Special purpose vehicles (“SPVs“) have been the cornerstone of securitisation, structured finance and risk-transfer transactions in South Africa. [1] The question of how anti‑money laundering obligations apply to these ring-fenced, insolvency remote structures have remained something of a grey area, until now. On 2 March 2026, the Financial Intelligence Centre (“FIC“) published the Draft Public Compliance Communication No. 122 (“Draft PCC 122“) [2] for public consultation purposes. Draft PCC 122 addresses the practical application of the Financial Intelligence Centre Act No. 38 of 2001 (“FIC Act“) to SPVs that constitute accountable institutions under Item 11 of Schedule 1, and entities that make use of SPVs should take note of Draft PCC 122 prior to its finalisation by the FIC.

The FIC Act does not define ‘special purpose vehicle’. Draft PCC 122 fills this gap by describing an SPV as “any juristic person, trust, partnership or other legal arrangement established as a legally distinct entity for a specific, limited or ring-fenced objective, with its own assets, liabilities and legal status separate from its forming parent“. [3] The description is broad enough to capture issuer special purpose institutions used in securitisation, asset‑backed funding and structured finance, provided they are insolvency-remote and prohibited from conducting business outside their defined mandate. [4] The characteristics of an SPV include a ring-fenced memorandum of incorporation, founding documents setting out a restricted purpose, a shell structure that has outsourced all operational functions, and a link to a creator through ownership or mutual controlling structures. [5]

One of the most important takeaways is that there are no exemptions from compliance with the FIC Act for SPVs. [6] Both operative and passive SPVs must comply with all obligations set out in the FIC Act. An SPV cannot evade accountability merely because it lacks employees or operational capacity because what matters is that it has rights and obligations and may be used to channel funds, just as any other accountable institution. [7] Draft PCC 122 distinguishes between passive and operative SPVs. Passive SPVs lack their own staff and rely on the parent or linked entity for management and control. Operative SPVs have the operational capacity to conduct their own business functions. This classification has direct implications for registration and, critically, for delegation.

Each SPV that qualifies as an accountable institution must register independently with the FIC on the FIC’s goAML platform and must do so before it may be linked under any delegation structure.[8] Draft PCC 122 illustrates the point with a practical example: a registered credit provider creates a ring-fenced SPV and cedes all rights under existing credit agreements to it as part of a securitisation scheme. That SPV steps into the role of an accountable institution under Item 11(a) of Schedule 1, because it now carries on the business of a credit provider. [9]

Recognising that passive SPVs often have no operational capacity, Draft PCC 122 allows a passive SPV to request that it be linked to the primary accountable institution via a delegation structure. The request must be in writing, on formal letterhead, setting out the ownership, organisational structure and operations of both entities. [10] Delegation is, however, not available to operative SPVs, nor to any SPV that operates outside a group structure, has operational employees, or has diverse functions beyond a single, ring-fenced purpose. [11] Only passive SPVs linked to a group through a chain of ownership or mutual control qualify.

Draft PCC 122 does, however, provide some clarity in relation to group-level compliance. The sharing of compliance activities between group-linked SPVs and primary accountable institutions is not regarded as outsourcing to third-party service providers, and no formal outsourcing agreement is required within the same group. [12] The FIC encourages group‑wide Risk Management and Compliance Programmes (“RMCPs“), and delegated SPVs, i.e., SPVs that are delegated to a primary accountable institution under a delegation structure, may seek the assistance of the primary accountable institution to perform customer due diligence/ onboarding and to scrutinise client information against targeted financial sanctions lists.[13]

Importantly, delegation does not absolve the delegated SPV of responsibility. Each delegated SPV must maintain its own RMCP reflecting its specific risk profile, demonstrating how it identifies, assesses and mitigates money laundering, terrorist financing and proliferation financing risks.[14] A delegated SPV may rely on the primary institution’s reporting controls, but only insofar as the primary institution conducts transactions operationally on behalf of the delegated SPV. The reporting controls may include monitoring transactions to detect reportable activity and the actual reporting of such activity to the FIC. Notably, the delegated SPV’s compliance officer may be the same individual as the compliance officer for the primary accountable institution. Draft PCC 122 also reminds accountable institutions that they must conduct money laundering, terrorist financing and proliferation financing risk assessments at both a business and client level. The FIC notes that, owing to their operational role within industry, accountable institutions are best placed to understand and identify areas of potential vulnerability.

Entities that make use of SPVs should consider the provisions of Draft PCC 122, as once the draft has been finalised by the FIC, the public compliance communication will be authoritative and entities that are required to comply may be subject to enforcement action under the FIC Act if non-compliant.

An audit of all SPVs within group structures is a sensible starting point, any SPV falling within Item 11 of Schedule 1 of the FIC Act must be independently registered, and entities should confirm whether any are currently unregistered. Equally important is classifying each SPV as passive or operative, as only passive SPVs within a group qualify for delegation. Even where delegation is permitted, governance arrangements, including a tailored RMCP, an appointed compliance officer, customer due diligence processes and transaction monitoring controls, must be in place. The overarching message of Draft PCC 122 is unmistakable, no SPV is exempt from full compliance with the FIC Act. Entities that establish or make use of SPVs would be well advised to review their compliance frameworks now.

[1]       See ‘The Role of Securitisation in Developing Capital Markets in Africa’ published by Copernican Securities Proprietary Limited, FSD Africa and BII in October 2025

[2]       Guidance on the Application of the Financial Intelligence Centre Act, 2001 (Act 38 of 2001) to Special Purpose Vehicles that are Accountable Institutions under Item 11 of Schedule 1 of the FIC Act

[3]       See paragraph 1.2 of Draft PCC 122

[4]       Refer to the Banks Act No. 94 of 1990, read with the Securitisation Regulations, and guidance issued by the Prudential Authority

[5]       See paragraph 2 of Draft PCC 122

[6]       See paragraph 1.6 of Draft PCC 122

[7]       See paragraph 2.2 of Draft PCC 122

[8]       See paragraph 2.5 of Draft PCC 122

[9]       See paragraph 2.3 of Draft PCC 122

[10]     See paragraph 3.4 of Draft PCC 122

[11]     See paragraph 3.10 of Draft PCC 122

[12]     See paragraph 3.13 of Draft PCC 122

[13]     See paragraph 3.14 of Draft PCC 122

[14]     See paragraph 3.17 of Draft PCC 122

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In February 2026, the South African Reserve Bank (“SARB“) published a ‘Consultation Paper on the Cessation of the Prime Lending Rate’ (“Consultation Paper“) proposing the cessation of the prime lending rate (“PLR“) as a reference rate for lending in South Africa.[1] The paper recommends that the PLR be replaced with the SARB policy rate (“SPR“), commonly known as the repo rate, signaling a significant shift in how lending rates are referenced in the domestic financial system.[2] Entities with PLR-linked exposures, whether in the retail, commercial, or wholesale lending market, should take careful note of the proposals set out in the Consultation Paper.

The central theme of the Consultation Paper is that the PLR no longer serves the function for which it was originally conceived. Historically, the PLR represented the lowest interest rate that a bank would offer to its most creditworthy clients, with each bank setting its own rate independently.[3] Over time, however, the PLR evolved into a standardised reference rate, fixed at a spread of 350 basis points above the SPR since 2001.[4] In its current form, the PLR is not intended to be the basis for pricing credit, nor does it convey information about the reasonable minimum spread that lenders should charge their clients.[5] The SARB considers the PLR to be an administrative reference rate which has, for all intents and purposes, become redundant.[6]

Entities should appreciate the SARB’s concern that the continued use of the PLR perpetuates misconceptions in the market. There remains a general view in society that the PLR is the ‘base rate’ for negotiating lending rates and that the 350 basis points spread above the SPR contribute to excessive bank profits.[7] The SARB stresses that this is not the case, because bank lending rates are determined by several factors, including the cost of funding, the client’s risk profile, and the institution’s risk appetite[8] And that the spread between the PLR and the SPR was never intended to be a guaranteed interest margin for lenders. Replacing the PLR with the SPR is intended to eliminate these misconceptions and improve public understanding of how monetary policy affects borrowing costs.[9]

The SARB’s preferred option is for the SPR to be adopted as the alternative reference rate, with lenders quoting lending rates as the SPR plus a spread.[10] The Consultation Paper outlines several benefits of this approach, the SPR is easy to understand, it retains a direct link between lending rates and monetary policy, and it promotes transparency about the premium that banks charge their clients above the policy rate.[11] Critically, the intention is currently for the pricing of loans and advances to remain unchanged, with the adoption of the SPR merely enhancing pricing transparency, as banks would need to disclose the spread they charge above the SPR. Entities should note, however, that from a consumer’s perspective, spreads referenced to the SPR will appear numerically larger than those quoted against the PLR, even though the actual lending rate remains the same which will require careful management.[12] This potential for misperception underscores the need for clear communication strategies during the proposed transition from PLR to SPR. The consultation paper also considers the South African Rand Overnight Index Average (“ZARONIA“) as a possible alternative reference rate, particularly for wholesale market contracts.[13] However, the SARB does not recommend ZARONIA for retail contracts, as it would introduce unnecessary complexity because ZARONIA is a floating rate unrelated to either the PLR or the SPR, thereby increasing the risk of value transfer.[14]

An important regulatory consideration highlighted in the Consultation Paper is that the PLR fails to comply with the International Organization of Securities Commissions (“IOSCO“) principles for financial benchmarks.[15] One critical shortfall is that the PLR is no longer an accurate representation of the economic realities of the interest it seeks to measure. This concern is reinforced by the Financial Sector Conduct Authority’s (“FSCA“) draft benchmark regulations, which seek to enhance the integrity and accuracy of financial benchmarks and ensure alignment with international standards.[16] Entities operating in the South African financial markets should therefore view this reform not merely as a domestic initiative, but as part of a broader effort to align South Africa’s benchmark framework with global best practice.

The scale of the proposed transition is substantial. Estimates suggest that there are more than 12 million contracts currently referencing the PLR, with an estimated value exceeding R3,2 trillion, of which retail mortgages and consumer loans account for 37% of total exposure.[17] The Consultation Paper envisions three essential steps for a successful transition, adding fallback language in new PLR-linked contracts in anticipation of PLR cessation, issuing new contracts that reference the SPR directly, and transitioning legacy PLR-linked contracts.[18]

To maintain alignment in outcomes and minimise basis risk, the fallback spread for existing contracts should be set at the current fixed spread of 350 basis points above the SPR, ensuring continuity and minimising disruption.[19] The SARB cautions against developing contract language over a long period using an iterative approach, as unnecessary variability in fallback language would likely cause confusion among retail borrowers and lead to legal disputes. Banks are encouraged to leverage the robust contract language developed during the Johannesburg Interbank Average Rate (“JIBAR“) transition process.[20] For legacy contracts, the Consultation Paper acknowledges that it may not be feasible to amend existing retail contracts individually, given the number of affected contracts and applicable consumer protection laws and therefore, proposes that safe harbour provisions be included in relevant legislation to facilitate the migration of such contracts and minimise legal costs.[21]

A comprehensive stock-taking exercise will also be required to assess the scale and nature of legacy contracts tied to the PLR, including quantifying the volume and maturity profile of affected contracts, identifying counterparties, and evaluating legal considerations.

Entities should note that the proposed active transition from the PLR is not expected to commence until 2027 at the earliest, following the completion of the JIBAR transition.[22] In the interim, the SARB intends to undertake extensive data collection, stakeholder consultation, and the development of draft transition plans. The formal public consultation process is open for one month from the date of publication, and all comments and queries should be directed to the SARB at sarbwgrirb@resbank.co.za. Affected entities, particularly those with significant PLR-linked portfolios, are well-advised to engage in this consultation process and begin assessing their own exposures in preparation for the proposed transition ahead.

[1]        See the Consultation Paper available on https://www.resbank.co.za/en/home/publications/publication-detail-pages/other-publications/2026/prime-consultation-paper (accessed on 17 March 2026)

[2]        See paragraphs 1 and 8 of the Consultation Paper

[3]        See paragraph 3 of the Consultation Paper

[4]        See paragraph 2 of the Consultation Paper

[5]        See paragraph 2 of the Consultation Paper

[6]        See paragraph 3 of the Consultation Paper

[7]        See paragraph 1 of the Consultation Paper

[8]        See paragraph 2 of the Consultation Paper

[9]        See paragraph 4 of the Consultation Paper

[10]      See paragraph 4 of the Consultation Paper

[11]      See paragraph 4 of the Consultation Paper

[12]      See paragraph 4 of the Consultation Paper

[13]      See paragraph 4 of the Consultation Paper

[14]      See paragraph 4 of the Consultation Paper

[15]      See paragraph 3 of the Consultation Paper

[16]      See paragraph 3 of the Consultation Paper

[17]      See paragraph 5 of the Consultation Paper

[18]      See paragraph 5 of the Consultation Paper

[19]      See paragraph 5 of the Consultation Paper

[20]      See paragraph 5 of the Consultation Paper

[21]      See paragraph 5 of the Consultation Paper

[22]      See paragraph 5 of the Consultation Paper

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The draft regulations to facilitate planning for the procurement and establishment of transmission capacity by private parties (“the Regulations”) were recently gazetted on 3 April 2025 by the Department of Energy and Electricity.

The Regulations are currently open for public comment, with the closing date for such comments being 3 May 2025.

The Regulations follows the Ministerial determination for the establishment of 1164km of new transmission powerlines in strategically chosen corridors in the Northern Cape, North West and Gauteng by August 2029, which powerlines will ultimately yield a new generation capacity of 3222MW.

The Regulations, which are broken down below, focus primarily on a range of relevant issues in regard the procurement of new electricity transmission infrastructure and signify an important milestone in private sector involvement in this pivotal industry.

According to section 34(1) of the Electricity Regulation Act 4 of 2006 (“ERA“), the Minister of Mineral Energy and Electricity (“the Minister“) may, in the event of the failure of a market or an emergency, or for the purposes of ensuring security of energy supply in the national interest, after consultation with the National Energy Regulator of South Africa (“NERSA”) and the Minister of Finance, by notice in the Gazette, make a determination that, inter alia, new electricity transmission infrastructure is needed to ensure the optimal supply of electricity.

Sections 34(3) and (4) of the ERA set out the various types of provisions that may be included in the determination, namely –

1. the nature, type and extent of the required electricity transmission infrastructure;
2. whether such infrastructure will be managed, maintained and/or operated by an organ of state;
3. whether the person who constructs, manages, maintains or operates the electricity transmission infrastructure will also own the infrastructure;
4. whether the electricity transmission infrastructure (or the electricity supplied by means of the infrastructure) will be purchased or used by a person designated in the determination as the buyer (or user), as well as whether the infrastructure or electricity in question may only be sold or used by such buyer (or user);
5. the manner in which the procurement process for the establishment of the required electricity transmission infrastructure will be conducted; and
6. provisions dealing with relevant ancillary matters.

Such determinations may also establish an energy infrastructure project. This type of project includes new generation capacity and new electricity transmission infrastructure, as well as other interconnected or related infrastructure, installations, buildings, structures, facilities, systems or processes, including gas infrastructure.

Recent Ministerial Determination

Three days before the Regulations were published, a significant determination was announced in terms of section 34 of the ERA. This determination envisions the establishment of 1164km of new transmission powerlines in strategically chosen corridors in the Northern Cape, North West and Gauteng by August 2029, which powerlines will ultimately yield a new generation capacity of 3222MW. This pilot programme has been described by the Minister as a “step change” in the industry, as it signifies the beginning of major private sector investment and participation in this sphere. As such, this determination is closely linked to one of the key objectives of the Regulations below.

The Minister has confirmed that this forms part of the Government’s stated intention to combat structural constraints and logistical inefficiencies insofar as electricity transmission in South Africa is concerned, and ultimately to contribute to energy security and the growth of the economy as a whole. As such, this programme has specifically designed in such a way so as to incentivise public sector involvement. For example, the Minister has explained that it will be based on the principle of “late stage tender”, meaning that the Government will take responsibility for issues relating to servitudes and rights of way, as well as environmental impact assessments and licencing. Such issues ideally being expedited and resolved in order for the relevant development rights and permits being in place, prior to private sector involvement, in order to alleviate any related burdens being placed on private sector players and to avoid any delays that may arise as a result.

Practically, the first stage of the programme will be a request for qualification in July 2025, after which there will be a request for proposals in November 2025 and then an evaluation thereof. As such, this determination will inevitably be impacted by the Regulations and will provide a useful example of how they will play out in practice, particularly given that both of these developments have the same stated goal of facilitating private sector participation in this sector.

Application of The Regulations

The Regulations apply to, inter alia, the consultation requirements in respect of such determinations and determinations on transmission capacity procurement from transmission service providers.

It is worth noting that the Regulations also provide for instances where the Minister may, upon application and by notice in the Gazette, allow for certain exemptions from compliance with the Regulations.

The Regulations will not apply to the Transmission System Operator SOC Limited (“the TSO SOC”), even once it is established.

Objectives of The Regulations

The Regulations have four key objectives, namely to –

1. facilitate planning for the procurement and establishment of transmission capacity by private parties in order to expedite the establishment of new electricity transmission infrastructure;
2. promote measures to enhance the reliability and security of the national transmission power system;
3. facilitate electricity generation connection into the transmission power system; and
4. ensure consistency and predictability insofar as determinations that new electricity transmission infrastructure is needed to ensure the optimal supply of electricity are concerned.

Summary of The Regulations

a) Deviations from the IRP and the TDP

Sections 34(6)(b) and 37 of the ERA state that when the Minister makes a determination, the Minister must have regard to the Integrated Resources Plan (“IRP”) and/or the Transmission Development Plan (“TDP”) but may deviate from such plans in an emergency or if it is in the national interest to do so.

The Regulations set out various factors that the Minister ought to consider when assessing whether such a deviation is required. These factors include –

1. whether the relevant prevailing circumstances warrant such a deviation;
2. the extent to which the IRP or TDP appropriately orders or prioritises transmission capacity requirements, with reference to factors, such as urgency, impact, feasibility and readiness;
3. the key components of the infrastructure that will be required for purposes of establishing the transmission capacity in question; and
4. other relevant factors.

The Regulations then reiterate what is stated in sections 34(7) and (8) of the ERA, namely that if the Minister intends to make a determination containing such a deviation, unless it is reasonable and justifiable not to do so in the circumstances, the Minister must publish a notice in the Gazette, inviting the public to comment on the proposed deviation. The Regulations go on to specify that such notice must also include the rationale for and the scope of the proposed deviation.

b) Consultations

When the Minister intends to make a determination, the Minister must first consult with NERSA and the Minister of Finance.

According to the Regulations, to meet this requirement, the Minister must submit to NERSA and the Minister of Finance –

1. the terms of the proposed determination;
2. an explanation of the rationale for the Minister’s specific proposals
3. an explanation of the rationale for and scope of any proposed deviation from the IRP or TDP. In this regard, if the Minister receives any comments from the public in response to the notice, the Minister must consider these comments for purposes of preparing this explanation; and
4. details of the anticipated timing of the determination and of the procurement and establishment of the selected transmission capacity.

Once the Minister has submitted the abovementioned materials, NERSA and the Minister of Finance have 30 days (from the date of receipt of the submissions) to provide the Minister with their written comments. The Minister must then consider all of these comments, before the determination is finalised.

c) Determinations

In a written determination which states that new electricity transmission infrastructure is needed to ensure the optimal supply of energy, the Minister must specify the –

1. transmission capacity required;
2. identity of the buyer or user; and
3. procurer for the transmission capacity required.

The Minister may also include provisions dealing with ancillary matters in the determination. When deciding whether to do so, the Regulations require the Minister to specifically consider –

1. the extent and scope of any activities that will be undertaken by the Minister to facilitate the implementation of a determination ; and
2. any feasibility studies or other preparatory activities that must be undertaken before the commencement of a procurement process in respect of transmission capacity.

4. The effect of such determinations

The transmission capacity concerned must be procured in accordance with the terms of the determination and the applicable law. It may not be established by the TSO SOC on its own initiative.

If a determination is made in respect of transmission capacity where the TSO SOC has already undertaken management or development activities (prior to the date of the determination), the TSO SOC must provide the procurer with all relevant information regarding those activities and must cooperate with the procurer to the extent necessary for purposes of conducting the procurement process.

The buyer or user is –

1. together with the procurer, bound by the determination and must do all that is necessary to give effect to and enable the implementation of the determination; and
2. bound by the outcome of a procurement process conducted by the procurer following a determination and must conclude the transmission services agreement with the transmission service provider and then do all that is necessary to implement the transaction.

The Minister may still amend or revoke a determination in writing at any time.

5. Feasibility studies

Feasibility studies may be undertaken in respect of the transmission capacity when it is (or may be) the subject of a determination. These studies may be undertaken by the Minister (prior to the finalisation of a determination) or the procurer (prior to or in the course of the implementation of a determination). Either of these parties could also commission a third party to undertake such a study. The Minister and the procurer must then have regard to the feasibility study when making or implementing the determination.

The IPP Office is currently undertaking a pilot project for independent transmission projects in line with the objectives of the Regulations. The IPP Office issued an RFI in December 2024 with the objection of attracting private sector’s involvement in the transmission sector. This RFI is intended as a market sounding exercise with the intention of releasing a pilot tender during 2025.

The Regulations set out certain factors which must form part of the considerations and outcomes of any such feasibility study, namely the –

1. anticipated costs of the transmission capacity or energy infrastructure project;
2. proposed allocation of key financial, technical and operation risks between the prospective buyers or users and the transmission service providers; and
3. material legal, financial and technical requirements, including consents that will be required in order to establish the transmission capacity or energy infrastructure project.

6. Cross-border transmission capacityCross-border transmission capacity

Certain determinations may require or contemplate that cross-border transmission capacity be established. In this event, –

1. the Minister must be satisfied that adequate agreements, memoranda of understanding or other arrangements are or will be in place between the South African Government and the relevant foreign government, utility or international organisation, to enable the establishment of the transmission capacity in question; and
2. the procurement process must be planned and conducted with due regard to such arrangements.

7. Energy infrastructure projects

Before making a multi-component determination in respect of an energy infrastructure project, the Minister must also be satisfied, based on a feasibility study, that it would be advantageous to the Government for the required new generation capacity, infrastructure and other matters to be combined into an energy infrastructure project.

In a multi-component determination, the Minister must specify the key components of the new generation capacity, the infrastructure and other matters (as defined above) that will be the subject of such energy infrastructure project.

8. Transmission Services Agreement (“TSA”)

Before the buyer or user enters into a TSA, the procurer must ensure that the TSA –

1. represents value for money;
2. transfers the appropriate technical, operation and financial risks to the transmission service provider;
3. contains effective mechanisms for the implementation, management, enforcement and monitoring of the TSA; and
4. allows for adequate due diligence by the buyer or user in relation to the transmission service provider’s competence and capacity to meet its obligations in terms of the TSA.

The buyer (or user) is required to cooperate in good faith with the procurer and with any transmission service provider to ensure that the required interface between the buyer (or user) and the transmission service provider is comprehensively provided for in the TSA and is given practical effect to, in a manner which maximises coordination and efficacy (in the national interest).

In order to do so, the buyer or user must provide the procurer and transmission service provider with such information and documentation, and with such access to its transmission power system.

9. Cost recovery

When determining licence conditions relating to the setting or approval of prices, charges, rates and tariffs charged by licensees and when setting or approving a transmitter’s tariffs, the Regulations require NERSA to ensure that the buyer (or user) is able to recover, at least, the full amount of the costs they incurred in certain categories, namely –

1. capacity or availability payments or any other compensation mechanism provided for in the TSA, made for transmission capacity;
2. expropriation costs and reimbursement to the transmission services provider for the costs of acquisition of servitudes and similar rights;
3. any other payments made by the buyer (or user) in administering, managing and reporting in respect of a TSA;
4. the efficiently incurred costs of the buyer (or user) in administering, managing and reporting in respect of a TSA;
5. the costs of, and amounts paid by, the buyer (or user) arising from the termination of a TSA; and
6. all other costs efficiently incurred by the buyer (or user) in giving effect to a determination.

The buyer (or user) may request that NERSA issues a cost recovery assurance letter to them before entry into any TSA. NERSA must then respond within 30 days, confirming the categories of costs that will be recoverable through the transmitter’s tariffs.

In this event, the buyer (or user) will, upon request, need to provide NERSA with any documentation that is reasonably required in order to finalise the letter.

CONCLUSION

The Regulations are a crucial development in unlocking the grid constraints that has hindered the advancement of renewable energy capacity in South Africa. The manner in which the Regulations intend to facilitate planning for the procurement and establishment of transmission capacity by private parties will allow for private sector involvement which has been successfully implement on the generation side over recent years. In addition, it is worth following the developments of the distribution infrastructure, particularly in the context of the Regulations coming into force in the future.

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On 14 March 2025, the Financial Intelligence Centre (“FIC“) published Draft Directive 3A (“DD 3A“) and Draft Public Compliance Communication 50A (“DPCC 50A“) in terms of the Financial Intelligence Centre Act, 38 of 2001 (the “FICA“), for purposes of consultation and public comment. DD 3A and DPCC 50A purport to amend Directive 3 and Public Compliance Communication 50 (“PCC 50“) previously published by the FIC. DD 3A sets out the procedure to be followed by all accountable institutions and any other person obligated to report to the FIC (“Reporting Institutions“) should a reporting failure occur or a defective report be submitted. DPCC 50A prescribes measures for Reporting Institutions to mitigate the loss of intelligence data by the FIC due to reporting failures by a Reporting Institution, including due to defective reports. This article will explore the purpose of and practical effect that both DD 3A and DPCC 50A will have on Reporting Institutions once they are in effect.

It is essential that DD 3A and DPCC 50A be read in conjunction as the two publications speak to one another.

To understand the purpose behind DD 3A and DPCC 50A, we have to remind ourselves of the fundamental obligations and objectives of the FIC. In terms of section 3(1) of the FICA, the principal obligation of the FIC is to tackle activities related to money laundering (“ML“), terrorist financing (“TF“) and proliferation financing (“PF“). To achieve its objectives, the FIC requires Reporting Institutions to be astute in identifying ML, TF and PF activities as well to be fastidious in filing reports to the FIC where they are required to do so.

DD 3A requires Reporting Institutions to notify the FIC of any failure to file a report and thereafter to remedy such failure. For purposes of DD 3A, the FIC obtains information from Reporting Institutions in the form of reports which are filed with it in accordance with sections 28 (which relates to cash threshold reporting), 28A (which relates to terrorist property reporting), 29 (which relates to suspicious and unusual transaction reporting) and the newly added 31 (which relates to international funds transfer reporting (“IFTR“)). In discharging its obligations, the FIC must analyse and interpret information as well as to store such information for the requisite period, upon receipt of reports filed with it. When Reporting Institutions fail to submit the requisite reports to the FIC, the FIC loses intelligence data required to achieve its objectives.

Directive 3 came into effect on 12 September 2014, whilst sections 31 and 56 of the FICA came into effect on 1 February 2023. DD 3A proposes to amend Directive 3 so as to include the obligation, on the part of a Reporting Institution, to notify the FIC of any failure to submit an IFTR or submitting an IFTR that is considered defective by the FIC, as well as to require Reporting Institutions to remedy any such failure or deficiency, as the case may be. Moreover, DD 3A includes a reference to PF which had been omitted from Directive 3.

Upon a Reporting Institution becoming aware of a failure to report to the FIC, it must mitigate the loss of intelligence data by, inter alia –

1. reporting such failure to the Executive Manager, Compliance and Prevention of the FIC, in writing, as soon as the Reporting Institution becomes aware of the failure; and
2. requesting a meeting with the FIC to discuss any mitigating factor(s).

It is noteworthy that the aforementioned arrangements for mitigating lost intelligence as a result of a failure to report does not absolve a Reporting Institution of its ongoing reporting obligations under the FICA or prevent enforcement action from being taken against such Reporting Institution by a supervisory body.

Similar to Directive 3, PCC 50 (published on 31 March 2021) came into effect before sections 31 and 56 of the FICA. DPPC 50A proposes to amend PCC 50 to include, inter alia, IFTRs. DPCC 50A offers guidance to Reporting Institutions and sets out various measures aimed at mitigating lost intelligence data due to reporting failures or defective reporting. A defective report is one that has been rejected by the FIC due to problems relating to its validation or a report in which the data given is inaccurate or outright false.

CONCLUSION

With the deadline for public comment on the DD 3A and the DPCC 50A having closed on 21 March 2025, it is expected that the final publications will be published in the not too distant future. Both publications are a welcome update as they address a major lacuna in the FICA regulations, aid the FIC in fulfilling its obligations and fortify anti‑ML, TF and PF laws of South Africa. Reporting Institutions are advised to remain cognisant of their reporting obligations in terms of DD 3A and the available mitigation measures contained in DPCC 50A to continuously fulfil their obligations and avoid any enforcement action by supervisory bodies such as administrative fines and/or undesirable reputational damage.

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Having been involved in a number of contract negotiations relating to small to medium sized projects in the private sector, we have become aware of the fact that parties do not always use appropriate standard form contracts for this purpose. In many instances, the owner does not have the requisite technical expertise to design the solar installation, plant, road or other project (as the case may be), and therefore relies on the contractor to do so. Despite the fact that the contractor designs, parties sometimes use the popular standard form contract which is generally used in the building industry in South Africa, namely the Joint Building Contracts Committee (JBCC) Principal Building Contract. Although a good agreement, the use of this standard form document is not recommended where the contractor designs because it has been developed for use in a situation when the owner (and not the contractor) designs. If such a document is used as a basis in a scenario where the contractor designs, many changes need to be made to cater for the fact that the contractor takes design responsibility. This not only leads to a lot of unnecessary work, time delays and legal costs, but also results in many points of disagreement between the parties because the standard form document used, does not offer conventional wording to cater for the situation concerned and, as a result, the parties have difficulty in finding consensus.

In 2021, the International Federation of Consulting Engineers (“FIDIC”) published a second edition of what they call “the Short Form of Contract” or “Green Book”. In what follows, this second edition is, for the sake of convenience, referred to as “FIDIC Green Book II”. This is a very welcome addition to the FIDIC suite of standard form contracts and, in a situation where the contractor designs, is a much better starting point than a standard form contract developed for a situation where the employer designs.

FIDIC Green Book II is adaptable in that it caters not only for scenarios where the contractor constructs the works in accordance with a design provided by the employer, but also for scenarios where the works are partly or fully designed by the contractor. It has been developed to serve as a straightforward document that includes the essential commercial provisions in a situation where the perceived level of risk is relatively low and where there is a need for simplification of contract administration. As many owners who undertake small to medium sized projects do not have advanced contract administration skills available to them, FIDIC Green Book II offers an owner much needed guidance in this regard – it not only comes with recommended wording for the 3 most commonly used guarantees, but also sample wording for some 40 forms of communication/notices (catering for the most common situations that present themselves during and at completion of the construction process) which one party may give to the other. These forms should make owners aware of the need for providing a notice in a particular scenario – something a party may not always think of. This is particularly important where a failure to provide the notice could be to a party’s detriment.

Another advantage of FIDIC Green Book II is that all the risks which the owner assumes, are clearly spelled out, as are the entitlements of the contractor (as regards to time and money) when the respective eventualities materialise.

As regards the contract price, parties are given 5 options, namely (i) lump sum price (single payment); (ii) lump sum price (stage payments); (iii) lump sum price with bill of quantities; (iv) re-measurement with a bill of quantities or (v) a ‘cost plus’ arrangement.

A very handy suggested insurance schedule is also provided, which serves as a tick box for making sure that all necessary types of insurance have been arranged/considered.

Provision is made for an engineer to be engaged by the owner. This could either be an in-house person or an independent firm or person. The engineer (acting neutrally) makes determinations – in this regard the provisions of the popular FIDIC clause 3.5 are also used in FIDIC Green Book II.

In terms of FIDIC Green Book II, disputes that are not settled informally by the parties, are to be dealt with (in the first instance) by way of adjudication. Rules for the conduct of the adjudication and a proposed agreement with the adjudicator are provided. Either party may have the adjudicator’s decision revised by arbitration by a single arbitrator. If after the adjudication process no notice of dissatisfaction in respect of the outcome is given within the specified time, the adjudicator’s decision stands.

Where the contractor designs, the design must comply with the owner’s requirements and must be fit for purpose.

A Defect’s Notification Period (DNP) as well as liquidated damages are provided for.

Although the FIDIC clauses could be amended by the parties, this should not be undertaken by inexperienced draftsmen. Great care should be taken to ensure that amendments don’t have unintended consequences, or violate any of the 5 “FIDIC Golden Principles” which are specified in the Guidance Notes to FIDIC Green Book II and are designed to ensure that modifications to the FIDIC clauses:

• are limited to those necessary for the particular features of the site and the project, and necessary to comply with the applicable law(s);

• do not change the essential fair and balanced character of a FIDIC contract; and

• the contract remains recognisable as a FIDIC contract.

In our view FIDIC Green Book II is a much more appropriate standard form agreement to use where the contractor designs and fills a lacuna in the South African construction and engineering industry in that, firstly, it provides a simple, easy-to-understand, and balanced template that can be used for small to medium projects, irrespective of which party designs (contractor or owner), and secondly, it brings to a contracting situation the well-respected, conventional wisdom and methodology of the FIDIC suite which have been tried and tested internationally for many decades.

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Introduction:

1. In practice the need may arise for an insurer to appoint a third party to collect premiums on its behalf. This can be due to a number of reasons, for example where the insurer is a member of a larger group and underwrites insurance products which are linked to a non-insurance product made available to consumers by its sister company. Typical examples are groups that are active in the retail industry, or act as credit providers or service providers, and own a captive insurer which writes third party business and is both a financial services provider (FSP) in terms of the Financial Advisory and Intermediary Services Act, No 37 of 2002 (FAIS) and an insurer (for ease of reference an ‘FSP-insurer’). In such a scenario, the question arises as to whether a) the sister company of the FSP-insurer may collect premium on behalf of the FSP-insurer if the sister company is not an intermediary/FSP, b) whether the sister company can receive premium payments from policyholders into its own bank account (as opposed to that of the FSP-insurer), and c) whether the sister company may collect premiums on behalf of more than one FSP-insurer. In what follows, we give an overview of the provisions of section 13(1)(c) of FAIS in this regard, and consider an exemption which has been granted as regards its operation.

Discussion:

2. In terms of section 1 of FAIS, ‘representative’ (in contradistinction to an ‘intermediary‘ in insurance parlance) is defined as meaning any person, including a person employed or mandated by such person, who renders a ‘financial service’ to a client for or on behalf of an FSP, either in terms of conditions of employment or in terms of any other mandate, but excludes a person rendering clerical, technical, administrative, legal, accounting or other service in a subsidiary or subordinate capacity, which service a) does not require judgment on the part of the latter person, or b) does not lead a client to any specific transaction in respect of a financial product in response to general enquiries.
3. FAIS defines ‘financial service‘ as meaning any service contemplated in the definition of ‘financial services provider’, including any category of such services. A ‘financial services provider‘ is in turn defined in FAIS as ‘any person, other than a representative, who as a regular feature of the business of such person, a) furnishes advice, or b) furnishes advice and renders any intermediary service, or c) renders an intermediary service’. FAIS defines ‘intermediary service’ as including collecting or accounting for premiums or other moneys payable by the client in respect of a financial product, and a ‘financial product’ includesa long-term or a short-term (non-life) insurance contract or policy. The collection of premiums on behalf of an FSP-insurer therefore clearly falls within the definition of ‘intermediary service’ and is thus a ‘financial service’ as contemplated in FAIS.
4. A ‘representative’ as defined in FAIS is an agent of the FSP which represents that FSP when rendering ‘financial services’ to clients. As a consequence, the general principles applicable to agency as entrenched in the common law, apply to ‘representatives’ as contemplated in FAIS. FAIS not only codifies the common law principles of agency insofar as they relate to the relationship between an FSP and its ‘representatives’, but also prescribes additional requirements applicable to that relationship.
5. By law an agent (and therefore also a FAIS ‘representative’) concludes juristic acts (e.g. enters into contracts) or other acts on behalf of the agent’s principal (such as an FSP). The rights and duties arising from such acts are those of the principal and not of the agent, although the act itself is concluded by the agent. In other words, if the agent has the requisite authority, it is the principal and not the agent who is the party to the contract.
6. Whether an agent intends to conclude a juristic act for himself or on behalf of a principal is a question of fact. Since a person who concludes a juristic act ordinarily acts for himself and not for another person, the intention to act as agent must be apparent to the person to whom the expression of intention is addressed.
7. FAIS inter alia requiresa person who acts as a representative of an FSP, prior to rendering a financial service, to provide to the client confirmation by the FSP that a service contract or other mandate to represent the FSP exists, and that the FSP accepts responsibility for activities performed by the representative that fall within the scope of the mandate.
8. Section 13(1)(c) of FAIS provides that a person may not render financial services or contract in respect of financial services other than in the name of the FSP of which such person is a representative. The regulators are on record as stating that the reasons for this requirement include the following – 

• to ensure that consumers of financial services know with whom they are contracting and who will ultimately be responsible for performing in terms of their contract;
• to remove any uncertainty as to whether the representative is acting for or on behalf of a principal, or on its own behalf;
• to prevent what they regard as the undesirable business practice of ‘renting an insurance licence’ which the regulators consider to be undesirable, contrary to the legal position of a ‘representative’ as contemplated by FAIS, and creating uncertainty and the likelihood of disputes, which may be prejudicial to clients;; and
• to ensure that all monies received by an FSP and its representatives, are duly reported on by the auditor of the FSP, as required in terms of FAIS.

9. When section 13(1)(c) of FAIS is applied to the factual scenario sketched in paragraph 1 above, it has the effect that, unless an exemption is granted under section 13(1)(a)(ii), a representative of the FSP-insurer may not contract directly with or be authorised by the FSP-insurer in the representative’s own name in respect of the collection of premiums. This is so because the collection of premium constitutes the rendering of financial services as set out above, and a ‘representative’ may not (absent an exemption) render financial services or contract in respect of financial services other than in the name of its FSP.
10. FAIS requires that a representative’s business documentation must clearly reflect the position that it is not acting as a principal, but as a representative. The business documentation must further clearly and prominently indicate the name of the FSP on whose behalf the representative acts.
11. FAIS does not prohibit an FSP-insurer from delegating the function of premium collection to any one or more of its representatives. The representative may therefore (in the factual scenario sketched in paragraph 1 above) collect premiums in its capacity as a representative of the FSP-insurer, but (absent an exemption) may only do so in the name of the FSP, not in its own name.

The Juristic Representatives Exemption:

12. On 26 February 2021 the Commissioner of the Financial Sector Conduct Authority, acting under section 44(4) of FAIS, issued FAIS Notice 15 of 2021, exempting juristic representatives from the provisions of section 13(1)(c) of FAIS to the extent and subject to the conditions set out therein. The exemption is known as the Exemption of Juristic Representatives, and came into effect on 1 March 2021. It was set to expire on 31 December 2023, but has since been extended and will now expire on 20 June 2026 (unless extended again). (For ease of reference, we will hereinafter refer to this exemption as the Juristic Representatives Exemption, or the exemption.)
13. The exemption is limited in its scope and extent and is subject to certain conditions. A juristic representative to which it applies, is only exempted from section 13(1)(c) of FAIS when rendering a ‘specific financial service‘ on behalf of a particular FSP[1] (typically the FSP-insurer in the factual scenario sketched in paragraph 1 above). For current purposes, the term ‘specific financial service‘ as used in this exemption means the collection, receiving or holding of or dealing in any other manner with premium on behalf of a ‘particular FSP’ in respect of a financial product issued by that FSP as a registered insurer.
14. Importantly, for purposes of the exemption, the term ‘juristic representative’ means a person that is a) a company or a close corporation (as defined in section 1 of the Companies Act No. 71 of 2008), b) appointed as a representative of only one particular FSP, and c) has a written mandate from that the ‘particular FSP’ to render a ‘specific financial service’ on behalf of that ‘particular FSP’. For the exemption to apply, the juristic representative concerned must a) have a written mandate from the ‘particular FSP’ to render the specific financial service, b) annually obtain written confirmation from the ‘particular FSP’ that the latter still meets the relevant criteria, and c) comply with certain provisions of the General Code of Conduct for Authorised Financial Services Providers and Representatives.
15. Failure by the juristic representative to comply with the provisions of the exemption will result in the exemption not being available to that juristic representative, which means that section 13(1)(c) of FAIS will apply fully as if no exemption has been granted.
16. If regard is had to the aforegoing, the question as to whether the exemption granted by the exemption is available to an FSP-insurer and its representative (as juristic representative of the insurer) in a particular factual context will also depend on whether the FSP-insurer complies (and continues to comply) with each of the requirements in set out in the definition of ‘particular FSP’ as set out in the exemption.

Conclusion:

17. In conclusion, if an FSP-insurer complies with all the requirements set out in the definition of ‘particular FSP’ as contained in the Juristic Representatives Exemption, and the representative concerned complies with all the requirements set out in the definition of “juristic representative”contained therein, then the Juristic Representative Exemption is indeed available to them and the representative may collect premium in their own name and into their own bank account on the FSP-insurer’s behalf until 20 June 2026, but may only do so on behalf of one FSP-insurer. This means that the exemption does not allow the juristic representative to do premium collection for multiple FSP-insurers, the idea being to limit the arrangement to a very bespoke factual scenario that will be relatively easy to regulate.

1. [1] In the Juristic Representatives Exemption, ‘particular FSP’ means a Category I or Category IV authorised FSP that ‑ 

(a) is also an insurer as contemplated in the Short-term Insurance Act, 53 of 1998 or the Long-term Insurance Act, 52 of 1998;

(b) is satisfied and able to demonstrate that the specific financial service rendered on behalf of the FSP by its juristic representative will not ‑ 

• materially impair the quality of the governance framework of the particular FSP, including its ability to manage its risks and meet its legal and regulatory obligations;

• impair the ability of the relevant regulators to monitor the particular FSP’s compliance with regulatory obligations; and

• compromise the fair treatment of or continuous and satisfactory service to clients; and

• monitors, manages and regularly reviews the level and standard of service rendered by the juristic representative to clients, as well as the juristic representative’s performance under and compliance with the mandate.

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Gone are the days of box-ticking.

The FSCA has imposed penalties on financial services providers for non-compliance with FICA

The Financial Sector Conduct Authority (FSCA) has recently imposed administrative sanctions on three financial services providers (FSPs), in each case for failing to comply with certain provisions of the Financial Intelligence Centre Act (FICA).

The fines range from R400,000 to a staggering R16 million.

In each case, Risk Management and Compliance Programmes (RMCP) for Anti-Money Laundering and the Combating of the Financing of Terrorism (AML/CFT) were in place, however, the FSCA found these RMCPs to be inadequate. Further, in each case there were failures to implement the RMCP. Deficiencies in the RMCPs included that the FSP failed to set out how it would comply with FICA as it relates to, among other things: (a) examining complex or unusually large transactions and unusual transaction patterns; (b) performing customer due diligence when, during the course of a business relationship, the FSP suspects that a transaction or activity is suspicious or unusual; (c) terminating business relationships; (d) enabling the FSP to determine when a transaction or activity is reportable to the Financial Intelligence Centre (FIC); and (e) the implementation of its RMCP. The FSCA consistently highlighted the vital role that RMCPs play in mitigating money laundering and terrorist financing risks.

Other grounds for imposing the fines included that FSPs failed to identify and verify the identity of some clients, including the beneficial owners of some clients, failed to provide evidence of having conducted ongoing due diligence for some client and failed to screen clients, including beneficial owners, against the Targeted Financial Sanctions Lists (TFSL) issued by the United Nations Security Council.

What this reveals is that the expectations of the FSCA on FSPs have increased. It is inadequate that an FSP ticks the box and merely has an RMCP in place. Failure to fully comply carries serious consequences.

SA addressed technical deficiencies in its AML/CFT regime owing to grey listing

South Africa was placed on the grey list by the Financial Action Task Force (FATF) in February 2023. An Action Plan was adopted listing 22 action items. South Africa is required to address all 22 to exit the FATF grey list.

The deadlines for addressing the action items fall between January 2024 to January 2025.

Even before being grey listed, efforts were made to address the technical deficiencies in South Africa’s AML/CFT regime. The hope at that time was to avoid grey listing. For example, the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act (GLAA) was adopted. The GLAA amended no fewer than five pieces of legislation, including the Trust Property Control Act and the Companies Act, requiring gathering beneficial ownership information and submitting this beneficial ownership information to the relevant regulators.

Notwithstanding that many of the technical deficiencies had already been addressed, South Africa’s efforts to avoid grey listing were unsuccessful.

Since having been grey listed, various regulators, including the FIC and National Treasury as well as the FSCA, which is responsible for supervising and enforcing FSPs’ compliance with FICA, have been addressing the items in the Action Plan.

South Africa saw a flurry of legislative amendments and regulations to fill remaining technical lacunae in South Africa’s AML/CFT regime. This included expanding the mandate of the FIC under FICA to allow for more effective monitoring and detection capabilities and the fortification of administrative sanctions for non-compliance (which have now been put to good use).

The FSCA shifts its focus to enforcement to leave the FATF’s grey list

Enforcement of FICA and other legislation and regulations, such as the GLAA, now appear to be the prime objective.

This focus on enforcement appears to be much in line with the FATF’s progress evaluation, as reported on 23 February 2024.

In its report, the FATF indicates that South Africa should continue to work on implementing its Action Plan to address its strategic deficiencies, which includes (amongst others) (a) improving risk-based supervision and demonstrating that all AML/CFT supervisors apply effective, proportionate, and effective sanctions for noncompliance; (b) ensuring that competent authorities have timely access to accurate and up-to-date beneficial ownership information and apply sanctions for breaches of violation of beneficial ownership obligations; (c) ensuring the effective implementation of targeted financial sanctions.

FSPs should expect more fines from the FSCA

While some have commented that the penalties imposed on the penalised FSPs seem steep in the context of their contraventions, the FSCA has made it plain that they regard the contraventions to be serious. The FSCA has stated that –

“[a]ll accountable institutions are urged to continue reviewing and strengthening their anti-money laundering and terrorist financing risk and control environments. Failure to do so will result in firm regulatory action.”

FSPs should expect firm enforcement action from the FSCA, including more fines being imposed on non-compliant FSPs.

FSPs should guard against enforcement actions by the FSCA: compliance and integration

Given the strong desire for South Africa to be removed from the grey list, the outstanding items in the Action Plan and the FATF’s most recent progress review, not to mention the administrative sanctions already imposed on FSPs by the FSCA, FSPs should certainly heed these words of warning from the FSCA.

FSPs must verify clients (including beneficial owners), conduct ongoing due diligence and  perform screenings against the TFSL.

FSPs must ensure not only that they have an RMCP, but that it is up to date with current regulations, that it is complete, customised to the risks of that FSP and that it provides for the means by which it will be implemented within the organisation. The RMCP must then, in fact, be implemented.

FSPs must prioritise engendering a culture of widespread AML/CFT awareness within their organisations and meaningful AML/CFT compliance if they wish to avoid undesirable attention from the FSCA.  

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Gone are the days of box-ticking.

The FSCA has imposed penalties on financial services providers for non-compliance with FICA

The Financial Sector Conduct Authority (FSCA) has recently imposed administrative sanctions on two financial services providers (FSPs), in each case for failing to comply with certain provisions of the Financial Intelligence Centre Act (FICA).

The first received a penalty for R400,000 and the second,  a staggering R16 million fine.

The grounds for the fines are largely the same.

1. While Risk Management and Compliance Programmes (RMCP) for Anti-Money Laundering and the Combating of the Financing of Terrorism (AML/CFT) were in place, the first contravention was that the RMCPs were found to be inadequate. The RMCP, in the latter case, failed to set out how the FSP would comply with FICA as it relates to, among other things: (a) examining complex or unusually large transactions and unusual transaction patterns; (b) performing customer due diligence when, during the course of a business relationship, the FSP suspects that a transaction or activity is suspicious or unusual; (c) terminating business relationships; (d) enabling the FSP to determine when a transaction or activity is reportable to the Financial Intelligence Centre (FIC); and (e) the implementation of its RMCP.

2. The second violation was that the FSPs failed to identify and verify the identity of some clients, including the beneficial owners of some clients.

3. The third violation was failing to screen clients, including beneficial owners, against the Targeted Financial Sanctions Lists (TFSL) issued by the United Nations Security Council.

What this reveals is that the expectations of the FSCA on FSPs have increased. It is inadequate that an FSP ticks the box and merely has an RMCP in place. Failure to fully comply carries serious consequences.

SA addressed technical deficiencies in its AML/CFT regime owing to grey listing

South Africa was placed on the grey list by the Financial Action Task Force (FATF) in February 2023. An Action Plan was adopted listing 22 action items. South Africa is required to address all 22 to exit the FATF grey list.

The deadlines for addressing the action items fall between January 2024 to January 2025.

Even before being grey listed, efforts were made to address the technical deficiencies in South Africa’s AML/CFT regime. The hope at that time was to avoid grey listing. For example, the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act (GLAA) was adopted. The GLAA amended no fewer than five pieces of legislation, including the Trust Property Control Act and the Companies Act, requiring gathering beneficial ownership information and submitting this beneficial ownership information to the relevant regulators.

Notwithstanding that many of the technical deficiencies had already been addressed, South Africa’s efforts to avoid grey listing were unsuccessful.

Since having been grey listed, various regulators, including the FIC and National Treasury as well as the FSCA, which is responsible for supervising and enforcing FSPs’ compliance with FICA, have been addressing the items in the Action Plan.

South Africa saw a flurry of legislative amendments and regulations to fill remaining technical lacunae in South Africa’s AML/CFT regime. This included expanding the mandate of the FIC under FICA to allow for more effective monitoring and detection capabilities and the fortification of administrative sanctions for non-compliance (which have now been put to good use).

The FSCA shifts its focus to enforcement to leave the FATF’s grey list

Enforcement of FICA and other legislation and regulations, such as the GLAA, appear to now be the prime objective.

This focus on enforcement appears to be much in line with the FATF’s progress review, conducted in October 2023.

The FATF indicates that South Africa should continue to work on implementing its Action Plan to address its strategic deficiencies, which includes (amongst others) (a) improving risk-based supervision and demonstrating that all AML/CFT supervisors apply effective, proportionate, and effective sanctions for noncompliance; (b) ensuring that competent authorities have timely access to accurate and up-to-date beneficial ownership information and apply sanctions for breaches of violation of beneficial ownership obligations; (c) ensuring the effective implementation of targeted financial sanctions.

FSPs should expect more fines from the FSCA

While some have commented that the penalties imposed on the penalised FSPs seem steep in the context of their contraventions, the FSCA has made it plain that they regard the contraventions to be serious. The FSCA has stated that –

“[a]ll accountable institutions are urged to continue reviewing and strengthening their anti-money laundering and terrorist financing risk and control environments. Failure to do so will result in firm regulatory action.”

FSPs should expect firm enforcement action from the FSCA, including more fines being imposed on non-compliant FSPs.

FSPs should guard against enforcement actions by the FSCA: compliance and integration

Given the strong desire for South Africa to be removed from the grey list, the outstanding items in the Action Plan and the FATF’s most recent progress review, not to mention the administrative sanctions already imposed on FSPs by the FSCA, FSPs (and other accountable institutions) should certainly heed these words of warning from the FSCA.

FSPs must ensure not only that they have an RMCP, but that it is up to date with current regulations, that it is complete and that it provides for the means by which it will be implemented within the organisation. The RMCP must then, in fact, be implemented. FSPs must prioritise engendering a culture of widespread AML/CFT awareness within their organisations and meaningful AML/CFT compliance if they wish to avoid undesirable attention from the FSCA.

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The 2023 edition of the South African Chapter in The Banking Regulation Law Review | 14th Edition guide is out!

Director, Natalie Scott and Janice Geel, Associate, have contributed this year’s South African chapter.

Click below to navigate to the South African chapter of the guide

South African Chapter in The Banking Regulation Law Review | 14th Edition

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On 11 May 2023, the Financial Sector Conduct Authority (“FSCA“) published notice 25 of 2023 (“Notice“), (i) exempting crypto asset financial service providers (“CASPs“) from certain requirements of the Financial Advisory and Intermediary Services Act 37 of 2002 (“FAIS Act“), and (ii) imposing additional conditions on, inter alia, CASPs to be licensed as such providers.

The Notice should be read together with the FSCA communication 16 of 2023, also published by the FSCA on 11 May 2023.

As of the date of publication of the Notice –

• CASPs are exempted from complying with section 13 of the General Code of Conduct for Authorised Financial Services Providers and Representatives of 2003 published under notice 80 of 2003 by the Financial Services Board (“General Code of Conduct“) and the Financial Services Board Notice 123 of 2009, in that CASPs are not required to maintain in-force and suitable guarantees, professional indemnity cover or fidelity insurance to render crypto-asset related services;
• CASPs and their key individuals[1] are, temporarily (for a period of 18 months from the date of publication of the Notice), exempted from completing and passing the regulatory examinations required in terms of section 8A of the FAIS Act, read with Part 4 of Chapter 3 of the Determination of Fit and Proper Requirements (“Regulatory Examinations“) published by the Financial Services Board in 2017 (“Fit and Proper Requirements“);
• a crypto asset supervised representative (“Representative“), excluding in respect of paragraph (iv) below, who before the Notice was published, had not ever been appointed as a representative of a financial services provider, is exempted from completing the Regulatory Examinations, for a period of two years from the date on which he/she was first appointed to render financial services in respect of crypto assets; and
• a Representative, who, before publication of the Notice, only has a date of first appointment to (i) render financial services in respect of a Tier 2 financial product;[2] or (ii) execute sales must, within two years from the date on which he/she was first appointed as a Representative, other than in respect of executing of sales in relation to crypto assets, comply with the applicable regulatory examination requirements.

In addition, the FSCA has imposed the below requirements in that –

• CASPs, their key individuals and other representatives must complete a minimum of six hours of continuous professional development (“CPD“) activities,[3] relating to crypto assets every CPD cycle;[4]
• a Representative must complete a minimum of six hours of CPD activities relating to crypto assets per CPD cycle, starting from –
• the date on which the Representative meets the applicable regulatory examination and qualification requirements pertaining to crypto assets; or
• after six years from the date on which the Representative was first appointed as a Representative,

whichever occurs first; and

• a Representative who, before publication of the Notice, only has a date of first appointment to (i) render financial services in respect of Tier 2 financial products, or (ii) execute sales in relation crypto assets, who after such date of appointment is appointed to render financial services other than the execution of sales, must complete a minimum of six hours of CPD activities relating to crypto assets per CPD cycle, starting from the date on which the Representative meets the applicable regulatory examination and qualification requirements pertaining to crypto assets, or after six years from the date on which the Representative was first appointed as a Representative, whichever occurs first.

Where a CASP, its Representatives and its key individuals fail to comply with the above requirements, the exemptions contained in the Notice will be forfeited.

The publication of the Notice comes after the (i) declaration of crypto assets as financial products on 19 October 2022 by the FSCA (“Declaration“) and (ii) the policy document supporting the Declaration (“Policy Document“). The Policy Document contained various proposed draft exemptions in relation to the Fit and Proper Requirements, which were subject to public commentary (“Draft Exemptions“).

We note that one of the exemptions under the Draft Exemptions related to section 23 of the Fit and Proper Requirements and that such section has been omitted from the exemptions in the Notice, which means that a CASP, its Representatives, key individuals and other representatives are required to hold a recognised academic qualification as set out in the list of qualifications published by the FSCA. Where a person holds a non-recognised qualification, and believes that his/her qualification ought to be recognised, such person may submit an application to the FSCA for recognition.

If you are a CASP in South Africa, remember that in terms of the Declaration read with the Policy Document, applications for a license to be recognised as a CASP must be submitted to the FSCA for consideration between 1 June 2023 and 30 November 2023. An application for the recognition of a qualification not accepted by the FSCA may be included as part of the CASP licence application.

Footnotes

[1]       Means a ‘key individual’ as defined in section 1 of the FAIS Act

[2]       Tier 2 financial products refer to the financial products as defined in section 1 of the Fit and Proper Requirements

[3]       The Fit and Proper Requirements provide that “CPD” activities means an activity that is –

         (a) accredited by a professional body as defined in section 1 of the Fit and Proper Requirements;

         (b) allocated an hour value or a part thereof by that professional body or foreign professional body; and

         (c) verifiable and excludes (i) an activity performed towards a qualification; and (ii) product specific training as defined in section 1 of the Fit and Proper Requirements

[4]       A period of 12 months commencing on 1 June of every year and ending on 31 May of the following year

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