banking and finance
BY Jessica Blumenthal AND Johan Loubser
South Africa: FSCA provides general guidance to financial institutions on COVID-19
On Monday, 30 March 2020, the Financial Sector Conduct Authority (“FSCA”) issued a general communication to financial institutions relating to the impact of the coronavirus (COVID-19) on financial institutions and their customers.
The circular sets out at a high level the expectations of the FSCA relating to the culture and responsibilities of financial institutions during the crisis. It does not have the force of law.
The main theme of the circular is that each financial institution should, despite the pandemic, continue to treat customers fairly and should carefully consider its business conduct during the crisis.
From what we can tell, the underlying assumption of the circular is that financial institutions remain in operation despite the lockdown, whether on account of the specific financial institution benefiting from the exemption from the lockdown regulations afforded to essential services or on account of work from home arrangements.
By way of background, we note that the FSCA has issued specific exemptions in relation to compliance with financial sector laws in response to the crisis. Generally speaking, save for where exemptions, extensions or other measures have been issued or permitted by the financial sector authorities, financial sector laws must be complied with fully. Any contention with respect to impossibility of performance should be carefully examined and assessed.
The full circular (numbered 12 of 2020) can be found here.
We highlight below a number of key points:
- Treating customers fairly ̶ Regulated entities should be mindful of the current circumstances and assist their customers with empathy, flexibility and understanding. This may include considering relief and support options, especially for vulnerable customers. Entities must ensure that all customers are treated fairly during the entire product cycle, from advertising, to sales, claims, renewals and complaints. The FSCA will not tolerate profiteering off those that are vulnerable and suffering.
- Update business continuity plans – Regulated entities must (if they have not already done so) review their existing business continuity plans and assess the impact of COVID-19 on their operational ability. If a regulated entity’s business continuity plan requires amendment to ensure that measures are put in place to address the current situation, then this must be done. Risks or potential risks to the operational ability of the regulated entity arising due to COVID-19 must be identified and addressed.
- Senior management involvement – Senior management should take responsibility for managing the impact of COVID-19 on the business of the regulated entity and should regularly review whether the approach being followed adequately addresses all the identified risks (including the responsibility to create a safe working environment) and ensure fair treatment to all customers at all times.
- Communicate with stakeholders and customers – There should be clear and continuous communication to all internal and external stakeholders and customers regarding the regulated entity’s current business continuity plan. Any processes or procedures that may have to change in light of COVID-19 must be communicated to stakeholders and customers.
- Report to the FSCA – If a regulated entity identifies any major risks that could materially impact fair outcomes to customers as a result of COVID-19, the regulated entity should immediately communicate this risk, the impact thereof and mitigation plans to the FSCA.
- Continue oversight, monitoring and control over third parties – Regulated entities must continue to implement the necessary due diligence, monitoring and control over all third parties. In response to the crisis, alternative measures to ensure fair outcomes to customers should be considered. The frequency of reporting and the analyses of trends and concerns are of the utmost importance.
- Learn from complaints – The complaints management process and turnaround times on resolving complaints through any channels should not be compromised. Regulated entities should note that the accurate reporting of all complaints will be essential for all trend analysis and in the regular reviewing of mitigating measures that need to be taken by senior management when reviewing the business continuity plans and the effectiveness thereof. Therefore, it is expected that the frequency of reporting on complaints and the root cause analysis thereof may have to be increased to address concerns and upcoming risks.
- Address cybersecurity – Financial institutions should explicitly consider cyber-risk exposures and potential for breaches that may be heightened over this lock-down period due to wide roll-out of remote working capabilities. Ongoing, clear and up-to-date communication to customers is essential, to keep them informed of the latest types of cyberattacks and scams, to reduce the risk of them suffering financial losses or data breaches.
In addition, the FSCA addressed matters specific to insurance, banking, retirement funds, collective investment schemes and financial advisers. We highlight a couple of points below (additional matters are set out in the communication).
- Changes to existing insurance products should follow the prescribed process as stated in the Policyholder Protection Rules.
- The communication contains guidelines in respect of the design of new policies, the handling of insurance claims and the handling of policy renewals and lapses.
- Banks are requested to communicate branch closures and alternative banking venues and channels to customers and to notify the FSCA of such communications. Banks are requested to ensure ATM availability and to manage any queues of customers where practical.
- Financial advisers have a key role to play and must stay abreast of developments and in contact with product suppliers so that they can provide customers with appropriate and up-to-date advice. Conversely, regulated entities must take additional measures to inform advisers and intermediaries of any changes to processes, procedures and products. Advisers and intermediaries should also be made aware of any changing circumstances that might impact the suitability of their advice. The FSCA has noted that the uncertainty and volatility may shape customer behavior, leaving customers financially vulnerable, hence the FSCA requires financial advisers to ensure that they support their customers appropriately.
- Boards of trustees of retirement funds should keep abreast of the risks that COVID-19 brings to retirement funds and take necessary steps to mitigate such risks. Boards are also encouraged to clearly communicate COVID-19 developments and risk management strategies to fund members, to promote calm and minimise the risk of premature fund withdrawals.
- Managers of collective investment schemes should consult with the FSCA regarding any concerns related to significant portfolio outflows which may result in negative outcomes for the remaining investors in the portfolio. Managers must continue to apply risk management requirements and related obligations.
Clearly, the above guidance gives much to do for financial institutions, some of it urgent, as the financial sector adjusts to the lockdown and the short and medium-term effects of the crisis.
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COVID-19, also known as the Coronavirus, is an infectious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) that was declared a pandemic by the World Health Organization on 11 March 2020. The disease has since been reported in over 190 countries.
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