LATEST ARTICLES

Declaration of Crypto Assets as a financial product

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The Financial Sector Conduct Authority (FSCA) has published the declaration of Crypto
Assets as a financial product under the FAIS Act, which was gazetted on 19 October 2022.
The declaration, brings providers of financial services in relation to crypto assets within the
FSCA’s regulatory jurisdiction.

On 20 November 2020, the FSCA published a draft Declaration of Crypto Assets as a
Financial product under the FAIS Act, for public consultation. A total of 94 individual
comments were received from 22 different commentators. Following this public
consultation process, the FSCA published the final Declaration in the Government Gazette
and on the FSCA’s website.

The FSCA has also published a Policy Document supporting the Declaration. The Policy
Document provides clarity on the effect of the Declaration, including transitional provisions,
and the approach the FSCA is taking in establishing a regulatory and licensing framework
that would be applicable to Financial Services Providers (FSPs) that provide financial
services in relation to Crypto Assets.

In addition to the Declaration and Policy Document, the Authority also published a general
exemption for persons rendering financial services (advice and/or intermediary services) in
relation to Crypto Assets, from section 7(1) of the FAIS Act.

The intention of the exemption is the following:

• To facilitate transitional arrangements for existing providers of crypto asset
activities. The transitional arrangements entail that a person may continue to
render financial services in relation to crypto assets without being licensed,
provided that such person applies for a licence under the FAIS Act within the
period specified in the exemption. The stipulated period is 1 June 2023 until 30
November 2022. The exemption will apply until the licence application submitted
has been approved or declined; and
• To exempt certain ecosystem participants from the FAIS Act. These participants
are crypto asset miners and node operators performing functions in respect of
the security and health of the network as well as persons rendering financial
services in relation to non-fungible tokens1.

To facilitate the application of an appropriate regulatory framework for Crypto Asset FSPs
once licensed, the FSCA also published a Draft Exemption of Persons rendering Financial
Services in relation to Crypto Assets from Certain Requirements. The draft exemption
proposes to exempt licensed Crypto Asset FSPs and their key individuals and
representatives from certain requirements of, amongst others, the General Code of
Conduct for Authorised Financial Services Providers (General Code) and their
Representatives and the Determination of Fit and Proper Requirements, 2017 (Fit and
Proper requirements). Requirements contained in the General Code and Fit and Proper
requirements will apply to all Crypto Asset FSP’s once licensed, except those requirements
that they are exempted from in terms of the draft General Exemption.

The draft General Exemption has been published for public comment pending finalisation,
to solicit stakeholder inputs on the proposed regulatory framework that will apply to licensed Crypto Asset FSP’s. Submissions on the draft Exemption must be made using the
submission template available on the FSCA’s website and be submitted in writing on or
before 1 December 2022 to the FSCA at FSCA.RFDStandards@fsca.co.za.

ENDS

Enquiries: Financial Sector Conduct Authority
Email address: Communications@fsca.co.za
Telephone: 0800 203 722

1The terms crypto asset miner, node operator and non-fungible token are defined in the published Exemption of persons rendering financial services in relation to crypto assets from section 7(1) of the Financial Advisory and Intermediary Services Act, 2002.

Crypto assets now included under definition of financial products in South Africa

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By Ashlin Perumall, Partner, Baker McKenzie Johannesburg

FSCA Declaration
 
Crypto assets are now regulated as financial products in South Africa. On 19 October 2022, the Financial Sector Conduct Authority (“FSCA”), South Africa’s financial institutions regulator, issued a declaration (“Declaration“) that crypto assets are now included under the definition of ‘financial products’ in terms of the Financial Advisory and Intermediary Services Act, 2002 (“FAIS”). The Declaration also provides a wide definition for crypto assets, being a digital representation of value that:

  • is not issued by a central bank, but is capable of being traded, transferred or stored electronically by natural and legal persons for the purpose of payment, investment or other forms of utility;
  • applies cryptographic techniques; and
  • uses distributed ledger technology.

The effect of the Declaration is that any person who provides advice or renders intermediary services in relation to crypto assets must be authorised under the FAIS Act as a financial services provider, and must comply with the requirements of the FAIS Act. Under FAIS, ‘advice’ includes recommendations, guidance or proposals of a financial nature furnished by any means or medium in respect of a defined financial product. ‘Intermediary service’ includes any act other than the furnishing of advice, performed by a person for or on behalf of a client or product supplier with a view to:

  • buying, selling or otherwise dealing in (whether on a discretionary or non-discretionary basis), managing, administering, keeping in safe custody, maintaining or servicing a financial product purchased by a client from a product supplier or in which the client has invested;
  • collecting or accounting for premiums or other moneys payable by the client to a product supplier in respect of a financial product; or
  • receiving, submitting or processing the claims of a client against a product supplier.

 
Exemption Application
 
Ordinarily, in terms of section 7 of FAIS, a person may not act or offer to act as a financial services provider unless such person has been issued with a licence by the FSCA. The FSCA has set applicable licences which an FSP would generally require, which are divided into different categories of licences. The full list of categories can be found here. However, on 19 October 2022, the FSCA also published notice 90 of 2022 exempting certain persons who render a financial service in relation to crypto assets from the application of section 7(1) of FAIS. In order for the exemption to apply, the relevant persons are required to comply with the following:

  1. submit an application to the FSCA between 1 June 2023 and 30 November 2023
  2. comply with:
    1. chapter 2 of the Determination of Fit and Proper Requirements for Financial Services Providers, 2017
    2. section 2 of the General Code of Conduct (“GCC”)
    3. all other requirements in the GCC excluding section 13.

The exemption is also subject to the condition that the relevant applicant must provide the FSCA with any information it requests that is in the possession of, or under the control of, the applicant, that is relevant to the financial services and/or similar activities rendered by such applicant. This application must be made by persons seeking an exemption by 1 December 2023. This exemption excludes persons categorised as crypto asset miners, node operators, and financial services in relation to non-fungible tokens, in respect of whom it is already deemed to apply.

As can be seen from the breadth of the legislative framework underpinning ‘financial products’ under FAIS, the consequences of the Declaration will be far reaching, and will impact many businesses in South Africa dealing in crypto assets. When the draft of the Declaration was published in November 2020, it was noted that the intention behind the Declaration was to capture intermediaries that advise on or sell crypto assets to consumers, so as to provide adequate protection for consumers who are advised to purchase these products. Businesses in this space that have until now been operating in a largely unregulated environment will need to move quickly to become compliant.

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IOSCO issues regulatory measures to address increasing risks and challenges from digitalisation of retail marketing and distribution

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The Board of the International Organization of Securities Commissions (IOSCO) today published measures that members should consider when determining their policy and enforcement approaches to retail online offerings and marketing.

The measures outlined in the Final Report on Retail Distribution and Digitalisation aim to assist IOSCO members in adapting their regulatory and enforcement approaches, consistent with their legal and regulatory frameworks, to meet the growing challenges posed by rapidly evolving digitalisation and online activities.

The Report presents a toolkit of policy measures to help members address risks that may arise and a toolkit of enforcement measures that leverage a range of powers and technology-based investigatory techniques and enhanced collaboration with other authorities and providers of electronic intermediary services.

The policy toolkit measures relate to:

Firm level rules for online marketing and distribution;

Firm level rules for online onboarding;

Responsibility for online marketing;

Capacity for surveillance and supervision of online marketing and distribution;

Staff qualification and/or licensing requirements for online marketing;

Ensuring compliance with third country regulations; and

Clarity about legal entities using internet domains.

The enforcement toolkit measures relate to:

Proactive technology-based detection and investigatory techniques;

Powers to promptly take action where websites are used to conduct illegal securities and derivatives activity and other powers effective in curbing online misconduct;

Increasing efficient international cooperation and liaising with criminal authorities and other local and foreign partners;

Promoting enhanced understanding and efforts by, and collaboration with, providers of electronic intermediary services regarding digital illegal activities; and

Additional efforts to address regulatory and supervisory arbitrage.

Digitalisation and social media are changing the way financial services and products are marketed and distributed to retail investors, providing greater opportunities for firms to reach a broader investor base and for retail investors to access a wider range of products. Digitalisation and social media also present risks associated with the use of behavioral and gamification techniques and financial influencers (finfluencers) that impact retail investor trading behavior.

Developments in digital offerings, including use of new complex products such as crypto-assets, also give rise to novel regulatory and investor protection challenges, spanning the whole distribution chain. As digitalisation trends evolve faster than regulatory frameworks, there is a risk that retail investors could be exposed to harmful or even fraudulent online activity.

The Report analyses global developments in online marketing and distribution of financial products to retail investors and discusses enforcement challenges encountered by regulators. It sets out examples of how some member jurisdictions have addressed these issues.

The Report is part of IOSCO’s efforts to build trust and confidence in markets facing new and emerging opportunities and risks. The overarching objective is to enhance the protection of retail investors, the main recipients of online offerings and marketing techniques.

The rapidly evolving environment demonstrates the need for an increased regulatory focus on digital marketing and offerings and for efficient collaboration, on both a domestic and cross-border level, to promote a high level of investor protection at a global scale. 

Responding to the IOSCO Report, Martin Moloney, the IOSCO Secretary General, said: A digital revolution is sweeping the world of finance. Financial product offerings and customer on-boarding practices are no exception to this change. This revolution allows firms to refine the techniques they use in their digital marketing. While that innovation promises to provide investors with well targeted information, it also creates new risks to investors via systemic targeting and unsolicited offerings, sometimes underpinned by gamification and ‘finfluencer’ activity that is not always helpful to investors. Digital fraudsters can hide behind a “digital veil” that makes it difficult for regulators to locate, identify and take action against them. We are publishing this policy and enforcement guidance, built up from the experience of our members, to respond to the complex conduct challenges in today’s digital world, and to achieve better financial consumer outcomes.”

NOTES TO THE EDITORS

IOSCO is the leading international policy forum for securities regulators and is recognized as the global standard setter for securities regulation. The organisation’s membership regulates more than 95% of the world’s securities markets in some 130 jurisdictions, and it continues to expand.

The IOSCO Board is the governing and standard-setting body of IOSCO and is made up of 34 securities regulators. Mr. Ashley Alder, the Chief Executive Officer of the Securities and Futures Commission of Hong Kong, is the Chair of the IOSCO Board. The members of the IOSCO Board are the securities regulatory authorities of Argentina, Australia, Bahamas, Belgium, Brazil, China, Egypt, France, Germany, Hong Kong, India, Ireland, Italy, Japan, Kenya, Korea, Malaysia, Mexico, Morocco, Nigeria, Ontario, Pakistan, Portugal, Quebec, Russia, Saudi Arabia, Singapore, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States of America (both the U.S. Commodity Futures Trading Commission and U.S. Securities and Exchange Commission). The Chair of the European Securities and Markets Authority and the Chair of IOSCO´s Affiliate Members Consultative Committee are also observers.

The Growth and Emerging Markets (GEM) Committee is the largest committee within IOSCO, representing more than 75% per cent of the IOSCO membership, including 10 of the G20 members. Dr Mohamed Farid Saleh, Executive Chairman of the Financial Regulatory Authority, Egypt is Chair of the GEM Committee. The committee brings members from growth and emerging markets together and communicates members’ views and facilitates their contribution across IOSCO and at other global regulatory discussions. The GEM Committee’s strategic priorities are focused, amongst others, on risks and vulnerabilities assessments, policy and development work affecting emerging markets, and regulatory capacity building.

IOSCO aims through its permanent structures:

to cooperate in developing, implementing and promoting internationally recognized and consistent standards of regulation, oversight and enforcement to protect investors, maintain fair, efficient and transparent markets, and seek to address systemic risks;

to enhance investor protection and promote investor confidence in the integrity of securities markets, through strengthened information exchange and cooperation in enforcement against misconduct and in supervision of markets and market intermediaries; and 

to exchange information at both global and regional levels on their respective experiences to assist the development of markets, strengthen market infrastructure and implement appropriate regulation.

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Opinion piece: Avoiding FATF suspension depends on data.

By Gary Allemann, MD at Master Data Management

South Africa is the only permanent African member of the Financial Action Task Force (FATF), the global anti-money laundering watchdog. This is why it came as a shock to hear that the country is close to being grey-listed following concerns raised by the global body.

Basically, FATF membership helps to streamline the movement of money across borders by guaranteeing that the parties involved in a transaction are above board. In South Africa, for example, most of us will be familiar with the Financial Intelligence Centre Act (FICA) – the regulations requiring banks and other parties to confirm an entity’s identification and physical address.

This information is then used to ensure that the person (or company) is legitimate (by comparing to international sanctions lists) and to build a risk profile that can flag suspicious transactions – for example, if an amount of money is being moved for a purpose that is not in line with the company’s historical business.

Initially targeting banks, FICA has been expanded to affect various sectors where assets change hands, such as insurance, real estate and law, meaning that the Financial Intelligence Centre is able to build a more complete picture of each individual transacting in the country.

Systemic issues

Recently, the South African government announced a draft of amendments and additions to key Anti-Money Laundering (AML) laws, including the above-mentioned FICA, to address systemic issues – the culture of state capture and corruption – that have been raised as concerns by FATF. We have also tabled a new bill.

In most cases, these changes seek to make it more difficult for individuals to hide their identity behind complex structures and are certainly a step in the right direction. Yet, correctly identifying individuals at account creation is only part of the problem.

Dealing with data uncertainty

Earlier this year, A-team Insights hosted a roundtable discussion exploring the topic of adding value and improving efficiency in sanctions screening. The roundtable left participants with two key take aways:

Sanctions screening is becoming more complex

Data transparency is essential

To guarantee sanction screening, financial institutions must have access to two rapidly changing sets of reference data. The first is an explicit list of individuals and entities that are directly sanctioned. The second, more complex list, is the set of entities with implicit sanctions. Typically, this means entities that have a majority shareholding from sanctioned individuals.

Screening tools compare internal customer lists to the above-mentioned reference lists. But these tools can only be as effective as the data passed to them. Maintaining the integrity of internal AML data is, of course, a step in the right direction, particularly for dealing with explicitly sanctioned individuals.

Implicitly sanctioned entities are harder to identify. While the regulatory changes mentioned aim to make it more difficult to hide ownership structures, investments in new technologies such as graph MDM are required to uncover hidden relationships between entities.

Dealing with transactions

Another huge data challenge is that of identifying sanctioned activities at the transactional level. Millions of cross-border transactions take place per day – via SWIFT, PayPal, and various mobile payment mechanisms. In each case, the transaction should record a sending and receiving party, the purpose for which the funds are being transferred, and the amount.

Financial institutions may have an accurate record for the sending party (their customer) but must now accurately identify and verify the receiving party – i.e. run them through sanctions screening – and must identify the transaction amount and purpose in order to flag suspicious transactions.

The sheer volume of transactions presents the first challenge – for large organisations, these can run into millions of transactions a day.

Data integrity is the second challenge. Transactions with fraudulent intent will typically make an effort to hide the identity of the receiving party – for example, by excluding some details or by misspelling a name. These minor variations make it hard to accurately identify sanctioned individuals.

One international banking group turned to big data technologies to address two key AML challenges:

Identifying money moving silently between joint account holders

Managing exploits related to poorly formatted SWIFT messages.

The bank uses Trillium for Big Data to prepare and validate SWIFT messages – ensuring that each record is broken into its key elements, which are each standardised and validated. Each transaction is then checked against external reference sources such as international anti-terrorism lists. By enhancing their big data platform with in-built data quality, the bank is now able to process and validate hundreds of millions of transactions daily, significantly reducing their AML risk.

Take action to avoid grey-listing

As a country, we need to take urgent action to avoid FATF grey-listing. The government certainly is part of the problem, but at least appears to be taking concrete steps to address concerns. Corporate South Africa must also show intent by investing in the data management infrastructure necessary to ensure compliance.

Editorial Contacts

Master Data Management

Gary Allemann

Tel: 011 485 4856

Email: gary@masterdata.co.za

Evolution PR

Charlote Hlangwane

Tel: 076 891 1464 Email: Charlote@evolutionpr.co.za

The World Federation of Exchanges calls for greater role for derivatives market

The World Federation of Exchanges (WFE), the global trade association for exchanges and clearing houses, has published a paper on 25 March 2025 calling for a global, evidence-based refresh of public policy on derivatives. The paper sets out a coherent approach to derivatives in order to nurture their use, especially in regulated, lit environments, to avoid the development of an off-exchange derivatives market that is opaque and less fair to investors.

It is essential that all types of users have access to derivatives to manage economic uncertainty. This means avoiding bureaucracy and blocks on their use, while monitoring all off-exchange and all uncleared derivatives more vigilantly and systematically. The role of exchanges in price discovery and clearing houses in neutralising counterparty risk should be nurtured, as without a thriving public derivatives market, participants will turn to less well-regulated trading venues to manage risk, jeopardising the health of the financial system.

Listed markets constitute the safe, reliable, and verifiable core of derivatives, as they do for other financial instruments, and regulators must ensure they can continue to do so. Public policy should rethink measures that push derivatives trading into under-regulated environments and develop a policy framework that encourages trading on lit public markets to benefit from their numerous public-good aspects.

Nandini Sukumar, CEO of the World Federation of Exchanges, said, “Public markets are the best place to trade derivatives. Any policy being considered that impedes the growth of exchange-traded derivatives misunderstands the vital role they play in managing risk. Fifteen years on from the collapse of Lehman Brothers, it is important not to let markets slip into the bad old ways and, if anything, bring more transactions into the scope of margining and clearing. The real risk is that regulatory, tax or other measures push customers into a less well-regulated place.”

Richard Metcalfe, Head of Regulatory Affairs at the World Federation of Exchanges, said, “Exchange-traded derivatives, with their integral central clearing arrangements, bring clarity as to what the price is and who holds risk positions. They provide the foundation for healthy, well-regulated derivatives markets, which bring huge benefits to savers and businesses, small and large. The balance of regulatory incentives, as between OTC and listed derivatives, should continue to reflect this reality. At the same time, any temptation to load costs onto CCPs, rather than charging the risk-taking market participants, should be resisted to maintain the correct incentives for those risk takers. Measures such as the current EU restrictions on CFDs are a good example of ensuring the highest standards apply across all parts of the derivatives world.”

Read the full paper here.

The South African Reserve Bank has recently published a draft activity-based authorisation framework for participants (banks and non-banks) in the national payment system 

By Kirsten Kern, Partner and Head of Financial Services Regulatory, and Bright Tibane, Partner, Bowmans

On 3 March 2025, the South African Reserve Bank (SARB) published a draft directive entitled ‘Directive in respect of specific payment activities within the national payment system’ (Draft Directive) simultaneously with a draft exemption notice entitled ‘Designation by the Prudential Authority of specific activities conducted in the national payment system which shall be deemed not to constitute ‘the business of a bank’ under paragraph (cc) in section 1(1) of the Banks Act, 1990’ (Exemption Notice).

While the purpose of the Draft Directive is to prescribe regulatory requirements for conducting prescribed payment activities, the purpose of the Exemption Notice is to exempt the payment activities that technically qualify as ‘the business of a bank’ from the requirements of the Banks Act, 1990 (Banks Act).

The Draft Directive prescribes, inter alia, authorisation, governance, prudential, fitness and propriety, client funds safeguarding, data protection, and reporting requirements for persons (both banks and non-banks) who conduct or seek to conduct any of the following payment activities:

  • acquiring of payment transaction – contracting with a payee to accept and process payment transactions that result in a transfer of funds to the payee;
  • card credit payment instruction – a payment instruction resulting in the credit of funds to a payment account linked to a card;
  • electronic money – electronically stored monetary value issued on receipt of funds and represented by a claim on the issuer, which is generally accepted as a means of payment by persons other than the issuer and is redeemable for physical cash or a deposit into a payment account on demand (including mobile money where an electronic wallet service allows users to store, send and receive money using their mobile phone);
  • execution of payment transactions – execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or another payment service provider (including execution of debit orders such as once-off direct debits and authenticated collections, execution of payment transactions through a payment card or similar device, and execution of credit transfers such as standing orders);
  • faster payments – providing an electronic service in which both the transmission of the payment message and the availability of funds to the payee occur in real time or near-real time, on a basis that the service is available 24 hours a day and seven days a week;
  • issuing of payment instruments – contracting with a payer to provide a payment instrument to initiate payment instructions;
  • provision of payment account or store of value – providing an account or store of value held in the name of one or more payer or payee which is used for the execution of payment transactions;
  • provision of third-party payment – payee service provider (accepting funds or the proceeds of payment instructions from multiple payers on behalf of a beneficiary), and payer service provider (accepting funds or the proceeds of payment instructions, from a payer to make payment on behalf of that payer to multiple beneficiaries) (TPPP Payment Activities);
  • money remittance – a service for the transmission of funds (or any representation of monetary value), with or without any payment accounts being created in the name of the payer or the payee, where (a) funds are received from a payer for the sole purpose of transferring a corresponding amount to a payee or to another payment institution acting on behalf of the payee, or (b) funds are received on behalf of, and made available to, the payee;
  • clearing – the exchange of payment instructions;
  • settlement – the discharge of settlement obligations;
  • provision of a scheme – providing a set of formal, standardised and common binding rules governing the relationship between payment institutions or members of a scheme to provide payment instruments for the transfer of funds, or making and receiving payments, between or by end-users; and
  • participation in a scheme – Participation in a scheme as admitted by a scheme in terms of its entry and membership criteria.

It is noteworthy that the persons who conduct TPPP Payment Activities will be exempt from several significant requirements of the Draft Directive.

In addition, the Draft Directive prescribes that any person seeking to operate a closed-loop payment system or offer a closed-loop payment activity must be registered with the SARB (although such a person will not be considered as a payment institution and will not be required to comply with most of the requirements of the Draft Directive).

A ‘closed-loop payment system or payment activity’ is a payment system or payment activity that is not interoperable with other payment systems, and the payment service provider is the same entity or part of the same group as the payment service provider of the payee, with transactions limited to a specific network or ecosystem. This will be a significant change as the issuance of closed-loop payment instruments, which are currently unregulated save under the Consumer Protection Act, 2008 (such as gift cards), will become regulated and be subject to registration under the Draft Directive.

On a positive note, the Exemption Notice seeks to exempt the following payment activities that involve the pooling of funds into a store of value or payment account by a person other than a bank for the purpose of conducting payment activities, from the definition of ‘the business of a bank’ as outlined in the Banks Act, subject to the prescribed conditions:

  • acquiring of payment transactions;
  • card credit payment instructions;
  • execution of payment transactions;
  • electronic money;
  • faster payments;
  • issuing of payment instruments;
  • money remittance; and
  • provision of payment account or store of value.

The eight payment activities to be exempted under the Exemption Notice are currently considered by the SARB as the business of a bank and can only be offered by a bank or a non-bank in partnership with a bank. The Exemption Notice will enable non-banks that are authorised under the Draft Directive to offer these payment activities.

Both the Draft Directive and the Exemption Notice are in draft form and are available for public comments until 16 April 2025.

The Draft Directive and the Exemption Notice, together with their public comments templates, are available here under the tabs NPS regulation /Consultation. documents’.

IOSCO Issues Statement of Support on the IESBA’s International Ethics Standards for Sustainability Assurance

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The Board of IOSCO congratulates the International Ethics Standards Board for Accountants (IESBA) on achieving an important milestone of finalizing their International Ethics Standards for Sustainability Assurance (including International Independence Standards) (IESSA) and Other Revisions to the Code Relating to Sustainability Assurance and Reporting. IOSCO notes the extensive and thorough outreach program conducted by the IESBA throughout the lifecycle of the development of IESSA.

IOSCO reiterates its support for this work and commends the IESBA for its timely development of the standard in response to the public interest need for ethics (including independence) standards to cover all sustainability assurance providers.

The final standard is responsive to the key considerations and observations set out by IOSCO in its 2023 report and 2024 public statement. IOSCO believes the standard can support high-quality assurance over sustainability-related information and may enhance consistency, comparability and reliability of sustainability-related information provided to the market. The final standard together with the IESBA’s plan to develop implementation support materials and other capacity-building efforts, can contribute to enhancing trust in the sustainability-related information provided to investors.

Recognizing that individual jurisdictions have different domestic arrangements regarding the consideration of international ethics and independence standards, IOSCO calls on members to consider ways in which they might apply or otherwise be informed by the IESSA when considering ethics and independence requirements for assurance or permissions within the context of their jurisdictional arrangements.

Jean-Paul Servais, Chair of IOSCO, said: “History has shown us that assurance is necessary to deliver trust in disclosures, which is instrumental for the good functioning of financial markets. Today’s announcement from IESBA is a welcome development, providing a robust ethical framework for the assurance of sustainability reporting.

A strong assurance framework for sustainability related disclosures needs to be focused on the public interest and should be profession – and framework – agnostic. IESBA’s new international standard will foster trust and integrity for years to come.

“IOSCO will continue to play a key role in promoting global consistency in the assurance of sustainability-related information”, he added.

Please click here to read IOSCO’s full Statement of Support.

Global standard-setting bodies publish three Final Reports on margin in centrally and non-centrally cleared markets

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  • The Basel Committee on Banking Supervision (BCBS), the BIS Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) today published Final Reports on initial and variation margin in centrally cleared and non-centrally cleared markets.
  • The Reports address areas of further policy work identified in the 2022 BCBS-CPMI-IOSCO Review of margining practices as part of the policy responses coordinated by the Financial Stability Board (FSB) to the March 2020 “dash for cash” market turmoil.
  • The Reports contain proposals and practices intended to improve transparency, streamline margin processes and increase the predictability of margin requirements across centrally and non-centrally cleared markets.

The BCBS, the CPMI and IOSCO on 15 January 2025 published three Reports containing proposals and practices to improve transparency and streamline margin processes and increase the predictability of margin requirements across centrally and non-centrally cleared markets.

The Reports are part of a holistic work program bringing together the BCBS, the CPMI, IOSCO and the FSB. They were developed following the 2022 publication of the BCBS-CPMI-IOSCO report Review of margining practices, which identified areas for further work.

Transparency and responsiveness of initial margin in centrally cleared markets – review and policy proposals, from the BCBS, CPMI and IOSCO, sets out 10 final policy proposals relevant to central counterparties and clearing members.

The proposals seek to aid market participants’ and regulators’ understanding of initial margin requirements and responsiveness through increased transparency. An accompanying cover note summarises consultation feedback. The relevant standard setting bodies will consider how best to implement the proposals.

In tandem, the CPMI and IOSCO have published the Final Report Streamlining Variation Margin in Centrally Cleared Markets – Examples of Effective Practices. The eight effective practices set out in the Report provide examples of how standards set out in the CPMI-IOSCO Principles for financial market infrastructures, as supplemented by the relevant guidance, can be met.

The practices aim to enhance market participants’ liquidity preparedness for above-average variation margin calls through increased transparency and the efficient collection and distribution of variation margin in centrally cleared markets.

In addition, the BCBS and IOSCO have published the Final Report Streamlining Variation Margin Processes and Initial Margin Responsiveness of Margin Models in Non-centrally Cleared Markets. The Report sets out eight recommendations to firms to encourage the widespread implementation of good market practices. These practices streamline variation margin processes and increase the responsiveness of initial margin models.

The FSB’s Final Report on Liquidity Preparedness for Margin and Collateral Calls, published in December 2024, forms part of this work program and complements the BCBS, CPMI and IOSCO reports.

These Reports should be read together as elements of a comprehensive approach to improving transparency, streamlining margin processes, increasing the predictability of margin requirements and improving the liquidity preparedness of non-bank market participants for margin calls.

Corporate Penalties and Sanctions

Clarke Chesango, MIFM

Old Mutual Life Sanctions Report

The above link details the inadequacies of risk management compliance programs in meeting Financial Intelligence Centre Act (FIC) regulations by Old Mutual Life Assurance Business.

The company incurred administrative sanctions and financial penalties to the detriment of its reputation and social standing in the eyes of the public, institutional investors, and partners.

The damage can also negatively impact the company’s bottom line, as some institutional investors and international partners may withdraw their investments and funding.

This is necessitated by mandates that clearly state some investors cannot continue associating themselves with companies failing to comply with regulations, as this will also damage their brand reputation.

It is vital to ensure that the balance sheet is well diversified to withstand the risk of withdrawal of funding and investments by major partners due to unforeseen risks. The makeup of the balance sheet should be structured in such a way that no major investor or funder holds more than fifty percent, as any crisis involving the major investor could collapse the business.

This would create a liquidity crisis, as replacing the outgoing investor would be costly and difficult. The company’s position in the eyes of lenders in the market would be negatively affected, and any lending would come at a hefty premium.

However, we expect the company to regularize its position and meet all compliance requirements, as it has the means and resources to absorb the risk.

Some clients need to be reassured that their money is always safe despite these minor weaknesses in control. Serious and positive engagement with the client base is of paramount importance to temper rumors.

Customers’ funds are segregated from business funds, and customers should always be made aware of this, either in contractual agreements, social media interactions, or advertisements.

An explanation to shareholders regarding these incidents will help maintain positive, sustainable, long-term relationships. A clear solution and source of payment for these penalties should be communicated.

This will also demonstrate the resilience of the company’s contingency plans and its risk management capabilities, as in some cases, these funds might come from insurance or other sources such as savings.

How to Manage the Operational Incident Going Forward

The company should revisit the source of the incident and apply corrective measures promptly to prevent recurrence.

A thorough assessment of its risk management framework, personnel, and oversight should be conducted to understand how controls failed to proactively manage the risk.

Operational risk management will assist in identifying grey areas.

Employing skilled and experienced professionals in compliance management will aid the business in managing compliance risks effectively.

The evolving and dynamic nature of compliance regulations calls for interdepartmental meetings and engagements.

Regulatory and compliance costs are increasing companies’ operational expenses; therefore, it is essential to find the best ways to manage overall business costs.

Source: SARB Media relations

Changes to OTC derivatives regulation – Key developments for 2025

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By Kelle Gagné, Partner, Bowmans

South Africa’s OTC derivatives regulatory landscape is maturing, with key updates impacting both domestic and international market participants. These developments are part of South Africa’s implementation of global financial reforms aligned with the G20’s commitment to improving transparency and reducing systemic risk in the OTC derivatives market.

Some of the most important recent and upcoming changes to be aware of are as follows.

Strate granted trade data repository licence in December 2024

In a major step forward for South Africa’s financial market infrastructure, in December 2024 the Financial Sector Conduct Authority (FSCA) granted to Strate (Pty) Ltd, South Africa’s main central securities depository, a licence to operate as a Trade Data Repository (TDR).

As a TDR, Strate will be tasked with collecting, storing, and providing access to OTC derivatives trade data. Although the FSCA published a conduct standard outlining trade data reporting obligations in 2018, its commencement date has yet to be determined by the Prudential Authority (PA) of the South African Reserve Bank.

Now, with a licensed TDR in South Africa, market participants will be waiting to hear about the commencement date and will be eager to learn whether the reporting fields set out in the annexure to the conduct standard will be adjusted in line with the evolution of trade data reporting in other jurisdictions.

It is worth noting that with Joint Notice 2 of 2024, also released in December 2024, the PA announced it will require OTC derivative providers and financial institution counterparties to report certain margin information via its Umoja portal with effect from 1 April 2025, in line with the 2023 amendments to Joint Standard 1 of 2020 ‘Margin Requirements for Non-Centrally Cleared Over-The-Counter Derivative Transactions’. Trade data reporting to Strate will be in addition to reporting on the Umoja portal, so market participants will be looking to see some alignment in the two reporting streams.

Initial margin requirements – next phase-in September 2025

Another significant milestone on the horizon is the final phase of implementation of initial margin (IM) requirements for non-centrally cleared derivatives, scheduled for September 2025. This final phase will impose IM requirements on providers trading with counterparties, where both belong to groups that meet a threshold of the month-end average gross notional amount of OTC derivatives for March, April and May 2025 exceeding ZAR 100 billion.  The phase will significantly expand the pool of institutions required to exchange IM, and the market is accordingly working to deadline.

General Laws Amendment Bill published in December 2024

On a related regulatory note, the South African General Laws Amendment Bill, introduced in December 2024, proposes a change to the recently implemented chapter 16 of the Financial Sector Regulation Act, 2017 (Resolution Framework) applicable to banks and certain other designated institutions. 

In 2023, together with the announcement of the effective date of certain sections of the Resolution Framework, the PA released an Interpretation Note stating that it did not view section 166S (containing the write-down and cancellation powers of the Resolution Authority) as applying to master agreements as defined in section 35B of the Insolvency Act, 1936 (including ISDA Master Agreements, GMSLAs and GMRAs).

South African OTC derivative and securities finance market participants had expected an analogous amendment to the Resolution Framework to come through the long-awaited Conduct of Financial Institutions Bill (CoFI), but the amendment has instead appeared in the National Treasury’s General Laws Amendment Bill released in December 2024.  

The National Treasury Media Statement regarding the Bill, together with a link to the Bill and commenting instructions can be found here. Comments are due to National Treasury by close of business on 6 February 2025.

Conclusion

The South African derivatives regulatory environment continues to mature, with necessary enactments and changes occurring regularly. We expect to see increased activity relating to trade data reporting and margin in the coming year.

Key Updates from SARB on JIBAR Transition and ZARONIA Initiatives

The South African Reserve Bank (SARB) has released the following important updates and recommendations impacting the financial markets:

JIBAR Fallback Methodology Recommendation

Guidance on the methodology for JIBAR fallback rates to support the transition to alternative reference rates.

Consultation on Market Conventions for ZARONIA-Based Non-Linear Derivative Instruments

A call for feedback on proposed conventions for derivatives linked to the ZARONIA reference rate.

Recommendations for a ZARONIA-First Initiative in the Derivatives Market

Proposals to prioritize ZARONIA in the South African derivatives market to promote market stability and transparency. For more details, visit the SARB website.

Comparing section 34A of the Prevention and Combating of Corrupt Activities Act to the United States Foreign Corrupt Practices Act

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By Jane Andropoulos and Ashleigh Graham, Partners, Alexandra Amaler, Associate, and Lexi Liedtke, Candidate Legal Practitioner, Bowmans

The recently introduced section 34A of the Prevention and Combating of Corrupt Activities Act 12 of 2004 (PRECCA), which came into effect on 3 April 2024, creates a new broadly framed offence where members of the private sector or incorporated state-owned entities (SOEs) can be held liable for corrupt activities perpetrated by others in certain circumstances.

Section 34A(1) provides that any member of, for example, a company within the private sector or an incorporated SOE is guilty of an offence, if a person associated with that member gives or agrees or offers to give any gratification prohibited in terms of Chapter 2 of PRECCA (prohibited gratification) to another person, with the intention of obtaining or retaining either business or an advantage in the conduct of business for that private sector company or incorporated SOE. Chapter 2 of PRECCA sets out various offences that are categorised as ‘corrupt activities’.

However, section 34A(1) is qualified, so that no offence is committed, where that company within the private sector or incorporated SOE had in place adequate procedures designed to prevent persons associated with that company or incorporated SOE from giving, agreeing, or offering to give any prohibited gratification. What constitutes ‘adequate procedures’ is not defined in PRECCA.

It is widely accepted that Section 34A is based on section 7 of the United Kingdom’s Bribery Act 2010 (UK Bribery Act), which creates an offence where commercial organisations fail to prevent bribery. The UK Bribery Act is considered a key piece of legislation that has influenced anti-bribery and corruption (ABC) law globally. Its ‘six principles’ for ‘bribery prevention’ will probably influence the interpretation of what ‘adequate procedures’ means, in the South African courts.

However, another powerful and influential piece of ABC legislation is the United States’ (US) Foreign Corrupt Practices Act of 1977 (FCPA), which whilst broad in scope applies primarily to instances of bribery and corruption of foreign (state) officials, in order to obtain an advantage. Importantly, subsidiaries of US-held companies are subject to the FCPA – including those subsidiaries that are based in South Africa.

The FCPA does not expressly make provision for an offence of ‘failing to prevent bribery’, as the entities responsible for enforcing the FCPA – the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) – recognise that ‘a company’s failure to prevent every single violation does not necessarily mean that a particular company’s compliance program was not generally effective […] and they do not hold companies to a standard of perfection’.

Rather, when deciding whether to conduct an investigation or bring charges and/or render fines or accept self-reporting of corrupt and unethical business practices, and therefore reduce the fines levied, in terms of the FCPA, the DOJ and SEC will consider, inter alia, the adequacy and effectiveness of a company’s internal organisational safeguards and compliance procedures and programme/s at the time that the alleged violation of the FCPA is committed.

There are examples of criminal investigations that have resulted in substantial fines being imposed on US companies due to insufficient internal organisation to prevent bribery of foreign public officials leading to the payment of bribes abroad to secure contracts.

The establishment and extent of internal organisational structures are factors considered when determining whether to reduce fines and the remedial steps that are required to be implemented by an offending company, including whether to appoint a monitor to oversee the introduction of these internal organisational safeguards (compliance programmes).

Other important considerations may include, inter alia, the nature and seriousness of the offence, the pervasiveness of wrongdoing within the company, the company’s history of similar misconduct, and whether the company has self-reported, cooperated, and taken appropriate remedial action.

It should be noted that the DOJ and SEC may choose not to pursue charges against a company for violating the FCPA where the company in question has an effective compliance programme and may even ‘reward a company for its program, even when that program did not prevent the particular underlying FCPA violation that gave rise to the investigation’.

The DOJ and SEC apply a pragmatic, common-sense approach when considering compliance programmes, involving the following three broad questions:

  • Is the compliance programme well designed?
  • Is the compliance programme adequately resourced to function effectively?
  • Does the compliance programme work in practice?

Compliance programmes that merely employ a ‘tick-box’ approach will likely be ineffective and companies should consider the specific needs, challenges, and risks associated with their businesses when creating a compliance programme.

The DOJ and SEC have identified the following ‘hallmarks of effective compliance programs’. However, those responsible for compliance should carefully consider what their specific business would require from a compliance programme to effectively prevent, detect, and remedy violations of the FPCA. This would include:

  • Commitment by senior management to a culture of compliance, which is reinforced and implemented at all levels of the business and is accompanied by a clearly articulated policy against corruption.
  • An effective code of conduct that is clear, concise, and accessible to all employees and other parties associated with the company, as well as policies and procedures designed to mitigate risks associated with the business.
  • Oversight and implementation of the compliance programme by the senior executive/s of the company who should be sufficiently autonomous from management and should have the necessary resources to effectively implement the programme in the organisation.
  • A comprehensive, risk-based compliance programme that is tailored to address the specific risks associated with the company’s business, is adequately resourced, and is implemented in good faith.
  • Steps taken to ensure that relevant policies and procedures are effectively communicated throughout the company through periodic training, certification, and/or ongoing advice and guidance in respect of the compliance programme.
  • Clear and appropriate disciplinary procedures that are applied across the company on a prompt, reliable, fair, and consistent basis. Positive incentives may also facilitate greater compliance and the SEC has encouraged companies to reward ‘doing the right thing’.
  • Risk-based due diligence in respect of third parties associated with the company – considering the third party’s qualifications and associations and the business rationale for the third party’s inclusion in the transaction – and ongoing monitoring of relationships with third parties.

In conclusion, a company in the private sector that complies with section 34A of PRECCA, by adopting adequate procedures to prevent persons associated with that company from conducting corrupt activities, will probably find that it employs the same kind of or similar compliance practices recognised by the FCPA, as the ‘adequate procedures’ to prevent corruption.

Of crucial importance is that South African subsidiaries of US-held corporations, or any corporation that falls within the FCPA definition of such, ensure that when their ‘adequate procedures’ are implemented, they similarly consider and comply with the provisions of FCPA. If there is any doubt as to the application of the FCPA, the adoption of these procedures can only stand a corporation in good stead.

IOSCO Publishes Report on Transition Plans Disclosures

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Report explores how the related disclosures can support investor protection and market integrity objectives and sets out future considerations for key stakeholders

IOSCO on 13 November 2024 published a Report on Transition Plans Disclosures. Developed by IOSCO’s Sustainable Finance Taskforce (STF), the Report sets out how transition plans disclosures can support the objectives of investor protection and market integrity, shares challenges and key findings which point towards a series of coordinated actions for IOSCO and other stakeholders to consider in the future which concern four main aspects:

  1. Where transition plans are published, encouraging consistency and comparability through guidance on transition plan disclosures,
  2. promoting assurance of transition plan disclosures;
  3. enhancing legal and regulatory clarity and oversight, and
  4. building capacity.

On consistency and comparability, stakeholders suggested additional guidance on transition plans disclosures could clarify disclosure expectations and lead towards more standardized information. They see alignment of guidance on transition plans disclosures as key so that investors can understand and compare information across different jurisdictions, even though national transition plans requirements may differ.

IOSCO’s Report therefore welcomes the IFRS Foundation’s plan to develop educational material and, if needed, application guidance to support transition plans disclosures that provide investors with the information needed to make informed decisions about risks and opportunities. IOSCO encourages the International Sustainability Standards Board (ISSB) to maintain a high level of interoperability of the IFRS Sustainability Disclosure Standards with key jurisdictional standards as they develop this educational material.

To enhance clarity, IOSCO also encourages relevant standard setters to consider providing markers on what would constitute forward-looking information, in accordance with their standards and governance processes. This can support reporting entities in managing potential liability risks while disclosing much needed forward-looking, climate-related, information.

Jean-Paul Servais, Chair of IOSCO’s Board and Chair of the Belgium Financial Services & Markets Authority (FSMA), said: “Climate transition plans are becoming increasingly used by companies. To help investors and issuers, IOSCO publishes today a comprehensive report on transition plan disclosures. In this respect, IOSCO welcomes the ISSB’s announcement on developing educational materials in this area and invites them to continue their efforts with regards to alignment of standards and guidance. We will continue to engage with the ISSB in this process.”

The Report highlights the five most useful components of transition plans disclosures that were suggested by market participants in IOSCO’s outreach:

  1. Ambition and targets;
  2. Decarbonization levers and action plan;
  3. Governance and oversight;
  4. Financial resources and human capital, and;
  5. Financial implications.

Rodrigo Buenaventura, Chair of IOSCO’s Sustainable Finance Task Force, commented: “Comparable, consistent and reliable disclosures of transition plans may have a positive effect on market participants’ ability to make informed decisions, ultimately benefiting both investors and the integrity of the capital markets. High-quality transition plans are key to navigate the transition towards lower GHG emissions, a climate-resilient global economy and are relevant to all jurisdictions, entities and investors”.

IOSCO intends to continue its engagement with key stakeholders, including the IFRS Foundation, while promoting market integrity and mitigating greenwashing risks with regards to transition plans, thus supporting investors’ informational needs and the ability of markets to price sustainability-related risks and opportunities and support capital allocation.

IOSCO Announces Final Report on Investor Education on Crypto-Assets

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IOSCO is pleased to release its Final Report on Investor Education surrounding Crypto-Assets. This Report summarizes the results of a survey distributed to members of IOSCO’s Committee for Retail Investors (C8) in autumn last year about retail investor behaviour, demographics, and experiences with crypto-assets.

Crypto-assets have been a key priority for IOSCO for some time and in 2022 it established a Board-level FinTech Task Force to develop, oversee, deliver and implement IOSCO’s work with respect to FinTech and crypto-assets. Early work has shown that investors are drawn to invest in crypto-assets for three key reasons:

  • Fear of missing out” (“FOMO”) or as a speculative investment;
  • Low cost of entry; and
  • Advice from friends and/or social media.

The Final Report highlights examples of regulatory changes and enforcement activity by C8 members since the related 2020 report, as well as current priority issues around investor education in the crypto-asset space, such as relationship investment scams and the need to communicate with retail investors on, and about, social media.

The Report suggests specific investor education messages which C8 members could consider when driving forward education of crypto-assets in their local jurisdiction.

  • Investments in crypto-assets can be exceptionally risky and these assets are often volatile.
  • Investors should be wary of investments promoted on social media and use skepticism when following “finfluencers.”
  • Crypto-asset investments might lack basic investor protections, as those offering crypto-asset investments or services may not be complying with applicable law, including registration and licensing requirements.
  • Investments offered in compliance with a jurisdiction’s regulatory framework confers investors with certain investor protections.
  • Fraudsters continue to exploit the rising popularity of crypto-assets to lure retail investors into scams, often leading to devastating losses.
  • Understanding the nature of investing generally, including having an investing plan, and understanding risk tolerance and time horizon, as well as understanding the nature of investing in crypto-assets, can be critical to overall and long-term investing success.

Jean-Paul Servais, Chair of IOSCO, commented: “With such growing widespread interest in crypto-assets, retail investors are subject to unique risks. Market events have shown that the industry carries high levels of volatility, failures, and bad actors causing harm to investors and the markets.

It is not surprising, therefore, that crypto-asset education is one of IOSCO’s top priorities and forms a big part of this year’s World Investor Week, which highlights a number of common challenges that we all face as financial regulators and as financial consumers.

Taking place over the course of this week, IOSCO’s annual World Investor Week is a platform to promote financial education and literacy. https://www.worldinvestorweek.org/.

Mr Servais added: “Financial education is a complementary tool to regulation and supervision to enhance investors’ awareness, critical sense and rational behaviour. Financial literacy must go hand in hand with appropriate investor protection measures, fair advice, supervision and enforcement of rules.