FSCA coming after companies hard with almost R1 billion in fines
As South Africa attempts to get itself off the notorious ‘grey list’, the Financial Sector Conduct Authority (FSCA) continues to up the ante in its fight against non-compliant units within the country’s financial sector.
According to its recently published 2023/24 Integrated Report, the FSCA imposed approximately R943 million in administrative penalties on 31 people for the year ending 31 March 2024 – a significant increase from the previous year’s R100 million placed on 44 people.
The FSCA, which plays a role in regulating the financial sector and protecting consumers, achieved 80% of its overall targets and 90% of those in its Regulation Plan.
The Authority also maintained a clean audit, generated over R1 billion in revenue, and reported a R150 million surplus.
Among other reasons for the increase in penalties is the FSCA attempting to meet requirements for South Africa to get off the Financial Action Task Force’s (FATF’s) ‘grey-list’.
In February 2023, the FATF greylisted South Africa due to inadequate measures against money laundering, terrorist financing, and proliferation financing.
Being on the grey list means the country must address strategic deficiencies within specified timeframes and is subject to intensified monitoring.
The FATF has highlighted the need for South Africa to implement a robust strategy to counter terrorism financing, enhance anti-money laundering efforts, and improve the investigation and prosecution of complex financial crimes.
Unathi Kamlana, Commissioner of the FSCA, said that “these decisive enforcement actions demonstrate that we stand ready to take deterrence actions to protect the integrity of the financial sector in line with our strategic objective of acting decisively and visibly against misconduct.”
During the 2023/24 financial year, Kamlana said that the FSCA navigated a challenging economic landscape “marked by rapid technological advancements, evolving regulatory demands, and the implications of South Africa being placed on the FATF ‘greylist’.”
“The low growth and high-interest rate economic environment, coupled with the rising cost of living, has affected consumers’ purchasing power and increased financial pressures on households, leading to higher debt levels, reduced savings, and an increased risk of consumer vulnerability.
“Technological advancements are changing the way financial services are provided, offering new opportunities for innovation but also introducing new risks requiring vigilant oversight,” added Kamlana.
The FSCA Commissioner said that focus on increasing enforcement has not only resulted in an 843% increase in the value of penalties but also the:
- Finalisation of 418 investigations;
- Suspension of 1,061 FSP licences;
- Debarment of 156 individuals.
Some other highlights from the 2023/24 financial year include the fact that 668 Financial Services Provider (FSP) licenses were issued, with a portion of them for Crypto Assets Service Providers;
Not just the financial sector being clamped down on
At the 11th Annual Tax Indaba on 9 September 2024, Deputy Director-General of the National Treasury, Ismail Momoniat, noted that the greylisting reflects broader systemic issues beyond the financial sector.
“The bigger issue is that we were greylisted because our law enforcement agencies were seriously weakened by state capture,” he said, pointing out that this led to ineffective investigations and prosecutions.
Momoniat stressed that the problem extends to non-financial sectors such as legal practitioners and real estate agents. “We were particularly weak in the non-financial sector side of things,” he added.
Christopher Malan from the Financial Intelligence Centre (FIC) said that where these businesses don’t comply, they should expect to receive harsh sanctions as enforcement bodies continue to up the ante against them.
Malan described the greylisting as a significant fall from grace, contrasting South Africa’s previous role as FATF chair in 2005/06 with its current status.
The FIC, now responsible for overseeing non-financial services, issued directives in March 2023 requiring sectors like legal practitioners, estate agents, and trust service providers to submit risk and compliance returns (RCRs) by 31 May 2023.
Yet, submission rates are still low: 60% for legal practitioners, 66% for estate agents, 74% for trust service providers, and 76% for company service providers. Only casinos met the deadline.
Malan criticised the low compliance rates, especially in high-risk sectors like legal and real estate.
“There is still a reluctance to file risk and compliance returns,” he said, highlighting the tendency of some professionals to delay compliance until faced with enforcement actions.
Malan emphasised that non-compliance would undoubtedly lead to sanctions as it hinders South Africa’s progress in demonstrating effective risk identification.
The FIC is also focused on consolidating regulatory data into a forensic package for law enforcement to guide investigations and prosecutions.
Momoniat stressed that accountability must extend to all involved in financial crimes, including those in support roles such as accountants and lawyers.
“They need to also pay the consequences for what they’ve done by pretending to look the other way and enabling the crimes,” he said.
Read: Big turn for consumers in South Africa – but there’s a catch for top earners
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