South Africa has just published the final Joint Standard on the Fitness and Propriety of Significant Owners, in an effort to further regulate its financial sector. This article provides a detailed overview of the key requirements set by the Joint Standard.
On 1 June 2020, South Africa's Financial Sector Conduct Authority ("FSCA") and the Prudential Authority ("the Authorities") jointly published Joint Standard 1 of 2020: Fitness, propriety and other matters related to significant owners ("Joint Standard").
The Joint Standard applies to significant owners of financial institutions (i.e. a person who directly or indirectly, alone or together with a related or inter-related person, has the ability to control or influence materially the business or strategy of a financial institution) and financial institutions (as defined in the Financial Sector Regulation Act, 2017), and sets out the criteria that must be met by significant owners in order to be considered fit and proper.
The Joint Standard follows the publication of the initial consultation paper and initial draft joint standard on 16 November 2018, as well as the draft standard initially released for public comment on 23 July 2019.
The Joint Standard inter alia delineates:
- the requirements that are regarded as essential minimum requirements that must be met by significant owners;
- the parameters of what constitutes an increase or decrease in significant ownership that would trigger the duty to either gain the approval of the responsible authority or to notify the responsible authority of such increase or decrease as contemplated in section 159(1)(b) of the Financial Sector Regulation Act, 2017; and
- amends various Prudential Standards as set out in schedule 1 to the Joint Standard, specifically Prudential Standard GOI4 entitled "Fitness and Proprietary of Significant Owners and Key Persons of Insurers" issued in terms of the Insurance Act, 2017, including deleting the term "significant owners" therein and repealing section 7 thereof dealing with significant owners of insurers.
In addition, the Joint Standard indicates that the fit and proper requirements of significant owners applies to significant owners of all financial institutions (as contemplated in the Financial Sector Regulation Act, 9 of 2017), unless exempted. In this regard, Exemption Notice 1/2020 and FSCA GENERAL Notice 3 of 2020 have been issued by the Prudential Authority and the FSCA respectively ("Exemptions"), in terms whereof the following financial institutions are exempt from compliance with the Joint Standard:
- a branch of a foreign institution as referred to in section 18A of the Banks Act, 1990
- a branch of a foreign reinsurer as defined in the Insurance Act, 2017;
- a co-operative bank as defined in the Co-operatives Banks Act, 2007;
- a co-operative financial institution as defined in the Co-operatives Banks Act, 2007;
- an insurer, as defined in the Insurance Act, that is also a co-operative registered under the Co-operatives Act, 2005;
- Lloyd’s or Lloyd’s underwriters as defined in the Insurance Act, 2017;
- an authorised financial services provider as defined in the Financial Advisory and Intermediary Services Act, 2002, other than an authorised financial services provider that is also (i) an eligible financial institution; and (ii) a manager as defined in the Collective Investments Schemes Control Act, 2002;
- a credit rating agency as defined in the Credit Rating Services Act, 2012;
- a friendly society as defined in the Friendly Societies Act, 1956;
- a pension fund organisation as defined in the Pension Funds Act, 1956;
- a financial product provider or financial services provider that is not subject to a financial sector law other than the Financial Sector Regulation Act, 2017;
- a significant owner of any person referred to above that is exempted from the requirements of the Joint Standard.
The Joint Standard and the Exemptions take effect on 1 December 2020. The Authorities have accordingly provided for a 6 month transitional period to facilitate effective implementation of the Joint Standard.
A copy of the draft Joint Standard can be accessed here, together with the following accompanying documentation: