(Click here for part 1)
Joint Standard 1 of 2020 and the Financial Sector Regulation Act, 2017 (FSRA) prescribe wide ranging obligations for significant owners, but certain persons are exempt. Financial Sector Conduct Authority (FSCA) General Notice 3 of 2020 exempts the following persons from the requirements of the Joint Standard probably because these entities are regulated in this regard by their own laws:
- authorised financial services providers, other than authorised financial service providers that are also eligible financial institutions or managers of collective investment schemes;
- credit rating agencies;
- friendly societies;
- pension fund organisations;
- financial product providers or financial services providers; and
- a significant owner of any person referred to above
Additionally, Prudential Authority (PA) Exemption Notice 1 of 2020 exempts the following persons from the requirements of the Joint Standard some of which are regulated offshore:
- 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;
- 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; and
- a significant owner of any person referred to above.
Section 158 of the FSRA applies to significant owners of eligible financial institutions (including banks, life and non-life insurers, market infrastructures such as stock exchanges and central securities depositories) and managers of collective investment schemes and requires the following:
- prior approval by the FSCA or PA (whichever is their designated authority) to become a significant owner;
- prior approval by the FSCA or PA to cease being a significant owner of a systemically important financial institution (designated as such in terms of section 29 of the FSRA by the Governor of the South African Reserve Bank e.g. banks or insurers);
- prior notification to the FSCA or PA to cease being a significant owner of a non-systemically important financial institution (not designated as such in terms of section 29 of the FSRA by the Governor of the South African Reserve Bank); and
- prior approval of or notification to the FSCA or PA, depending on what is required, to increase or decrease the extent of the ability of the significant owner, alone or together, with a related or inter-related person, to control or influence materially the business or strategy of the financial institution.
A failure to obtain the required prior approval of or to make the prior notification to the FSCA or PA has the potential of rendering a transaction void. It is thus imperative that significant owners or potential significant owners consider the requirements of the Joint Standard and the FSRA when dealing with transactions involving financial institutions.