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.

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.

Also seeks feedback on complementary Guidance for Open-ended Funds to support effective implementation of Recommendations

IOSCO has on 11 November 2024 published a Consultation Report seeking feedback on its revised recommendations for Liquidity Risk Management for Collective Investment Schemes (“CIS”) (the ‘Revised LRM Recommendations’), especially for open-ended funds. IOSCO is also consulting on complementary Guidance for the Effective Implementation of the Recommendations for Liquidity Risk Management (“Implementation Guidance”).

Effective liquidity risk management is crucial for protecting investors, maintaining orderly markets and reducing systemic risk.

Jean-Paul Servais, Chair of IOSCO’s Board and Chairman of the Belgium Financial Services & Markets Authority (FSMA), said: “Today marks another landmark in our commitment to strengthening the stability and resilience of the investment fund sector, which builds on IOSCO’s close collaboration with the FSB following the release of their revised recommendations and guidance on anti-dilution liquidity management tools last year”.

Originally published in 2018, IOSCO’s Liquidity Risk Management (LRM) Recommendations were published in response to the FSB’s 2017 Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities that aimed to address structural vulnerabilities from liquidity mismatch in open-ended funds. Today’s Revised LRM Recommendations take into consideration the FSB’s revised Recommendations to Address Structural Vulnerabilities from Liquidity Mismatch in Open-Ended Funds (“Revised FSB Recommendations”) from December 2023, as well as recent market events such as the COVID-induced market volatility and those following the war in Ukraine.

The proposals consist of 17 recommendations organized into a revised structure with six sections, namely the CIS Design Process, Liquidity Management Tools and Measures, Day-to-Day Liquidity Management Practices, Stress Testing, Governance and Disclosures to Investors and Authorities.

The key proposed revisions to the LRM Recommendations correspond to the targeted revisions from the Revised FSB Recommendations and can be grouped into four main areas:

• Categorizing open-ended funds (OEFs) based on the liquidity of their assets
• Encouraging investment managers to implement a broad set of liquidity management tools (LMTs) and other liquidity management measures.
• Emphasizing the importance of anti-dilution LMTs to mitigate material investor dilution and potential first-mover advantage arising from structural liquidity mismatch in OEFs.
• Incorporating new guidance on quantity-based LMTs and other liquidity management measures.

The accompanying Implementation Guidance, also for consultation, sets out technical elements focusing on open-ended funds, such as the determination of asset and portfolio liquidity and considerations relating to the calibration and activation of LMTs and other liquidity management measures.

Christina Choi, Chair of IOSCO’s Committee for Investment Management (C5) said: “Effective liquidity risk management is vital for safeguarding investors and ensuring the stability of our financial markets. Our revised recommendations build on the good work of the FSB and IOSCO in 2023 and also draws from lessons learned from recent market challenges, setting out robust parameters for asset managers to consider as they look to improve their liquidity management practices”.

The proposed Revised LRM Recommendations and the proposed Implementation Guidance incorporate IOSCO’s Anti-dilution Liquidity Management Tools – Guidance for Effective Implementation of the Recommendations for Liquidity Risk Management for Collective Investment Schemes published in 2023 and should be read in conjunction with each other for completeness.

Consultation feedback is requested by 11 February 2025. IOSCO aims to publish its Final Report in the first half of 2025.

The amendments previously proposed by the Johannesburg Stock Exchange (JSE) pursuant to the Rejuvenation Project on Section 19 (Specialist Securities) came into effect on 11 November 2024.

BEE segment

A new Section 23 has been proposed. Paragraphs 4.32 to 4.32B of Section 4 on Conditions of Listing are to be deleted for the relevant sections to move across into the new Section 23. This will also result in consequential amendments to Section 18 (Dual Listings and Depository Receipts), largely in the form of deletions on the BEE Segment, which are also to be repurposed in Section 23.

Specialist securities

Section 19 of the JSE Listings Requirements will be deleted in its entirety. Specialist Securities will be covered under the new Debt and Specialist Securities Listings Requirements going forward. Depository receipts will be moved to Section 18 (Dual Listings and Depository Receipts).

Depository receipts

Section 18 (Dual Listings and Depository Receipts) will cover criteria for dual listings. An issuer of unsponsored depositary receipts must:

• be regulated under the Banks Act of 1990 or the equivalent foreign legislation in the case of foreign issuers;
• have the relevant expertise to issue securities or access to such expertise;
• be generally acceptable to the JSE, having regard primarily, but not only, to the interests of investors and the objects of the Financial Markets Act of 2012; and
• must be in conformity with the applicable laws of its jurisdiction of incorporation, having obtained all necessary statutory, or other, consents required to apply for and maintain a listing of securities.

This was already proposed in the last round for discussion.

Responsibilities of the depository for unsponsored DRs should be announced on SENS, and all financial information on the underlying entity must be made available within 10 business days of publication of the financial information available on the website. The SENS announcement must include the link to the website where such information can be obtained.

The need for digital data protection has evolved alongside the digital revolution, from the early days of computing to the rise of the internet. Initially, data security focused on safeguarding physical infrastructure, like mainframe computers, through controlled access. With the 1970s introduction of Advanced Research Projects Agency Network (ARPANET), concerns shifted to unauthorized access and data interception, driving the development of encryption. By the 1990s, the fully developed internet prompted more advanced protection measures, including firewalls, secure protocols, and intrusion detection systems.

The EU General Data Protection Regulation (GDPR)

In the 1990s the European Union (EU) pioneered the introduction of data protection regulations. In 1995, the EU introduced the Data Protection Directive that set guidelines for data privacy laws. This culminated in the General Data Protection Regulation (GDPR) being implemented in 2018, which set a new global standard for data privacy and protection, influencing other data protection laws worldwide.

The GDPR applies to any organization processing personal data of EU individuals, regardless of its location. Personal data includes identifiers like names, addresses, emails, IP addresses, and biometric or genetic data. Under the GDPR, organizations must have a lawful basis for processing personal data, such as consent, contractual necessity, legal obligation, or legitimate interest. Individuals have the right to access, correct, restrict processing, or transfer their data, and consent must be freely given, specific, informed, and clear. Organizations are also required to integrate data protection into their system designs, keep detailed records of data processing, and report data breaches within 72 hours if individual rights and freedoms are at risk.

South Africa’s POPIA

The Protection of Personal Information Act (POPIA) enacted after Parliament assented to it as law in November 2013 is South Africa’s comprehensive data protection law.  Broadly, POPIA regulates the processing of personal information and protect the privacy rights of individuals. It covers any entity or organization that processes personal information in South Africa, regardless of where the organization is based, provided the processing involves data subjects, that is, individuals within South Africa. Similar to the GDPR, it covers a wide range of personal data, such as names, IDs, contact details, online identifiers, and biometric information.

Under POPIA, the responsible party (data controller) must ensure compliance with the Act. Personal data must be collected for a specific, lawful purpose, relevant to the organization’s activities, and be accurate and up to date. Data subjects have the right to access, correct, request the deletion of their information, and be informed about the purpose of data collection and any third-party disclosures.

GDPR vs POPIA

According to OneTrust DataGuidance^TM, GDPR and POPIA have similarities as well differences some of which are herewith summarized.

Similarities

• Both laws protect only living individuals. The GDPR’s definitions of ‘data controller’ and ‘data processor’ align with POPIA’s ‘responsible party’ and ‘operator.’
• GDPR and POPIA have identical legal grounds for processing personal data and establish conditions for consent. Both define consent and allow binding corporate rules for international data transfers.
• Data controllers/processors (GDPR) and responsible parties (POPIA) must maintain records of processing activities, recognize the importance of data integrity and confidentiality, and outline security requirements.
• Accountability is a key principle in both laws. They provide rights for data subjects to request data deletion and object to processing under certain conditions, as well as access their personal data.
• Both regulations allow for administrative and monetary penalties for non-compliance.

Differences:

• Scope: GDPR applies to all natural persons, regardless of nationality or residence, while POPIA applies to both natural and juristic persons without explicit reference to nationality or residence.
• Cross-border transfers: GDPR allows cross-border data transfers based on international agreements, whereas POPIA does not explicitly mention this or maintain registers for such transfers.
• Record-keeping: GDPR specifies the information that data controllers/processors must record, while POPIA does not provide a detailed list for responsible parties/operators.
• Breach reporting: GDPR mandates reporting personal data breaches within 72 hours, while POPIA requires reporting as soon as reasonably possible.
• Right to erasure: GDPR includes specific exceptions for the right to erasure, while POPIA does not provide such exceptions for correction and deletion.
• Data portability: GDPR grants data subjects the right to data portability, a provision absent in POPIA.
• Penalties: Both regulations allow fines, but under POPIA, non-compliance can also result in imprisonment, a penalty not included in the GDPR.

Challenges Going Forward

In the AI-driven world,  reliant on vast datasets, safeguarding personal data under both GDPR and POPIA is increasingly complex. AI technologies, including facial recognition, predictive analytics, and data inference, pose significant privacy concerns. These technologies can extract and infer new insights from existing data, often without the individual’s knowledge or consent. The growing use of AI for surveillance by corporations and government agencies raises serious ethical questions about privacy. AI systems can track individuals’ movements, behaviours, and interactions in real time, pushing the limits of privacy rights. This growing tension between security measures and individual privacy is at the heart of ongoing debates about how far data protection laws should extend.

The nature of AI itself adds layers of complexity. AI algorithms are often opaque or function as “black boxes,” meaning it is difficult to understand how they process personal data and make decisions. For individuals, this lack of transparency undermines the ability to challenge or scrutinize decisions that could significantly affect their lives—ranging from credit approvals to job prospects and healthcare outcomes. This also challenges regulatory frameworks, as traditional data protection laws may not have mechanisms for addressing the interpretability and fairness of AI-driven decisions. AI systems can unintentionally perpetuate bias or discrimination, especially if the training data reflects historical inequalities, further complicating the intersection of privacy and ethics.

A parallel challenge comes from quantum computing, which while still emerging, poses unprecedented risks to data privacy. Quantum computers have the potential to break classical encryption algorithms in a fraction of the time it would take today’s most powerful computers. This means that the personal data stored and encrypted using today’s cryptographic techniques could be rendered vulnerable to decryption in the future. Sensitive personal data—ranging from financial records to health information—could be exposed on a mass scale, undermining the very foundation of data privacy. The threat of quantum computing necessitates urgent action to develop quantum-resistant encryption methods to safeguard personal data.

In addition to these technical challenges, there is also the broader issue of regulatory adaptability. GDPR and POPIA are designed to offer robust protection, but their frameworks may not fully accommodate the pace and complexity of AI and quantum advancements. AI systems operate on a global scale, making it challenging for national regulations to enforce accountability when data processing occurs across multiple jurisdictions. Furthermore,  AI’s capacity to continuously learn and adapt from new data could potentially outpace the ability of regulators to define and enforce boundaries around its use.

The global nature of digital data flows further complicates regulatory oversight. As AI technologies evolve, personal data is increasingly transferred and processed across borders, requiring harmonized international standards to ensure consistent protection. However, the regulatory environment is fragmented, with varying levels of enforcement and compliance in different countries. This divergence increases the risk of data protection gaps, especially in regions where AI governance frameworks are weaker.

Going forward, addressing these challenges requires an adaptive approach to digital data protection. Laws like GDPR and POPIA will need to evolve to incorporate new principles that address the unique challenges of AI and quantum computing. This may include stronger transparency requirements for AI decision-making processes, more explicit consent mechanisms for AI-driven data processing, and the development of quantum-safe encryption standards to protect against future threats. Regulatory bodies will also need to collaborate more effectively at the global level to establish shared frameworks for governing cross-border data transfers in an AI-driven world.

In essence, the future of data privacy depends not just on keeping pace with technological innovations but also on creating a more dynamic and globally coordinated regulatory landscape. Without this, the balance between innovation, security, and individual privacy rights will remain a contentious and unresolved issue. As AI and quantum computing increasingly shape the digital landscape, the challenge is not just protecting data but ensuring that the principles of fairness, accountability, and transparency remain at the core of data governance.

In early July 2024, the Financial Sector Conduct Authority (FSCA) published its latest Regulation Plan (2024 Regulation Plan), which sets out its focus areas for the financial sector regulatory framework for the next three years.

The 2024 Regulation Plan includes an overview of the progress of several ongoing regulatory developments as well as new projects the FSCA plans to implement from 1 April 2024 to 31 March 2027.

The aspects that impact retirement funds directly, are summarised below.

New retirement fund-related projects

• Draft Prudential Standard – Regulation 28 Reporting Requirements for Pension Funds (holistic reporting Prudential Standard):

The FSCA intends to bolster the retirement funds’ quarterly reporting requirements that are directed at ensuring compliance with Regulation 28 of the Regulations issued in terms of the Pension Funds Act, 1956 (PFA), by introducing holistic reporting on assets held in compliance with Regulation 28.

In terms of Prudential Standard: Regulation 28 Quarterly Reporting Requirements for Pension Funds, 2024 (exception reporting Prudential Standard), which came into effect on 2 April 2024 and repealed the various Board Notices that previously prescribed Regulation 28 reporting requirements, funds are currently only required to report instances of non-compliance with Regulation 28 every quarter.

In introducing the holistic reporting Prudential Standard, the FSCA intends to build on the current ‘exception-based’ reporting by including an additional layer of reporting on assets held in terms of Regulation 28. This approach will ensure more proactive and pre-emptive supervision of compliance with Regulation 28.

According to the 2024 Regulation Plan, it is projected that the process for implementing the holistic reporting Prudential Standard will be completed at the end of the 2024/ 2025 period or early in the 2025/ 2026 period.

Once the holistic reporting Prudential Standard is made final, it will repeal the Prudential Standard: Regulation 28 Quarterly Reporting Requirements for Pension Funds, 2024.

• Amendments to Conduct Standard: Section 14 Transfers, 2018 (Conduct Standard 1 of 2019 (PFA))

The Conduct Standard sets out the requirements and conditions for amalgamations and transfers in terms of section 14 of the PFA and prescribes the forms (which are embedded as appendices to the Conduct Standard) that must be completed when giving effect to an amalgamation or transfer.

In light of the imminent implementation of the Two-Pot System (which will necessitate changes to certain section 14 application forms), the FSCA proposes that the Conduct Standard be amended to remove the prescribed forms and to enable the FSCA to determine the content, format and manner of submission of the relevant section 14 application forms.

Draft amendments to the Conduct Standard were published for public comment on 8 May 2024. Once the amendment of the Conduct Standard is finalised, the FSCA will amend the section 14 application forms to accommodate the necessary changes as a result of the implementation of the Two-Pot System. These forms will then be determined on the FSCA’s website. This will provide the FSCA with more flexibility to determine the forms and alleviate the need to amend the Conduct Standard each time the FSCA needs to amend the forms.

• Potential regulatory reviews

The FSCA is in the process of considering potential reviews and/ or interventions relating to various other areas in the retirement fund sector. Although the FSCA has not made any final decisions in this regard, this potential project could include reviews of Directive 8, Pension Fund Circulars 86 and 90, practices in the employer environment, retirement fund liquidation requirements and retirement fund costs and fees.

Update on other retirement fund-related projects continued from the previous regulation plan

• Transitional arrangements pertaining to the prudential regulation of retirement funds, collective investment schemes and friendly societies:

In preparation for the transition of prudential regulatory oversight from the FSCA to the Prudential Authority (PA) in respect of retirement funds, collective investment schemes and friendly societies, the FSCA and PA established a working group tasked with developing roadmaps that will set out how the transition will occur.

The FSCA notes that the transition process will likely entail:

• • transitioning certain prudentially focused frameworks currently supervised by the FSCA to the PA;
  • converting certain frameworks currently supervised by the FSCA to Joint Standards; and
  • the PA developing new prudentially focused frameworks.
• Draft Conduct Standard Prescribing Conditions for Securities Lending for Pension Funds

The FSCA has confirmed that this draft Conduct Standard, which was published in October 2020, remains on hold because it overlaps with other ongoing developments relating to security financing transactions (including, securities lending transactions) that broadly impact retirement funds, banks and insurers.

The FSCA, however, envisages that work on this Conduct Standard might be resuscitated in due course given that progress has been made on some of the broader securities financing transactions proposals.

• Draft Prudential Standard – Requirements Related to Regulatory Reporting and Audited Financial Statements for Pension Funds

Following the public consultation process, work on the draft Prudential Standard is ongoing. The FSCA has projected that the process for implementing this draft Prudential Standard will be completed at the end of the 2024/ 2025 period or early in the 2025/ 2026 period.

• Draft Conduct Standard – Conditions for Living Annuities in an Annuity Strategy

The FSCA is reconsidering this Conduct Standard, especially the assumptions it applies. Therefore, the FSCA is not certain as to when this draft Conduct Standard will be progressed.

• Draft Conduct Standard – Communication of Benefit Projections to Members of Pension Funds

The FSCA is considering whether this project should be pended and collapsed into the Conduct of Financial Institutions Bill (COFI Bill) transition project, in particular, the Advertising and Disclosure themed framework. The FSCA has also indicated that it is aware that requiring this Conduct Standard to be implemented at a time when funds will be required to implement the Two-Pot System, will place excessive pressure on the retirement fund industry.

• Draft Conduct Standard relating to Pension Fund Benefit Administrators

The draft Conduct Standard relating to pension fund benefit administrators was revised during the 2023/ 2024 period and a final draft Conduct Standard has been compiled. The FSCA intends to undertake informal consultation on the revised Conduct Standard during the second half of 2024, following which the draft Conduct Standard will be submitted to Parliament.

Sector regulatory framework developments

• Envisaged Conduct Standard regarding Industry Practices and Treatment of Lost Accounts and Unclaimed Assets

The FSCA published a discussion paper, titled ‘A Framework for Unclaimed Financial Assets In South Africa’ on 22 September 2022. It considered industry practices and the treatment of lost accounts and unclaimed assets. The FSCA expects that regulatory framework interventions will be developed following the consultation process undertaken on the discussion paper. The FSCA envisages that a draft Conduct Standard will be published for public consultation during the 2025/ 2026 period.

• Guidance Notices and Interpretation Rulings

The 2024 Regulation Plan alludes to the FSCA’s intention to adopt a new approach to guidance notices, which will entail it using guidance notices as a strategic tool to support its supervisory function (as opposed to the current approach of issuing guidance notices as and when a need is identified).

This will be done to respond to the changes in the regulatory framework, as it starts to evolve to one that is more outcomes and principles based. Although the 2024 Regulation Plan does not set out significant detail in this regard, the FSCA has indicated that guidance notices will be used, for example, to highlight practices that align or do not align with legislated outcomes or principles. The 2024 Regulation Plan can be accessed here.

The Prudential Authority and the Financial Sector Conduct Authority (PA and FSCA) published Joint Standard 1 of 2024 (Joint Standard) in terms of the Financial Sector Regulation Act, 2017, which will come into effect from 1 December 2024.

The Joint Standard sets out the PA and FSCA’s requirements regarding the outsourcing of material functions by licensed insurers and replaces Prudential Standard GOI 5. The Joint Standard provides a more comprehensive regulatory framework governing outsourcing by insurers from both a prudential and market conduct perspective. The Joint Standard intends to ensure that both the PA and FSCA apply requirements uniformly by assessing compliance in relation to their respective prudential and market conduct supervisory functions.

The Joint Standard applies to all insurers (including micro-insurers and reinsurers) licensed under the Insurance Act, 2017, but excludes Lloyd’s and branches of foreign reinsurers.

The Joint Standard introduces more enhanced due diligence and performance management processes and policies which insurers are required to implement. Insurers will also be required to consider their outsourcing arrangements in terms of credit and conduct risks.

Some of the new requirements that will be introduced by the Joint Standard are:

• An insurer must, before entering into an outsourcing arrangement, undertake appropriate due diligence for every activity or function that it intends to outsource in order to identify and manage all risks introduced by the outsourcing arrangement. The scope of the due diligence must include assessing the costs, benefits and potential risk to its insurance business. Outsourcing arrangements should only be entered into where there is evidence that the benefits outweigh the costs and potential risks.
• An insurer must, before entering into an outsourcing arrangement, consider where the service provider has multiple outsourcing arrangements with other insurers whether these multiple outsourcing arrangements are likely to increase the risks as set out in the Joint Standard, for the insurer.
• An insurer may not enter into or maintain an outsourcing arrangement where the key persons of that service provider do not meet the fit and proper requirements relating to competence and integrity, as provided for in Prudential Standard GOI 4 which deals with the fitness and propriety of key persons of insurers.

Notification of material outsourcing is required to be made both to the PA and the FSCA at least 30 days prior to entering into an outsourcing arrangement. The notification must include certain information and be accompanied by a confirmation that the outsourcing arrangement is compliant with the insurer’s outsourcing policy and within the risk appetite set by the board of directors of the insurer.

When an outsourcing agreement is terminated, within  seven days of the date of termination, the insurer will also be required to notify the PA and the FSCA. The notice of termination will be required to provide specific information to the PA and the FSCA.

Where there are outsourcing arrangements entered into before 1 December 2024. These arrangements must comply with the Joint Standard within 24 months of 1 December 2024 (you have until 31 November 2026 to comply) or you must comply with the Joint Standard upon the renewal or renegotiation of the outsourcing arrangement, whichever comes first.

Insurers are required to comply with the Joint Standard within six months from 1 December 2024 but in that period must continue to comply with Prudential Standard GOI 5 as if it had not been repealed.

Insurers will also need to ensure that their outsourcing policies are aligned to the Joint Standard and must ensure that the outsourcing policy is approved by their board.

The Joint Standard and supporting documents are accessible here.

The JSE has announced the eighth and ninth phases of the JSE Simplification Project which aims to simplify the JSE Listings Requirements (Requirements), now entailing the proposed amendments to Section 6 (Pre-Listings Statements), Section 7 (Listing Particulars), Section 4 (Conditions of Listing), Section 14 (Pyramid Companies), Section 15 (Investment Entities), Section 18 (Dual Listings and External Companies), Section 20 (Hybrid Securities) and Section 21 (AltX). This also includes a new Section 3 (New Listings).

The JSE invites comments to Sections 6 and 7 by 26 August 2024 and the remainder of the sections by 13 September 2024.

All of the sections have now been released for public comment. The JSE will release a final simplified consolidated version of the Requirements after the expiry of the public consultation process.

New Section 3: New Listings

• Applicants, sponsors and advisors should be able to visit only this section to view the listing criteria for all of the JSE’s listing offerings, being Main Board; the ALTX; Secondary Listings; Development Stage Company; Property Entities; Mining/ Oil and Gas Companies; Investment Entities; SPAC; Weighted Voting Share Structure; Preference Shares; BEE Segment; and Depositary Receipts.
• Applicants should also separately comply with the industry-specific sections.
• This section covers financial information, corporate governance and MOI approval.
• It also covers methods of listing (introduction, placing and offer for sale and subscription).

Section 4: Conditions of Listing

The entry criteria of listing offerings will generally remain same, save for the following:

• The existing subscribed capital calculation is prohibitive, which excludes items (i) recorded in the financial statements in terms of IFRS, (ii) substantiated by the business of the issuer and (iii) independently assured by the applicant’s auditor. The construct of net asset value has been introduced, which is calculated based on the audited financial statements of the issuer, as a simpler and more meaningful measure for determining suitability for listing.
• The existing three-year period of control over the majority of assets is unnecessarily prohibitive. The period of control has been revised to a 12-month period as this, together with the retained requirements for three years of financial history and the meeting of the profit test, is considered sufficient to ensure that the group is properly established.
• The exception to three years of financial history is maintained for development stage companies and an issuer group that is put together for purposes of a listing, with the 12-month period of control preserved in these instances.
• The net asset value construct has been carried across to all other listing entry criteria requiring subscribed capital of a certain amount.
• The provisions relating to a JSE discretion on listing criteria have been removed.
• Alt X corporate governance provisions are also covered in this section.

Section 6 (Pre-Listings Statement) and Section 7 (Listing Particulars)

• The concept of summary pre-listing statements and summary circulars is to be removed for Main Board issuers. Summary circulars will be maintained for Alt X issuers.
• The definition of circular will be amended to remove the exclusion of results, proxy forms and dividend or interest notices.
• The Requirements will be amended to cross-refer to the Companies Act requirements in ‘Appendix 1 to Section 7: Disclosure for a PLS’ to avoid duplication of the wordiness of PLS requirements. Prospectus requirements which are set out in the Companies Act will remain applicable to PLSs where the requirements overlap with PLS requirements. The proposed disclosure regime for a PLS does not mean that the PLS requires registration with or the involvement of the Companies and Intellectual Property Commission (CIPC). The JSE is merely mandating some of the disclosures required for a prospectus, for purposes of a PLS. However, if shares are being offered to the public, a prospectus will need to be registered with CIPC. The JSE remains the sole custodian of a PLS issued in terms of the Requirements.
• Certain paragraphs in ‘Appendix 1 to Section 7: Disclosure for a PLS’ contain bespoke JSE-required disclosures rather than cross-referring to the Companies Act (ie in the case of, inter alia, details required concerning controlling and major shareholders; statements of public shareholders; and financial information).
• The new disclosure regime, as set out above, will have an impact on the specific disclosures required for corporate action and transaction circulars in other sections, which will be remedied in the future.
• Obligations relating to working capital will no longer rest with the sponsors.

Section 14: Pyramid Companies

• Section 14 will be deleted in its entirety.
• Pyramid companies will be dealt with under the new listings section, under the general provisions.
• The existing test for a pyramid will be substantially retained, with the additional provision to assess whether the holding company is reliant on the listed controlled company: ‘is unable to demonstrate to the JSE that it has: (i) a business of substance; or (ii) a business that may qualify for listing, in its own right, without the interest held in the listed controlled company’.
• The holding company should be able to demonstrate that it is a ‘business of substance’, ie that it stands on its ‘own feet’, and does not merely serve as a flow-through from the listed controlled company level.
• A new listing of a pyramid company will be prohibited.
• An existing issuer will still be classified as a pyramid company if it meets the definition.
• More time will be afforded to cure the classification as a pyramid (it is proposed that this period should be two years), subject to conditions.

Section 15: Investment Entities

• The JSE clarified which exemptions from Section 4 apply in relation to the listing of investment entities. The exemption applies to 4.28(a) only, dealing with audited profit history and control. Control with a reasonable spread of assets will exclude the ability to actively participate in the management thereof (so that true minority interests can be held).  The control provision will now read as follows: ‘it must have a reasonable spread of direct interests in the majority of its assets and must have done so for a period of at least twelve months’.
• SPACs are to be housed with Investment Entities in Section 15, as they are investment vehicles.

Section 17: BEE Section

A bespoke BEE Section has been created which is currently the subject of public consultation. Once approved, it will be added as a new Section 17.

Section 18: Dual Listings and External Companies

• Secondary Listings:
  • It is proposed that the lists of (i) approved exchanges and (ii) accredited exchanges be collapsed into one list, that will be known as approved exchanges for purposes of secondary listings, which will also include fast-track listing process.
  • The approved list of exchanges will now comprise: Australian Stock Exchange; London Stock Exchange; New York Stock Exchange; Toronto Stock Exchange; Singapore Stock Exchange; Hong Kong Exchanges and Clearing Ltd; The Nasdaq Stock Market; Euronext Amsterdam; Euronext Brussels; Frankfurt Stock Exchange; Luxembourg Stock Exchange; and SIX Swiss Exchange.
  • The period to qualify for the fast-track route will be reduced from 18 months to 12 months (to be listed on an approved exchange). 
  • External companies will be moved to Section 3 (New Listings), as a matter to be considered when seeking a listing.
  • Alt X: This will face no material changes, save for easing the business plan process for fast-track secondary listings.
  • Dual Listed company structure: This structure has been simplified. A company of this sort can either have a primary or secondary listing on the JSE (no longer only primary); and can follow its primary exchange rules (no longer the most onerous of the two).
  • Depositary Receipts: Depositary receipts have been moved from Section 19 (Specialist Securities) to Section 18, but this is currently the subject of public consultation.

Section 20: Hybrid Securities

• Historically, there has been confusion as to what constitutes a hybrid security. All of the instruments currently listed under the hybrid secure requirements are preference shares, so this section is to be removed in its entirety and titled ‘Preference Shares’.
• Weighted voting shares are to be housed in a new Section, along with preference shares, as these are bespoke share structures.  
• Issuers no longer need to apply to the JSE to determine if an instrument falls within this section.
• Previous uncertainty is to be cleared up with the clarification that all of the Requirements, except for those that have been specifically excluded, will apply to preference share issuers.

Section 21: Alt X

• All the provisions relating to venture capital companies have been removed.
• The involvement of auditors, attorneys and CSDP concerning lock-up of shares held by the directors and the DA have been removed, as these are not regulated parties in terms of the Requirements.
• The provisions of Section 8 are generally applicable to financial information.
• The concept of a summary circular and PLS has been removed.

Schedules

• Part I and II documents will be moved to the JSE forms portal. Certain forms have been removed.
• Schedule 5 on Independent Fairness Opinions has been significantly reduced. The JSE will no longer approve experts and the responsibility for their appointment will be placed on the directors, with an imposed obligation to review competency and independence. The board of directors is the appropriate body to appoint an expert. The JSE will only regulate independence indicators and the disclosure items for a fairness opinion.
• Schedule 11 on Rescue Operations will be deleted in its entirety. Business rescue proceedings are now a well-established process under the South African companies regime. The JSE will require disclosure through SENS when an issuer is placed in business rescue and will require that certain functions in terms of the Requirements can be continued. If not, the JSE may consider the suspension of the issuer. 
• Schedule 14 on Share Incentive Schemes will not be amended at this stage as the impact of the Companies Amendment Acts on the Requirements (particularly the non-binding vote on remuneration) still needs to be considered.
• Schedule 10 on Requirements for the Memorandum of Incorporation is to be amended in certain provisions to remove duplication. Continuing obligations will now require that a SENS announcement be made for general meetings.
• A new schedule on Pre-Issued Trading and Price Stabilisation will be introduced: These provisions apply to new listings and price stabilisation also applies to issues for cash. An enabling provision will be included in the new Section 3 (New Listings) and 6 (Corporate Actions), affording the opportunity to undertake pre-issued trading and price stabilisation with reference to the new schedule. No amendments were made to price stabilisation and pre-issued trading was only simplified.

A new schedule will be created to accommodate Appendix 1 to Schedule 11 (Guidelines on the publication of information). In this regard, see the discussion on ‘Continuing Obligations’ above.

IOSCO has on 5 June 2024 published its final report on Market Outages.

The final report addresses the need for improved preparedness and management of market outages to ensure market resilience and investor confidence.

It identifies key findings from recent market outages and sets forth five good practices to assist regulators, trading venues and market participants in preparing for, and managing, future market outages and thereby helping improve market-wide resilience.

The good practices cover five key areas:

• Outage Plans
• Communication Plans
• Reopening of Trading
• Closing Auctions / Closing Prices
• Post-Outage Plans

These good practices are designed to offer flexibility for adoption across various trading venues, asset classes, and market structures. They are generally applicable to market outages caused by different types of root causes.

Isadora Tarola, Chair of the IOSCO Committee on Regulation of Secondary Markets (Committee 2), said: “Market Outages can be highly disruptive. Therefore, it is important for trading venues to consider adopting the proposed good practices. This can contribute to market resilience and help ensure orderly trading during outages. IOSCO remains committed to supporting initiatives that promote financial stability and investor protection.“