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JOINT STANDARD 1 OF 2020: FITNESS, PROPRIETY AND OTHER MATTERS RELATED TO SIGNIFICANT OWNERS, SOUTH AFRICA

By Kirsten Kern,Christine Rodrigues,Keryn Layton-McCann Friday, June 05, 2020
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The Financial Sector Conduct Authority (FSCA) and the Prudential Authority (PA) published Joint Standard 1 of 2020 (Joint Standard) on 1 June 2020, which sets out the requirements for fitness, proprietary and other matters related to ‘significant owners’, as defined in section 157(1) of the Financial Sector Regulation Act, 2017 (FSRA).  It is set to take effect on 1 December 2020.

The Joint Standard applies to the significant owners of financial institutions and to financial institutions. In terms of section 157(1) of the FSRA, a ‘significant owner’ is a person who directly or indirectly, alone or together with a related or interrelated person, has the ability to control or influence materially the business or strategy of a financial institution.

Such ability exists when the person has the power to appoint, or where the person’s consent is needed to appoint, 15% of the members of the financial institution’s governing body (e.g. board). It also exists where the person holds a ‘qualifying stake’ in the financial institution.

Certain persons have been exempted from the Joint Standard, in terms of FSCA General Notice 3 of 2020. These exempt persons include:

  • an authorised financial service provider (FSP), as contemplated in the Financial Advisory and Intermediary Services Act (FAIS), other than an authorised FSP that is also:
  • a credit rating agency as defined in the Credit Rating Services Act, 2012;
  • a friendly society as defined in the Friendly Societies Act;
  • a pension fund organisation as defined in the Pension Funds Act;
  • a financial product provider or FSP that is not subject to a financial sector law other than the FSRA;
  • a significant owner of any person referred to above that is exempt from the requirements of the Joint Standard.

Certain persons have been exempted from the Joint Standard by the Prudential Authority (PA), in terms of Exemption Notice 1/2020. These exempt persons include:

  • a branch of a foreign banking 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;
  • a significant owner of any person referred to above that is exempted from the requirements of the Joint Standard.

The Joint Standard:

  • sets out the roles and responsibilities of, and places specific reporting obligations on, significant owners (see section 5);
  • sets out the criteria that must be met by significant owners in order to be considered ‘fit and proper’, as well as factors that would constitute, on a prima facie basis, evidence of the absence of fitness and propriety (see section 6);
  • states that the responsible authority, being the FSCA or the PA, is allowed to consider other relevant reasonable factors when determining the fitness and propriety of significant owners (see section 7);
  • prescribes what constitutes an increase or decrease in the extent of the ability of a person to control or influence materially the business or strategy of a financial institution in terms of section 157(1)(b) of the FSRA (see section 8); and
  • amends certain Prudential Standards (see Attachment 1).

The Joint Standard, FSCA General Notice 3 of 2020, and Exemption Notice 1/2020, and other related information, is available here.