South Africa: COVID-19 South Africa: Financial Services Regulation In Times Of COVID-19

In terms of various Regulations ("COVID-19 Regulations") issued pursuant to the Disaster Management Act, 2002, all persons in South Africa are confined to their place of residence, unless strictly for the purpose of performing an essential service, obtaining an essential good or service, collecting a social grant, or seeking emergency, life-saving or chronic medical attention. Foreign tourists are confined to their places of temporary residence unless being evacuated.

In terms of the COVID-19 Regulations specific services that were deemed necessary to maintain the functioning of the financial system were declared as essential services, which include (i) the banking environment; (ii) the payments environment; (iii) the financial markets; (iv) the insurance environment; (v) the savings and investment environment; (vi) pension fund administration; (vii) outsourced administration; (viii) medical schemes administration; and (ix) call centres necessary to provide financial services.

The COVID-19 Regulations require every person conducting essential services, and who is travelling to perform such service, to carry a valid permit in the prescribed form. The permit is issued by the head of the relevant institution, who must determine what essential services must be performed by that institution in order to remain operational and the essential staff who will perform such services. The head of the institution is defined as the chief executive officer or equivalent of a private institution, who may delegate the process of determining the essential services to be performed by their institution and staff required to perform same, if required by the size and complexity of such institution. In addition to the aforesaid, guidelines issued by the Department of Trade, industry and Competition ("DTIC") require institutions that render essential services to obtain a certificate confirming that they are performing essential services from the Companies and Intellectual Property Commission through an online portal. The guidelines also require that the original permits must be carried by employees performing essential services at all times, together with photo identification issued by the Department of Home Affairs, and provision is not made for the head of the institution to delegate the signature of such permits.

The Prudential Authority ("PA") and the Financial Sector Conduct Authority ("FSCA") have been proactive in assisting the industry in meeting their statutory requirements whilst dealing with the national lockdown and have emphasised that financial institutions are to limit essential services to those absolutely necessary to support the functioning of the financial system and maintaining a stable financial environment. The limitation of employees on site performing essential services to an absolute minimum number of staff required is echoed by the DTIC guidelines.

The FSCA in a recent press release on 30 March 2020 titled "FSCA statement on insurers performing medical underwriting during lockdown period" indicated that practice by insurers to declare travelling nurses as essential services in the lockdown period to collect blood samples for new business underwriting purposes detracts from the ability of laboratories to focus efforts on COVID-19. The FSCA directed insurers to cease this practice and confirmed that any continued engaging in non-essential services will be subjected to appropriate regulatory action.

In an attempt to mitigate possible conduct risks and risks that financial institutions will not treat their customers fairly during the national lockdown and to emphasise what essential financial services means, the FSCA issued FSCA Communication 12 of 2020 on 30 March 2020. The Communication specifically deals with insurers, banks, retirement funds, investment providers and with financial institutions generally, and emphasises the necessity to ensure business continuity and operational ability of such entities.

From an insurance perspective, the FSCA includes specific measures dealing with (i) changes to or the launching of new products, (ii) claims, (iii) renewals and lapses. The FSCA has stressed that the suitability of products and the vulnerability of the policyholders and potential policyholders must be considered when developing new products and compliance with the Policyholder Protections Rules (issued under the Long-term and Short-term Insurance Acts) remains pivotal. In so far as insurance claims are concerned, the FSCA requires that if any new exclusions or requirements are introduced to policies during the COVID-19 crises, such exclusions or requirements must be discussed with the FSCA, and exclusions that are impacted by COVID-19 must be clearly communicated to current and potential policyholders.

In respect of advisors and intermediaries, the FSCA emphasises the importance of suitability of advice and the role advisors play in assisting customers in understanding the market and impact of COVID-19 on financial products. The FSCA expects advisors to stay abreast of developments in respect of products by regularly staying in touch with product providers. The FSCA also emphasises the importance of outsourced providers, which from an insurance perspective would include binder holders, and states that outsource providers must support delivery of services to customers and comply with requests from product suppliers to enable product suppliers to meet their oversight obligations and ensure fair delivery to customers in maintained.

The FSCA expects all financial institutions (i) to consider cyber-risk exposures and the potential for breaches, both to their own business and in respect of clients, and to keep customers informed of the latest cyber-attacks and scams; (ii) to ensure that complaints management, including complaint turnaround times, are not comprised as a result of the lockdown, and that all reporting of complaints for trend analysis and developing suitable mitigation measures by senior management to ensure services are functioning optimally; and (iii) to critically consider oversight, monitoring and control of third parties to ensure fair outcomes to customers, and to ensure regular reporting by third parties.

On 8 April 2020, in response to the effects of the measures taken to combat COVID-19 and the practical challenges faced by banks, mutual banks and insurers in ensuring the review and sign-off certain reports (i.e. annual audited financial statements) during the lockdown, the PA issued PA Communiqué 1 of 2020 which extends the period for compliance with the specific reporting requirements set out in certain financial sector laws. In respect of banks and mutual banks with year-ends from 31 December 2019 to 31 March 2020, the period in which to submit their annual financial statements and audit reports to the PA has been extended. In the case of insurers, (i) they must submit their annual financial statements to the PA not later than 6 months after an insurers' year-end; and (ii) they must cause to be audited the prescribed information provided to the PA for supervisory purposes (which is similar to the information that was required to be audited as part of the comprehensive parallel run in 2016) within four months after an insurers' financial year-end, with the proviso that for insurers with year-ends from 31 December 2019 to 31 March 2020, this period is extended by two months to six months after year-end. With the exception of the reports specifically stated in the said Communiqué, all timeframes within which to comply with prudential and related supervisory reporting requirements remain unaffected.

On 9 April 2020, the FSCA and the PA jointly issued a Directive which dictates the appropriate precautionary measures to be taken by financial institutions when performing essential financial services during the nationwide lockdown, including (amongst others):

1. directing that a head of financial institution must, where that head determines staff as essential, endeavour to limit these members of staff to as small a number as possible and, as far as possible, enable remote working, including working from home to support essential services;
2. A financial institution must take appropriate precautionary measures to reduce the risk of exposure, transmission and spread of the COVID-19, which include promoting minimum physical contact between staff required at the office (including replacing face-to-face contact with virtual communications where possible and implementing a spacing policy requiring distance of no less than one and a half meters between employees at workstations, and common areas such as cafeterias or break rooms and where possible, providing employees with sufficient personal protective supplies and materials);
3. establishing protocols to, amongst others: (i) screen the temperatures of all persons entering and leaving the financial institution's premises; (ii) ensuring staff with COVID-19 symptoms (including a mild cough or fever of 37.3 °C or more) are identified, tested and are required to stay at home; (iii) maintaining a register of the names and contact details of all the staff working on site and persons visiting on site, including those attending meetings, for a period of at least a month, to assist with contact tracing as contemplated in the Regulations; (iv) procedures for staff who are sick at work, and procedures for keeping sick staff members separate from others until such staff member is able to leave for home; and
4. requiring financial institutions to develop and implement an infectious disease preparedness and response plans that can help guide protective actions against COVID-19, which must include plans and policies aimed at compliance with the Directive.

Although the Directive, which became effective on 9 April 2020, only applies during the national lockdown, there is a real possibility the measures delineated therein will be measures which (most, if not all) financial institutions will need to continue to implement for some time after the national lockdown has been lifted.

These new measures will undoubtedly change the approach of financial institutions to business as usual, and we will likely see growth in innovations such as fintech or insurtech, which will enable business to be conducted in a new ways post national lockdown and to assist in addressing the expected economic impact of the Covid-19 pandemic.

The ability to work remotely and to embrace agility, adaptability and responsiveness, in order to navigate this period of uncertainty, has been, and will most certainly continue to be critical for financial institutions.

Fintech innovation leverages technology to address inefficiencies and other challenges in the financial sector by embracing agility, adaptability and responsiveness, traits that are essential as local and global economies navigate this period of uncertainty. In light of the COVID-19 pandemic innovation among fintech firms and other financial sector innovators is required now more than ever and, therefore, must be supported.

South Africa's financial regulators launched the Intergovernmental Fintech Working Group (IFWG) Innovation Hub on 7 April 2020 in response to broader changes in the financial sector driven by financial technology (fintech).

The Innovation Hub is well timed to deal with the expected boom in fintech and insurtech innovations and products following the change in the way of doing business necessitated by COVID-19. It will provide market innovators with access to (i) a Regulatory Guidance Unit to help resolve specific questions regarding the policy landscape and regulatory requirements; (ii) a Regulatory Sandbox to test new products and services that push the boundaries of existing regulation, all under the supervision of relevant regulators; and/or (iii) an Innovation Accelerator which enables a collaboration environment for financial sector regulators to learn from and work with each other, and the broader financial sector ecosystem, on emerging innovations in the industry.

Communication 12 of 2020 can be accessed here.

PA Communiqué 1 of 2020 can be accessed here.

The joint Directive issued by the PA and the FSCA can be accessed here.

The Media Statement by the IFWG on the Innovation Hub can be accessed here.