The FAIS Supervision Department of the FSB supervises financial services providers (FSPs) in terms of a risk-based approach. In response to the changing face of the regulatory landscape, international trends and outcomes of previous years’ on-site visits, the department introduced a new Medium to High risk category to define the risk of non-compliance more accurately.
A total of 10 297 FSPs were categorised. Interestingly, the number “only” decreased by 493, but a closer look at the table below shows a marked decline in the number of small FSPs from 6 839 to 3 362 – a loss of 3477, or nearly 51%.
The table below reflects the categorisation of FSPs in terms of the new risk-based supervision approach as at 31 March 2013. The categorisation was changed with the introduction of a Medium-High Impact (MHI) category. During the period under review, the emphasis was placed on off-site monitoring of High Impact and MHI FSPs.
|
2012/2013 |
2011/2012 |
|
| High Impact |
283 |
262 |
| Medium-High Impact (MHI) |
973 |
0 |
| Medium Impact |
3 411 |
2 331 |
| Small-Medium Impact (SMI) |
2 268 |
1 358 |
| Small FSPs |
3 362 |
6 839 |
| Total |
10 297 |
10 790 |
Risk Assessment Visits to FSPs
A total of 643 FSPs received visits. Of these, 490, or 76.2% occurred at the medium to high impact categories.
The report states that the overall compliance of FSPs was satisfactory, and a definite improvement was noticeable during the period under review. The overall understanding of key individuals and representatives with regard to compliance was far better, which can mainly be attributed to the knowledge gained in their preparation for the regulatory examinations. The following issues of concern were noted:
|
Description |
Percentage |
| Sections 4 and 5 of the General Code of Conduct (GCOC): Disclosure of documentation is non-compliant |
35.40 |
| License conditions: Business information is not updated within 15 days of change taking place |
26.55 |
| Good business practices are not followed |
20.06 |
| None-compliance with part VIII of the Determination of Fit and Proper Requirements: FSPs not having a business continuity plan in place |
16.81 |
| Sections 11 and 12 of the GCOC: FSPs of which the Risk Management Plan is inadequate |
16.22 |
| No register/records kept of training undergone by key individuals and representatives |
14.75 |
| Section 7 of the GCOC: Disclosure made to client in terms of the product and services are inadequate |
14.16 |
| Non-compliance with part IX of the Determination of Fit and Proper Requirements: FSPs not complying with the financial soundness requirements |
14.16 |
| Section 3A of the GCOC: FSPs that have not adopted, maintained and implemented a conflict of interest management policy |
9.44 |
| Corporate governance measures are inadequate |
8.85 |
Compliance Practice Visits
During the period under review, the Supervision Department reviewed 33 independent compliance practices. The majority of the compliance practices provided acceptable compliance services to clients.
However, there were some areas that needed improvement, which were identified and addressed with the respective practices. During the review of the risk-based framework, a process of recording of information on compliance practices was developed and is being introduced. It is envisaged that this will enable supervisors to focus proactively on specific concerns relating to external compliance officers.
Specific On-site Visits
The Registrar of FSPs ordered an inspection into the affairs of Mr Herman Pretorius, RVAF and Polus Capital (Pty) Ltd. During the inspection, the RVAF scheme collapsed and it was established that 16 authorised FSPs were involved in soliciting clients on behalf of the late Mr Pretorius. On-site visits to probe their participation in assisting clients to place investments in the RVAF and other schemes offered by the late Mr Pretorius were conducted. At the end of the period under review, these investigations were still continuing.
Communication with FSPs
The FAIS Supervision Department implemented a comprehensive communication strategy during the period under review, including newsletters, information circulars, workshops, conferences and telematics broadcasts. Guest speakers at the conference and workshops included speakers from other FSB departments, as well as industry experts.
A joint exercise between FAIS Supervision and FAIS Registration was focused on the funeral industry. A large number of workshops were held to assist this part of the industry to understand the registration (licensing) requirements, as well as the ongoing requirements for maintaining a license. During these workshops, FSPs were specifically assisted to complete compliance reports and financial statements.
Specialisation Areas
As part of the Department’s risk-based approach, supervisory staff members are involved in specialisation areas. Seven focus groups, including ones for unconventional FSPs (foreign FSPs, forex investment providers, retailers, motor dealers, estate agents and auditors), banking, medical schemes and compliance officers were tasked with providing guidance in these specific specialisation areas. Research into industry practices and thematic work, as well as focused on-site visits, was conducted. Issues that came to the fore led to the compilation of information circulars on bulk client transfers and the re-signing of client mandates, cash management system accounts, fee disclosure and material irregularity reporting by compliance officers.
