Financial sector targeted
FSCA: TO PENALISE NON-COMPLIANCE WITH TRANSFORMATION OBJECTIVES Veiled threat? All providers have to comply with BEE thresholds.
The Financial Sector Conduct Authority (FSCA), which regulates all financial services providers, is preparing to demand transformation plans from participants.
It could ultimately withhold licences from those who do not comply with specific black economic empowerment (BEE) thresholds.
The FSCA announced a memorandum of understanding with the department of trade, industry and competition’s B-BBEE commission last week which, while rather short on detail, does warn that the commission “has been concerned about the unacceptable level of submission of B-BBEE compliance reports by the financial sector”.
The FSCA’s ambit is broad and covers not only insurers, collective investment schemes, and retirement funds, but brokers, financial planners and wealth managers too. All these entities require licences to operate.
Under current legislation, there are no real penalties for non-compliance with government’s transformation objectives.
Cofi is coming
Once the Conduct of Financial Institutions (Cofi) Act is implemented, however, the FSCA sees itself empowered to “set standards in relation to transformation and allowing it to exercise reasonable supervisory and enforcement measures against financial institutions that do not uphold commitments to transformation”.
The act is the second leg of government’s Twin Peaks reform and is currently before parliament.
Ahead of its implementation, the FSCA has begun preparing internally across its licensing, supervisory, and investigations and enforcement divisions.
In this phase, it is concluding memoranda of understanding with other relevant entities and has commenced with data collection on ownership of licensed entities to prepare for en-forcement.
It said financial institutions “will be required to have transformation plans in place and submit these plans to the FSCA at licensing stage.
“Already licensed institutions will be required to submit a plan as part of the Cofi Bill framework licensing conversion process within the relevant transitional period.”
The FSCA adds that “non-submission of a transformation plan during the licensing process may result in a licence application being considered incomplete”.
This is a veiled threat, and it is reasonable to assume an incomplete application will likely mean that a licence will be withheld.
In its Transformation Strategy, published last year, the FSCA said one of its key strengths “in supporting the transformation of the financial sector is its ability to take enforcement action against financial institutions”.
“This contrasts with other stakeholders such as the FSTC [Financial Sector Transformation Council], which is not able to sanction institutions, and even the B-BBEE commission, whose administrative actions are lim ited to fraud or misrepresentation. The FSCA will be able to act against financial institutions that do not adhere to commitments made in terms of their transformation plans.”
Directives
The FSCA said it could issue directives for non-compliance with an enforceable undertaking or administrative penalties if financial institutions fail to meet the targets identified in their transformation plans.
Tread carefully – Sakeliga
Business lobby group Sakeliga has advised financial service providers “to carefully weigh up providing the FSCA with transformation plans, BEE certificates, or other compliance materials”.
“The FSCA intends to use these against you,” Sakeliga said.