.”
Proceed with caution, Sakeriga warns
Business lobby group Sakeriga advised financial services providers to “consider carefully providing the FSCA with transformation plans, BEE certificates or other compliance materials not related to financial services”.
“The FSCA intends to use these against you,” it says.
“Non-compliance with such directives should be brought to the highest level achievable after careful consideration of the relevant regulatory and professional risks.”
CoFI opposes the BEE clause, saying it is harmful.
“They limit the financial services available, restrict public access to these services and increase costs.
“They are also an unacceptable violation of the freedom to trade or practice a profession, and to operate or own a business.”
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