The FSCA’s annual report shows what regulatory action was taken in the past year and the compliance issues that caught the authority’s eye.
Debarments
The number of debarment orders issued by the FSCA declined last year compared with 2020, despite a steady increase in the number of debarment cases opened over the past three years.
The FSCA’s 2020/21 annual report shows that 129 orders were issued in 2021, down from 155 last year and 142 in 2019. The number of cases opened has increased since 2019, from 187 to 203 in 2020 and 314 last year.
The report did not provide a breakdown of the reasons for cases being opened or provide possible reasons for the decrease in debarments in 2021.
However, as the table below shows, there was a marked increase in the number of licence withdrawals in 2020/21 compared with 2019/20, although the number of regulatory action cases fell.
Complaints
Since 2019, there has been a 53% decrease in the number of complaints referred for regulatory action. The report said the decline could be attributed to the Business Centre being able to deal with most complaints.
The FSCA reported a 43% decrease, from 100 to 57, in the number of irregularity reports received.
The number of FSPs referred for regulatory action following off-site monitoring and on-site inspections fell by 20 to 113. The reasons for the referrals are set out in the table below.
The report said despite the notice issued in April 2020 that extended the submission period of financial statements by four months, it was “disappointing that the level of compliance has dropped significantly”.
On-site inspections
On-site inspections in 2020/21 focused on compliance with the Financial Intelligence Centre Act. We shall be taking a closer look at the reasons for this in a separate article.
The regulator also conducted thematic reviews on FSPs where the key individuals are acting on multiple licences and on FSPs that are only approved for derivative products.
According to the report, the major issues identified where the KI operates on multiple licences were:
- Most of the FSPs were dormant, had changed to Category II, belonged to a group with other FSPs, or were 12J companies.
- The KIs in the 12J companies only had experience in 12J FSPs; they did not render any other financial services as defined in the FAIS Act. They had adequate operational ability because they only dealt with 12J-related transactions.
- This means the number of KIs on multiple FSPs has deteriorated, and those that were still on multiple FSPs had the requisite operational ability. “There was only one KI who informed us that he was an interim KI whose main purpose was to mentor and train the permanent KIs.”
Derivatives
The major issues identified during the derivative on-site reviews were:
- Some FSPs were required to be registered as over-the-counter product providers and had not submitted their applications.
- Some FSPs were not providing any advice. Clients were only provided with intermediary services, which means that clients who did not understand the product could be making investment decisions without understanding the impact of their decisions.
Licensing
There was a 4% decrease, from 10 534 to 10 130, in the number of Category I and IV FSPs in 2020/21. The report said the decline was mainly because of the withdrawal of licences of FSPs that failed to comply with the conditions for the lifting of suspensions and lapses, as well as FSPs voluntarily surrendering their licences.
The FSCA approved 662 FSPs, an increase of 23%, in 202/21. The largest contributor to the increased number of FSPs was in Category I, with 606 FSPs. The second-largest contributor was Category II, with 44 approved licences.
