LATEST ARTICLES

Declaration of Crypto Assets as a financial product

FRJ
-
0
Declaration of Crypto Assets as a financial product

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

FRJ
-
0
Crypto assets now included under definition of financial products in South Africa

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.

end


This message may contain confidential and privileged information. If it has been sent to you in error, please reply to advise the sender of the error and then immediately delete this message. Please visit www.bakermckenzie.com/disclaimers for other important information concerning this message.

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

FRJ
-
0
IOSCO issues regulatory measures to address increasing risks and challenges from digitalisation of retail marketing and distribution

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.

MEDIA ENQUIRIES

Carlta Vitzthum                                                                        + 34 91 787 0419/

Outside office hours                                                                 + 34 697 449 639        

Email:                                                                                         carlta@iosco.org

Website:                                                                                      www.iosco.org

Follow IOSCO on Twitter here 

Opinion piece: Avoiding FATF suspension depends on data.

FRJ
-
0

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

South Africa officially exits grey list after two years of regulatory reform

FRJ
-
0
South Africa officially exits grey list after two years of regulatory reform
By Kirsten Kern, Partner, Head of Financial Services Regulatory South Africa, and Kirsten Paulo, Senior Associate, Bowmans

South Africa has officially been removed from the ‘grey list’ of the Financial Action Task Force (FATF), following more than two years of rigorous regulatory reform. This follows the successful completion of all 22 action items in the FATF Action Plan, adopted by South Africa in February 2023.

South Africa’s National Treasury has hailed the delisting as a collective national effort and a significant milestone that strengthens global confidence in South Africa’s financial integrity, which is likely – in turn – to stimulate foreign investment.

Since its greylisting, South Africa has overhauled its anti-money laundering and counter-terrorism financing regime through far-reaching legislative, institutional and enforcement reforms. This included tightening supervisory and enforcement capacity across key agencies, improving access to beneficial ownership data, and enhancing inter-agency coordination and intelligence sharing.

For example, certain sections of the Companies Amendment Act, 2024 and the entire Companies Second Amendment Act, 2024 (Amendment Acts) became effective in December 2024, introducing several key measures, including the requirement for enhanced transparency. Companies must now disclose beneficial ownership information and provide clarity regarding the identities of individuals who own or control the company. Other amendments strengthen corporate governance, including extending the time period in which delinquent directors are held accountable, and increasing public access to company records.

Sections of the Amendment Acts not yet in force include those sections that deal with remuneration disclosures for public and private companies, access to private company financials, removal of the right of ‘accredited entities’ to perform dispute resolution functions in favour of using the Companies Tribunal, and obligations to publish where records are kept. Also still to be implemented are new M&A transaction thresholds that require Takeover Regulation Panel scrutiny. 

South Africa’s National Treasury also published further proposed amendments to the Companies Act, 2008. in the recent draft General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill, 2024. The amendments include measures to increase the maximum penalty for administrative fines to ZAR10 million (up from ZAR1 million) and empower the Companies and Intellectual Property Commission (CIPC) to deregister non-compliant companies and impose fines.  

The Financial Intelligence Centre has also reduced controlling ownership thresholds to counter sophisticated financial crime tactics. Other amendments include new provisions in the Financial Intelligence Centre Act for extraordinary expenses, interest accrual on prohibited accounts, reporting cash conveyance to/from South Africa, and addressing risks associated with new delivery mechanisms and technologies. 

Expanded definitions of financial products and services were also added to the Financial Sector Regulation Act, 2017. in addition to new licensing powers, enhanced information-gathering powers for regulators, and exceptions for certain transactions under the Insolvency Act, 1936. The Non-Profit Organisations (NPO) Act, 1997 also introduced maximum penalties to enhance compliance.

To enable the National Prosecuting Authority (NPA) to address multi-jurisdictional offences, Corporate Alternative Dispute Resolution guidelines were implemented in 2024. These provide companies charged with corruption the opportunity to voluntarily disclose evidence and information, fully cooperate and pay financial remediation. 

Established under the NPA Amendment Act, 2024, the Investigating Directorate Against Corruption (IDAC) is a specialised, independent unit dealing with high-level corruption cases with cross-border implications. The Twenty-First Amendment Bill further proposes a dedicated Anti-Corruption Commission to focus on grand corruption and high-level organised crime, complementing the NPA. Also effective in 2024, the Independent Police Investigative Directorate (IPID) Amendment Act, 2024 investigates and oversees the South African Police Service and the Municipal Police Services.

Although not yet in effect, the Public Procurement Act, 2024 (PPA) was signed into law in July 2024, with the aim of enhancing transparency and accountability in procurement processes and ensuring the independence of the procurement office from National Treasury. 

Further, an updated South African Revenue Service Trust guide now also requires detailed reporting on trust beneficiaries to strengthen regulatory transparency.

Collectively, these measures reflect a shift from formal compliance to demonstrable effectiveness in detecting, deterring and disrupting financial crime.

To stay off the grey list, South Africa must continue to improve and stay updated with new FATF developments.

SARS announces revised timeline for the implementation of global minimum tax / Pillar II in South Africa

FRJ
-
0
SARS announces revised timeline for the implementation of global minimum tax / Pillar II in South Africa

By Yasmeen Suliman and Esther Geldenhuys, Partners, and Marvin Petersen, Senior Associate, Bowmans

The Global Anti-Base Erosion (GloBE) Rules were adopted on 8 October 2021 by over 135 member countries of the so-called Inclusive Framework in co-operation with the Organisation for Economic Co-operation and Development (OECD) and the G20 countries. It provides for a co-ordinated system of taxation intended to ensure that large multinational enterprise (MNE) groups pay a minimum level of tax (15%) on the income arising in each of the jurisdictions in which they operate.

The GloBE Rules apply to so-called constituent entities (being an entity within an MNE group or a permanent establishment of an entity) that achieved consolidated annual revenue of at least EUR 750 million in at least two of the four fiscal years preceding the tested fiscal year.

With effect from 1 January 2024, South Africa enacted the Global Minimum Tax Act 46 of 2024 (GMT Act), which essentially introduced most of the GloBE Rules into our local tax law, and the Global Minimum Tax Administration Act 47 of 2024 (GMTA Act) to provide for the administration of the GMT Act.

The South African Revenue Service (SARS) has announced a revised timeline for the implementation of the GloBE registration and notification process. The launch of the GloBE functionality on SARS e-Filing is now scheduled for 16 March 2026. This extension to the deadline which was originally set for December 2025, is attributed to the need for comprehensive technology systems and compliance with evolving international standards.

Key legal provisions under the GMT Act remain in effect. However, in line with the GMTA Act, the due date for the GloBE Information Return (GIR) for fiscal years beginning on or after 1 January 2024 is 18 months after the end of the 2024 fiscal year, and 15 months for subsequent years.

Notably, for MNE groups with fiscal years ending before 31 December 2024, the GIR must be submitted by 30 June 2026. In cases where the MNE group’s fiscal year ended before 31 December 2024 due to a change in the fiscal year because of a takeover by another MNE group, the GIR must be submitted before 30 June 2026.

Further, in terms of the GMTA Act, domestic constituent entities (DCEs) are required to notify SARS of the so-called designated local entity (DLE) responsible for filing the GIR at least six months prior to the filing deadline, and similar notification requirements apply for the so-called ultimate parent
entity or the so-called designated filing entity (DFE).

This means that in respect of the 2024 fiscal year the notification has to be filed before 31 December 2025. As the 31 December 2025 deadline approaches, there has been uncertainty in the market as to how the respective notifications should be filed. Up until earlier this week there was no indication of the process on SARS’ website.

SARS has therefore moved the notification deadlines to 30 April 2026 and the GIR submission deadlines to 30 June 2026 for certain MNE groups. These extensions primarily affect the registration and notification process, with the GIR submission extension limited to groups whose fiscal years end before 31 December 2024.

On a positive note, SARS also announced that South Africa has signed the GloBE Information Return Multilateral Competent Authority Agreement (MCAA), facilitating the automatic exchange of GloBE information with other jurisdictions. Additionally, South Africa has achieved qualified status for its Domestic Minimum Top-Up Tax Rules, which is expected to reduce the risk of double taxation for affected MNE groups.

SARS has committed to issuing further guidance and system readiness updates as the new implementation date approaches. MNE groups are encouraged to continue their internal preparations and monitor forthcoming communications to ensure timely and compliant GloBE filings.

Responsible Use of AI: Key Insights from the latest Guidance Notes issued by the Financial Services Commission

FRJ
-
0
Responsible Use of AI: Key Insights from the latest Guidance Notes issued by the Financial Services Commission

By Rajiv Gujadhur, Partner and Nawsheen Jaulim, Associate, Bowmans Mauritius

Artificial intelligence (AI) is rapidly transforming the financial services landscape in Mauritius, offering new opportunities for efficiency, innovation, and customer engagement. Recognising both its potential and the risks, the Financial Services Commission (FSC) has released its Fintech Series Guidance Notes No. 4 on the Responsible Use of AI in Financial Services in September 2025 (Guidance Notes). The Guidance Notes apply to the sectors of insurance, wealth management and non-banking financial institutions (NBFIs) subject to FSC oversight, covering both traditional AI and generative AI.

Use of AI across the global financial sector

Financial institutions across the global financial sector are leveraging AI in various areas, including robo-advisory services, portfolio optimisation, natural language processing for market analysis, algorithmic trading, insurance pricing and claims analytics, anti-money laundering (AML) and fraud detection, risk modeling, and customer service chatbots and virtual assistants.

Principles for responsible use of AI

The Guidance Notes present a unified framework for responsible AI built on four mutually reinforcing pillars:

  • Governance: Strong governance is the foundation, requiring boards and senior management to maintain clear oversight and accountability throughout the AI lifecycle from design and approval to deployment, monitoring, and decommissioning with defined roles, adequate AI literacy across teams, and human oversight where consumer outcomes may be materially affected.
  • Fairness and Bias Mitigation: Fairness and bias mitigation are integral to this governance model. Institutions should design and manage systems to avoid harmful or discriminatory outcomes, foster an ethical culture supported by regular training and cross‑functional teams, and implement continuous monitoring and auditing using techniques such as adversarial testing and anomaly detection to ensure explainability and transparent decision making.
  • Transparency: Transparency, in turn, enables trust and fair treatment by ensuring customers receive clear, timely, and adequate information while balancing confidentiality, intellectual property protection, and legal obligations, particularly in sensitive areas like fraud detection. Firms should maintain robust documentation and assurances for third‑party systems and provide effective channels for engagement, information requests, and complaints.
  • Security: Security underpins and operationalises these commitments through ongoing validation, robustness testing, and automated monitoring to detect data drift and trigger recalibration, coupled with up‑to‑date cybersecurity controls and regular staff training; where third‑party AI is used, significant robustness findings should be shared to support corrective action. Together, these elements form a coherent, end‑to‑end approach that embeds ethical, transparent, and resilient AI practices across the institution and its vendors, ensuring accountable use and strong consumer protection.

Additionally, in order to guide its licensees seeking to develop, deploy and use AI technologies, the FSC has developed a set of “Principles for the responsible use of AI” which consist of nine principles: fairness and bias mitigation, transparency, accountability, privacy, security, environmental sustainability, human-centricity, continuous monitoring and evaluation and compliance ethics.

Potential benefits and risks applicable to the adoption of AI

The FSC emphasises the potential benefits of AI in the financial sector which include: improved regulatory compliance, increased revenue and value creation, enhanced decision-making, greater financial inclusion, operational efficiency, better consumer experiences, more accurate investment forecasting, stronger cyber resilience, and ongoing staff development.

Nevertheless, the risks and challenges associated with the adoption of AI should not be overlooked. These include bias and discrimination, privacy and data protection concerns, model opacity, systemic and concentration risks, cybersecurity threats, outdated legacy systems, skills shortages, budget constraints, and limited access to platforms and tools.

Data protection considerations

The Guidance Notes reinforces the statutory obligations set out under the Data Protection Act 2017 (DPA)_, particularly for automated decision-making and profiling that produce legal or significant effects for individuals. Accordingly, organisations must ensure strict compliance with the applicable provisions of the DPA (including informing data subjects of such automated decision-making processes and conducting the relevant data protection impact assessments to identify, evaluate, and mitigate risks).

As AI continues to evolve, the Guidance Notes provide a solid framework for responsible innovation, helping Mauritius’ financial sector harness the benefits of AI while protecting consumers and upholding the highest standards of ethics and compliance.

Overview of Recent IOSCO Publications

FRJ
-
0
Overview of Recent IOSCO Publications

The International Organization of Securities Commissions (IOSCO) has recently released a series of important reports addressing key areas of global market functioning and regulatory development. These publications—spanning valuation practices for collective investment schemes, the tokenization of financial assets, and transparency within the single-name credit default swaps market—reflect IOSCO’s continued commitment to strengthening market integrity, enhancing investor protection and responding proactively to evolving market structures.

Each report provides valuable insights relevant to regulators, market participants and stakeholders across South Africa’s financial markets. Below is a high-level introduction to each topic, with links to the full reports for further reading.

1. Valuation Practices for Collective Investment Schemes

IOSCO’s Consultation Report on Valuing Collective Investment Schemes proposes updated recommendations to modernise its existing valuation principles in light of significant market developments since 2007 and 2013. With CISs increasingly exposed to less liquid and alternative assets—and retail participation growing—robust valuation practices remain essential to ensuring accurate NAV calculations, fair investor outcomes, and overall confidence in the asset management ecosystem.

The consultation seeks feedback on 13 updated recommendations covering governance, oversight, conflicts of interest, stressed-market conditions, third-party service providers, stale prices and record-keeping.

Read the full article here.

2. Tokenization of Financial Assets

In its Final Report on the Tokenization of Financial Assets, IOSCO explores how distributed ledger technology (DLT) is being adopted across capital markets and the implications for regulatory oversight. While tokenization offers potential efficiency gains—such as faster settlement and improved collateral mobility—it also introduces new operational, legal and cyber risks that regulators must consider.

The report highlights the early but growing interest in tokenized instruments and provides a framework for members to assess risks, market integrity and investor protection concerns, aligned with IOSCO’s broader policy recommendations for crypto-asset and DeFi markets.

Read the full article here.

3. Transparency in the Single-Name Credit Default Swaps Market

IOSCO’s Final Report on the Single-Name Credit Default Swaps Market examines lessons from the 2023 banking sector stresses, focusing on market structure, liquidity and transparency. The analysis—developed alongside industry input and regulatory review—finds that the single-name CDS market remains highly illiquid, concentrated among few intermediaries, and currently characterized by limited post-trade transparency.

The report explores potential measures to enhance transparency and evaluates the benefits and potential risks of such reforms. IOSCO will continue monitoring market developments to support greater resilience and stability in global derivatives markets.

Read the full article here.

Digital Assets: Anti-Money Laundering Regulation and Privacy Laws

FRJ
-
0
Digital Assets: Anti-Money Laundering Regulation and Privacy Laws
Clarke Chesango (MIFM)

Cryptocurrency and associated blockchain technology have brought tangible benefits as well as immense risk to the public. This innovation is set to disrupt the banking and payment systems and stock exchanges infrastructure among others with time. However, for investors to have confidence in the digital ecosystem, innovation should satisfy data privacy laws and protect investments and clients, and comply with Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT), and sanctions regulations. Inadequate regulation breeds corruption, fraud, and this can erode confidence in the whole system.

Digital money is represented on the computer system and on digital ledgers on the blockchain system, while fiat money satisfies the core functions of money.

Our traditional fiat money has the following core functions:

  1. Store of Value – Stability in its value and should not be volatile
  2. A Unit of Measurement – It provides a common measure to value goods and services
  3. A Medium of Exchange – All goods and services can be exchanged with money
  4. A Standard of Deferred Payments – It can be borrowed and lent within specified contractual obligations and time

The multi-money environment should be allowed to coexist so as to support and stimulate economic activity by giving individuals and institutions a choice in their transactional payment activities. This flexibility allows businesses to choose the mode of payment which best fits their structure of operations. Some businesses around the world are now accepting Bitcoin and altcoins as a means of payment for their services despite the volatility and risk in their values.

The current payment infrastructure should adapt to meet the needs of the new technology and innovation. A modification of existing legislation or a complete overhaul of the current legislation to better meet the new wave of innovation is urgently required for the public good and to create confidence and uphold the integrity of the financial markets system and to stem digital crime.

New technology and innovation should embed Anti-Money Laundering and Countering the Financing of Terrorism parameters within their blockchain technology to enhance strict adherence to existing and upcoming laws. However, in implementing Anti-Money Laundering laws, data privacy laws should not be infringed upon.

Law-abiding citizens and corporates should not have their rights and business operations curtailed in the name of fighting financial crime; hence, compliance and legal processes should work in harmony to protect them through legal instruments that benefit loyal citizens and corporates.

Smart contracts can be used to filter through client data and flag data not meeting Anti-Money Laundering, Countering the Financing of Terrorism, and sanctions requirements. This can be built into the blockchain system to make sure digital currencies are fully compliant with relevant legislation. This automation will free resources to be deployed to other critical areas. In addition, business processes and operations embedding interoperability in their systems will also save a lot of money and time, as their systems can communicate and share data within the confines of data privacy laws and at speed.

Compliance enforcement can be initiated as transactions occur through automation based on predefined criteria and risk indicators instead of being reactive, as is the case today, since most compliance processes are manual. Law enforcement is limited and delayed, as they only start investigations after the generation of Suspicious Activity Reports (SAR). The processes to bring the culprits to book take time, and the delay often results in massive cost and losses to the investing community.

Blockchain finance should be adapted to meet prevailing regulations to better serve the interests of customers. Smart contracts software can be embedded into the transactions using zero-knowledge proofs (ZKP) to protect business metadata and individual data privacy, unless the transaction fails predefined algorithms; hence, it can be flagged or blocked.

Suggestions

  1. Businesses should collaborate to manage costs so that even small upcoming startups can benefit and comply with new forms of compliance at speed.
  2. Interoperability – All systems should communicate with each other to better achieve compliance and regulatory regimes, among other benefits.
  3. Embedding smart contract software in blockchain to better manage blockchain finance needs a new regulatory architecture and conducive regulatory sandboxes to support new forms of technology and innovation.
  4. Education – Massive public awareness and education should be done to communities so that they cannot be misled into committing their financial resources to technology they don’t understand.
  5. The financial markets should be structured to make sure that losses are borne by the provider rather than by investors if it’s the provider’s fault.

Conclusion
To better manage new technology and innovation, regulatory sandboxes, interoperability of different systems, automation, continuous public awareness and education, and swift regulation should be part of the process to achieve beneficial outcomes and minimize negative outcomes.

Sources: International Monetary Fund – Financial Stability Board 2023; IMF-FSB Synthesis Paper, Policies for Crypto Assets

Kenya: Adoption of a revised Risk-Based Credit Pricing Model

FRJ
-
0
Kenya: Adoption of a revised Risk-Based Credit Pricing Model

By Dominic Indokhomi, Partner and Nathaniel Nduta, Associate, Bowmans Kenya

The Central Bank of Kenya (CBK) has published the revised Risk-Based Credit Pricing Model (RBCPM) for adoption by the banking sector. This follows a public and stakeholder consultation period published by the CBK on 23 April 2025 on the new pricing model.

Under the new model, the lending rate will be comprised of the Kenya Shilling Overnight Interbank Average (KESONIA) plus a premium (“K”), where:

  • KESONIA is the overnight interbank average rate charged by banks on unsecured overnight interbank lending and borrowing in Kenyan Shillings; and
  • the premium (“K”) reflects a bank’s operating costs, return to shareholders and a borrower’s risk profile.

The new model applies only to variable rate loans denominated in Kenyan Shillings. It does not apply to foreign denominated currency loans and fixed rate loans. In cases where KESONIA is not available, the Central Bank Rate (CBR) may be used as a fallback reference rate.

Banks are required to implement the revised model for new loans effective 1 September 2025, with all existing loans required to be transitioned by 28 February 2026. Banks are required to disclose the full breakdown of their lending rates including the weighted average premium (“K”), fees and charges on their websites as well as on the Total Cost of Credit (TCC) portal.

FSCA Publishes Communications on Stakeholder Consultation Regarding OMNI-Risk Return

FRJ
-
0
FSCA Publishes Communications on Stakeholder Consultation Regarding OMNI-Risk Return

The Financial Sector Conduct Authority (FSCA) has released communications outlining its stakeholder consultation process on the OMNI-Risk Return (ORR).

The ORR aims to streamline and enhance regulatory reporting by providing a more comprehensive and integrated view of risk across the financial sector. This consultation is an important step toward refining the framework and ensuring that the reporting requirements are effective and proportionate.

SAIFM encourages members, particularly those involved in compliance, risk management, and regulatory reporting, to review the FSCA’s communication for further insight.

Please click here to access the document. 

FSCA shakes up retirement fund administration requirements

FRJ
-
0
FSCA shakes up retirement fund administration requirements
By Deirdre Phillips, Partner, and Tshepo Mokoana, Senior Associate, Bowmans South Africa

On 6 August 2025 the Financial Sector Conduct Authority (FSCA) officially introduced ‘Conduct Standard 2 of 2025: Conditions Prescribed in respect of Pension Fund Benefit Administrators’ (Conduct Standard). The Conduct Standard significantly enhances the regulatory framework applicable to benefit administrators of retirement funds governed by the Pension Funds Act, 1956.

The Conduct Standard marks a major upgrade from the previous framework outlined in Board Notice 24 of 2002: ‘Conditions determined in respect of Administrators acting on behalf of Pension Funds’ (Board Notice), which is now being phased out.

The intention is for the Conduct Standard to ultimately replace the Board Notice entirely – giving the Board Notice a much-needed retirement. In ‘Communication 15 of 2025 (RF)’ released with the Conduct Standard, the FSCA advised that it identified the need to strengthen the existing regulatory framework set out in the Board Notice.

Alongside the Conduct Standard, the FSCA has also published ‘FSCA RF Notice 10 of 2025’, which sets out the required format submissions to the FSCA under the Conduct Standard.

While some of the requirements in the Conduct Standard echo those in the Board Notice, it also introduces clearer expectations, tighter controls, and several new requirements. Notably, the Conduct Standard:

  • introduces fit and proper requirements for benefit administrators and their key persons;
  • requires benefit administrators to establish and maintain an effective ‘complaints management framework’ to ensure the effective resolution of ‘complaints’ (as defined in the Conduct Standard); and
  • mandates new requirements for Service Level Agreements between retirement funds and their benefit administrators.
  • Most provisions in the Conduct Standard came into effect on 6 August 2025, while others will take effect later. The rollout timeline is in paragraph 40(3) of the Conduct Standard.

Paragraphs 5 to 13 of the Board Notice were repealed as of 6 August 2025, with paragraphs 1 to 4 and 14 scheduled for repeal in in August 2026.

FSCA reaffirms major reforms in financial markets oversight

FRJ
-
0
FSCA reaffirms major reforms in financial markets oversight

Reforms to the Financial Markets Act and new rules on benchmarks will close gaps and strengthen trust, says FSCA chief Unathi Kamlana.

By Ruan Jooste

The Financial Sector Conduct Authority (FSCA) is preparing to overhaul South Africa’s financial markets framework.

The regulator is planning to review the Financial Markets Act (FMA) and a benchmark conduct standard forming the backbone of reforms, Commissioner Umnathi Kamlana (pictured above) said during a keynote address at the South African Institute of Financial Markets Regulatory Summit today.

Kamlana said the FMA review, undertaken in partnership with the National Treasury, reflects how much the market landscape has shifted since the legislation was first introduced.

Please click here to read the full article.

The World Federation of Exchanges Calls for Greater Oversight as Private Market Growth Accelerates

FRJ
-
0
The World Federation of Exchanges Calls for Greater Oversight as Private Market Growth Accelerates

The World Federation of Exchanges (WFE), the global industry association for exchanges and central counterparties (CCPs), has called for enhanced oversight and policy coordination as private investment markets balloon.

Traditionally a complement to public capital markets, private markets have expanded rapidly, aided by policy incentives, raising critical questions about how this unchecked growth could pose significant risks to market integrity, retail investors and potentially even financial stability. In a new paper, Strengthening Private Markets, the WFE calls for improved data and supervisory scrutiny, more global policy focus, and a fairer balance of incentives between public and private markets.

The key risks of unsupervised growth of private markets are identified in the paper:

  • Systemic risk: Increased leverage, opaque valuations, and the bundling of private credit with equity introduce complex risks. These need closer scrutiny to avoid destabilising impacts on the wider financial system.
  • Risk to retail investors: Disclosures must be strengthened, and risks clearly communicated. High fees and illiquidity pose additional concerns for non-professional investors.
  • Unmonitored secondary trading: The emergence of new trading platforms for private assets could affect public market pricing and integrity. There must be supervisory reporting of such trades and potential disclosure to the public.


To meet these challenges, the WFE recommends policy co-ordination that will:

  • Develop harmonised transparency standards across public and private markets. 
  • Review regulatory and tax treatment regimes, that currently favour private capital.
  • Assess the systemic risks associated with the combination of leverage and illiquid secondary trading.
  • Promote public listings by ensuring a level playing field and reducing unnecessary burdens.

Nandini Sukumar, CEO of the WFE, said, “Public markets remain the critical infrastructure that underpin capital markets – they are the gold standard, providing liquidity, authoritative pricing, equal access, regulatory oversight and system-wide confidence. Private markets have their place in the ecosystem. However, they need public markets. Ensuring private markets develop without undermining these benefits is the vital policy objective here. As private assets proliferate and begin to target retail investors, policymakers must ensure that transparency, risk management, and investor protection standards keep pace.  Private must evolve within a framework that supports stability, fairness, and long-term economic growth.”

Richard Metcalfe, Head of Regulatory Affairs at the WFE, said, “Transparency, effective oversight, and informed regulation are not constraints – they are prerequisites for sustainable growth. Some national regulators, such as the UK’s FCA, France’s AMF, Singapore’s MAS, and Australia’s ASIC, are starting to look more closely at how to bring more accountability to private markets, and valuable work has been done by the international standard setters at IOSCO, but the rapid growth of private markets means that efforts must be redoubled.” 

Read the full paper here.

123...72Page 1 of 72