The Financial Advisory and Intermediary Services Act 2002 (FAIS) requires any person who seeks to proactively market or provide financial services to clients or investors, whether from within South Africa or on a cross-border basis from offshore, as a regular feature of such person’s business, to be appropriately authorised under FAIS (as a financial services provider or, under certain circumstances, as a representative). The term ‘financial services’, for the purposes of FAIS, comprises ‘advice’ and ‘intermediary services’ in relation to ‘financial products’ (which term is broadly defined to include, among others, shares, derivatives, money-market instruments, bonds, participatory interests in collective investment schemes and deposits).
Services that are currently subject to licensing under FAIS (as ‘intermediary services’) include (but are not limited to): arranging investment deals; making arrangements with a view to investment transactions; and dealing in investments as agent. Acting as an agent or intermediary in relation to forex investments by local clients or investors is also licensable under FAIS. At present, dealing in investments or financial products as principal is not licensable under FAIS, although an amendment to the definition of an ‘intermediary service’, brought about in 2018 (but which is not yet in force), is likely to subject principal dealing in investments with local clients to FAIS licensing requirements in future.
Services that are subject to licensing under FAIS (as ‘advice’) include (but are not limited to) advising on investments and advising on forex trades.
In terms of FAIS, a FAIS-unlicensed financial services provider may not promote or market its business or capabilities to any South African-resident person, whether onshore in South Africa or from offshore on a cross-border basis.
FAIS falls under the purview of the FSCA.
As regards OTC derivatives as investment instruments, regulations under South Africa’s Financial Markets Act 2012 (FMA Regulations) provide that a person who, as a regular feature of business and transacting as principal, originates, issues, sells or makes a market in an OTC derivative must be registered as an ‘OTC derivative provider’.
The FMA Regulations fall under the purview of the FSCA.
Credit and lending activities
The provision of loans or any form of credit is regulated under South African law by the provisions of the National Credit Act 2005 (NCA), which requires lenders in respect of whose credit agreements the NCA applies, to formally register as ‘credit providers’ with South Africa’s National Credit Regulator (NCR). The NCA generally applies to every credit agreement between parties dealing at arm’s length and made within, or having an effect in, South Africa.
The NCA does provide for certain general exemptions from its application (NCA Exemptions). In this regard, the NCA will not apply to:
- A credit agreement in respect of which the credit receiver (borrower) is a juristic or legal person (as opposed to a natural person or individual), whose net asset value or annual turnover, together with the combined net asset value or annual turnover of all persons related to that juristic-person credit receiver, equals or exceeds 1 million rand at the time of conclusion of the credit agreement.
- A ‘large’ credit agreement (eg, a credit transaction, in respect of which the principal debt under that transaction falls at or exceeds 250,000 rand, where the consumer for the purposes of the NCA is a juristic person having a net asset value or annual turnover falling below 1 million rand).
- A local applicant credit receiver can formally apply to the Ministry of Trade and Industry in South Africa for a credit agreement that the credit receiver seeks to enter into with an offshore (foreign) credit provider to be formally exempt from the application of the NCA.
Lending will be subject to the NCA, unless an NCA Exemption applies. While there is no specific licensing regime for factoring or invoice discounting, where the NCA applies to the underlying agreements in respect of which the factoring or discounting takes place, the person acquiring the rights to the debts under those underlying agreements will also need to be licensed under the NCA. This is because the NCA includes in its definition of a ‘credit provider’ a person who acquires the rights of a credit provider under an NCA-regulated credit agreement after that agreement has been entered into.
Secondary market loan trading will be subject to the NCA under circumstances where the original loan being traded was subject to the NCA (in other words, where an NCA Exemption applied to the original loan, secondary market trading in respect of that loan will also be exempt from the NCA).
The NCA falls under the purview of the NCR.
Banking and deposit-taking activities
The Banks Act 1990 (Banks Act) requires any person seeking to conduct ‘the business of a bank’ in South Africa to be registered as a local bank or to be licensed as a local branch of a foreign banking institution. Two of the key activities included in the concept of the business of a bank are the marketing or solicitation of deposits (which would include the promotion of bank deposit accounts) and the acceptance of deposits, among others.
The Banks Act falls under the purview of the PA, from a prudential perspective, and the FSCA, from a market conduct perspective. Licensing under the Banks Act is considered by the PA.
The National Payment Systems Act 1998 (NPSA) provides for the management, administration, operation, regulation and supervision of payment, clearing and settlement systems in South Africa. It also provides for the establishment of the Payments Association of South Africa (PASA), as the body mandated by the South African Reserve Bank to organise, manage and regulate the participation of its members in the payment system.
The NPSA makes provision for various role players (both bank and non-bank) in the payment system, and requires the role players seeking to participate in the payment system to be formally authorised in order to do so.
The NPSA falls under the purview of the SARB and PASA.
Trading in currencies
Where forex trading involves the buying and selling of foreign currency, such activities can be performed only by Authorised Dealers in South Africa (generally, commercial banks in South Africa that have been appointed as such by the SARB) or, to a limited extent, by Authorised Dealers with Limited Authority (ADLAs).
This falls under the purview of the SARB, in terms of South Africa’s legislated exchange control regime.
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