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COVID-19 South Africa: Regulatory and compliance impacts in the financial services industry

  • Market Insight 13 May 2020 13 May 2020
  • Africa

  • Coronavirus

South Africa has been under a level 5 (the highest and most stringent) national lockdown since Thursday 26 March 2020 - which essentially entails that all persons in South Africa are confined to their place of residence, unless strictly for the purpose of performing an essential service, obtaining an essential good or service, collecting a social grant, or seeking emergency, life-saving or chronic medical attention.

COVID-19 South Africa: Regulatory and compliance impacts in the financial services industry

The country has moved to a level 4 lockdown with effect from 1 May 2020 which sees an expansion of the number of industries that can open, while maintaining strict prohibitions on movements and gatherings. For example, the construction, automotive and mining industries are, subject to certain limitations, permitted to operate at a level 4 lockdown, whilst restaurants, bars and hairdressers are still prohibited from trading or operating.

Certain sectors of the financial services industry were deemed necessary to maintain the functioning of the financial system during the level 5 national lockdown and as such were designated as essential services and allowed to operate. These include (i) the banking environment; (ii) the payments environment; (iii) the financial markets; (iv) the insurance environment; (v) the savings and investment environment; (vi) pension fund administration; (vii) outsourced administration; (viii) medical schemes administration; and  (ix) call centres necessary to provide financial services.

The South African insurance and medical scheme regulators, namely the Prudential Authority ("PA"), Financial Sector Conduct Authority ("FSCA") and the Council for Medical Schemes, have been proactive in assisting the industry in meeting their statutory requirements whilst dealing with the national lockdown, be issuing various press releases, general communications, directives and exemptions.

A few notable press releases, general communications, directives and exemptions are set out below:

  1. Some temporary reprieve has been given to employers who are in financial distress as a result of COVID-19 and unable to pay their full contributions to employee retirement funds as recorded in recent FSCA communication titled FSCA Communication 11 of 2020 (RF). All pension funds should assist financially distressed employers who are unable to pay contributions or those that do not make provision for temporary absence from work or a break or postponement of contributions, to urgently submit relevant rule amendments to the FSCA after discussion with the employer.

  2. The Council for Medical Schemes, and the Minister of Health, has identified in Circular 25 of 2020, interventions protecting the interests of members including encouraging medical schemes to give reprieve to members where the contributions are unpaid due to an employer being financially distressed.  The Council for Medical Schemes has issued Industry Guidelines on how to approach financial relief to members within the ambit of the Medical Schemes Act, 131 of 1998.

  3. On 30 March the FSCA issued FSCA Communication 12 of 2020 (General), which outlines expectations on regulated entities, including that, if any new exclusions or requirements are introduced to insurance policies during the COVID-19 crises, they must be discussed with the FSCA.

  4. On 9 April 2020, the FSCA and the PA, jointly issued a Directive which dictates the appropriate precautionary measures to be taken by financial institutions when performing essential financial services during the nationwide lockdown, including that they develop and implement an infectious disease preparedness and response plan.

  5. Commission based Intermediaries, will now, in terms of a general industry exemption from the FSCA, not be impacted by insurers who decide to grant financially distressed policyholders a temporary release from the obligation to pay premiums, provided they comply with the conditions of such exemption.

  6. Difficulties experienced by financial institutions in complying with their statutory reporting obligations were identified by the Prudential Authority and the FSCA as one of many immediate priorities which resulted in the FSCA and the PA issuing certain extensions in respect of such submissions in Joint Communication 1 of 2020 COVID-19 and FSCA General Notice 2 of 2020.

  7. Compliance with KYC obligations imposed on 'accountable institutions' has also been impacted, resulting in the FSCA, PA and the Centre (authority responsible for overseeing compliance with anti-money laundering legislation in South Africa) releasing Joint Communication 2 of 2020, which communication amongst others encourages the use of technology, including Fintech, to meet KYC obligations.

Our team of experts at Clyde & Co have written a number of articles and alerts which provide practical guidance and legal insight on some of the other developments that have an impact on the financial services sector, including corporate governance, which can be accessed below:

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