Before the formation of the FSCA, South Africa was rarely considered as a jurisdiction to open a regulated entity by international Forex brokers. However, nowadays, the country is becoming home to both domestic firms targeting foreign retail traders and global brokerages targeting residents of the RSA.
In South Africa, the financial sector is regulated by the Financial Sector Conduct Authority (FSCA). The FSCA was branched out from the Financial Services Board (FSB) on April 1, 2018, in accordance with the Financial Sector Regulation Act 2017 (FSRA). The same law delegated additional regulatory powers regarding banks, insurers, conglomerates, and market infrastructure, to another new agency — the Prudential Authority (PA). You can check whether a Forex broker has an active FSCA license, using the FSP Register search facility.
The FSCA must act in accordance with the laws of South Africa to achieve the following goals:
- Protect customers of financial services.
- Improve efficiency and integrity of financial markets.
- Promote financial stability.
- Increase financial inclusion.
Who should register?
The following types of companies and individuals fall into the FSCA's scope of regulation:
- Managers of collective investment schemes
- Credit rating agencies
- Market infrastructures
- Pension funds administrators
- Friendly societies
- FAIS-licensed financial services providers (this is the category that includes Forex brokers)
- Retirement funds
- Debt collectors
- Providers of services related to credit
- Payment service providers
- Commercial, mutual, and cooperative banks
- Cooperative financial institutions
- Medical schemes and medical scheme administrators
- Financial benchmark providers
Registration and compliance requirements
The list of requirements for South African Forex brokers is dictated by the Financial Advisory and Intermediary Services Act 37 of 2002 and is not too harsh:
- A local company with an office should be established to receive the FSCA license.
- Professional indemnity insurance is required for directors.
- All directors must pass a regulatory examination process and have at least one year of experience in management and oversight related to investment services.
- At least one director should be a South African resident.
- The company's current assets should exceed current liabilities at all times.
- Liquid assets should cover at least 4 out of 52 weeks of annual expenditure.
- Annual activity report should be sent to the regulator.
Powers at FSCA’s disposal
- Release statements. Statements serve to clarify the authority's stance on some important issues. In March 2020, the FSCA released a statement regarding possible naked short selling of financial assets, claiming that "any person who continues to engage in naked short sales will be subjected to appropriate regulatory action".
- Issue public warnings. In February 2021, the FSCA has warned the public about Forex Successful Investors (Pty) Ltd — an unauthorized financial service business, which is likely a scam ponzi scheme.
- Impose administrative penalty. In May 2021, the FSCA imposed a fine of 100,000 ZAR (about $7,000) on ABSA Bank Limited due to their failure to submit a necessary audit report with the Authority.
- Initiate investigations. In January 2021, the FSCA has released an update regarding completion of its investigation into Mirror Trading International (Pty) Ltd that has been initiated back in 2020. The company operated a fraudulent investment scheme. As a result of the FSCA's investigation, a criminal case has been opened and liquidation of the company and its assets has commenced.
- Withdraw license. In August 2021, the FSCA has provisionally withdrawn the FSP license of OM Bridge (Pty) Ltd, which is operating eXcentral Forex broker due to numerous complaints from its customers and the evidence collected by the FSCA.
Although it is evident that the FSCA is trying to do a good job by providing fair conditions and safe environment for the retail Forex business to prosper in South Africa, there is still a way to go for this jurisdiction to become reputable and reliable in the eyes of a sophisticated trader. Slow action, small fines, failure to keep up with technological advancements — they all contribute to the current state of affairs with financial regulation in the RSA.
If you want to share your opinion, observations, conclusions, or to ask a question regarding South Africa's Financial Sector Conduct Authority (FSCA), feel free to start a discussion on our Forex forum.
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