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The FSCA imposed fines and penalties of R943 million for the 12-month period ending 31 March 2024, up from R100 million the previous 12 months. The R943m includes a R475m fine imposed on Markus Jooste, but even excluding this the increase in fines and penalties was over 400%.
“The FSCA is increasing its oversight and supervision,” says Kobus Wentzel, Executive Head of Distribution and Sales at 1Life Insurance. “FSPs, especially smaller financial advisory firms, must make sure they meet all the regulatory requirements to avoid fines and suspensions.” Together with the 1Life Insurance compliance team, Wentzel shares these tips for FSPs.
Submit your annual financial statements and statutory returns on time
1,061 licences were suspended over the 12 months ending 31 March 2024, according to the 2023/2024 FSCA Integrated Report. Many of these were because the FSPs’ annual financial statements were not submitted on time. FSPs must submit annual financial statements within 4 months of their year end.
The FSCA has increased their staff complement from 538 to 633 over the last 12 months, an 18% increase, so they have the resources and intent to check and ensure all FSPs comply with this requirement. They are also checking the actual submissions. In the 12 months to 31 March 2023, the FSCA reported that they analysed 87% of the 11,465 annual financial statements received.
Submit on time, in full and in accordance with regulations.
Pay your levies when they are due
Together with not submitting statutory reports, not paying levies on time is the main reason licences are suspended. It’s time consuming and frustrating to get a suspension lifted, and costs your business money, sometimes penalties and of course, lost business revenue.
Levies are due on or before 31 October.
Make sure you are authorised to sell financial products and give advice
FSPs must meet the requirements of the FAIS Act, including making sure all FSPs, Key Individuals and Representatives have the required qualification and accreditation, and that they only sell and give advice on products and services covered by the FSPs’ licence.
A glance through the enforcement section on the FSCA website reveals that the majority of fines were imposed on FSPs selling products they are not authorised to sell. The FSCA notes that the administrative penalties imposed are due mostly to non-compliance with the FAIS Act, including sections 7 and 8. Fines imposed included a R715 000 fine for selling forex products without authorisation, and a R4.5 million fine for not being authorised to render intermediary services in respect of a financial product.
Check and recheck licences, required qualifications and accreditations and make sure they are in place and that you offer services within the scope of your licence. Your compliance officer can assist with this, and your 1Life Insurance broker consultant can advise on the necessary product accreditation.
Offer advice that meets clients’ needs, taking their circumstances into account
A R3m fine and over R1m administrative penalty was imposed on a provider whose investment advice “was not based on a demonstrable analysis of clients’ risk profiles and financial or investment need.” The provider also failed to disclose fees.
A common theme in the FSCA report, as well as the 2023/2024 FAIS Ombud’s annual report, is a call to FSPs to ensure clients’ needs and circumstances are taken into account and to take extra care where those clients are vulnerable, such as elderly clients and those who are not financially literate or have little financial knowledge of the products recommended.
Keep good records
FSPs have to complete and keep Records of Advice (ROA). Fines for these are not as common as other non-compliance issues, however, the FAIS Ombud report highlighted a number of cases where records did not show appropriate advice was given or that important terms and conditions were not explained. Make sure ROAs are comprehensive, that policy terms and conditions are explained (especially where they can result in declined claims) and that investment risks are clearly explained.
Cooperate with investigations
You can and probably will be fined if you don’t.
The FSCA undertook 44 inspections to check compliance with the General Code of Conduct and Fit and Proper requirements, in addition to desk-based supervision activities. Increasingly we are seeing FSPs interacting more with the FSCA, and cooperating is a must.
Stay up to date with changes in legislation
Staying up to date on regulatory changes is important. The FSCA and FAIS Ombud regularly publish updates on their websites, and you can also follow them on LinkedIn for the latest news. Your compliance officer is another valuable resource—be sure to discuss changes in legalisation when you meet. Additionally, your broker consultant will have insights on recent changes, and we’ll highlight key updates in our monthly newsletter.
Getting serious
The FSCA withdrew 75 licences and took 1,900 regulatory actions over 12 months, an increase from the previous year and a number likely to increase in the following year.
FSPs who comply with the FAIS Act, conduct business within the scope of their licence and take due care and diligence don’t run the risk of being fined or having their licence suspended. Your compliance officer can play a key role in ensuring you are compliant and meet all the regulatory requirements. Have regular meetings and ensure you are up to date on what is required so that R1m fine doesn’t come your way.