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Complying with Changes in Legislation 2016

Complying with changes in legislation 2016

August 2016

Delegates Workbook

Facilitated by ProBeta Training (Pty) Ltd.

The views expressed in this workbook are not necessarily reflective of the official views of FASSET.


COMPLYING WITH CHANGES IN LEGISLATION 2016 CONTENTS

The Financial Intelligence Centre Act 38 of 2001 and the Financial Intelligence Centre Amendment Act,

2008 6

What is money laundering?...............................................................................................................................6

What is terror financing?...................................................................................................................................6

Accountable institutions.....................................................................................................................................6

Reporting institutions.........................................................................................................................................7

Supervisory bodies............................................................................................................................................8

Beneficial owner................................................................................................................................................8

Business relationship........................................................................................................................................8

Non-compliance................................................................................................................................................8

Domestic prominent influential person..............................................................................................................9

Executive officer..............................................................................................................................................10

Definition of a trust..........................................................................................................................................10

Increased powers of the FIC...........................................................................................................................10

Reporting a suspicious and unusual transaction report..................................................................................10

Cash Threshold Reporting (CTR)....................................................................................................................11

Identification of clients and other persons.......................................................................................................12

Obligation to keep customer due diligence records........................................................................................15

Obligation to keep transaction records............................................................................................................16

Period for which records must be kept............................................................................................................16

Notification of persons and entities identified by Security Council of the United Nations...............................16

Prohibitions relating to persons and entities identified by Security Council of the United Nations.................16

Permitted financial services and dealing with property...................................................................................17

Reporting obligations to advise Centre of clients............................................................................................17

Property associated with terrorist and related activities..................................................................................18

Access to information held by Centre.............................................................................................................18


Risk Management and Compliance Programs................................................................................................19

Governance of AML and CFT compliance......................................................................................................19

Training relating to AML and CFT compliance................................................................................................19

Inspections......................................................................................................................................................19

Administrative sanctions..................................................................................................................................21

Offence provisions...........................................................................................................................................21

Jurisdictions with strategic deficiencies in their measures against money laundering and terror financing....22

Prevention of Organised Crime Act – Schedule 1 Amendment......................................................................22

Statistics..........................................................................................................................................................23

The National Credit Act No 34 of 2005 27

Overview of the Act.........................................................................................................................................27

Interpretation, Purpose and Application..........................................................................................................27

Consumer Credit Industry Regulation.............................................................................................................30

Credit bureau information................................................................................................................................32

Consumer Credit Agreements.........................................................................................................................37

Compliance and Reporting..............................................................................................................................42

Consumer Protection Act 48

Application of the Consumer Protection Act....................................................................................................48

Consumer Goods and Services Ombud.........................................................................................................48

Who must register?.........................................................................................................................................48

Registration fees and annual levies................................................................................................................49

Fees payable by participant............................................................................................................................49

What is a complaint?.......................................................................................................................................49

Who can complain?.........................................................................................................................................49

When will the CGSO not consider a complaint?.............................................................................................50

How to lay a compliant?..................................................................................................................................50

Complaint resolution by the participant...........................................................................................................51

Withdrawing of a complaint by the consumer.................................................................................................51


What can a consumer complain about?..........................................................................................................51

Consequences of failure to co-operate with the Ombudsman........................................................................52

Protection of Personal Information Act No. 4 of 2013 53

Introduction......................................................................................................................................................53

Purpose of the Act...........................................................................................................................................53

Application of the Act.......................................................................................................................................53

Different types of personal information...........................................................................................................53

The different role players.................................................................................................................................54

Accountability..................................................................................................................................................55

Processing limitation.......................................................................................................................................55

Purpose specification......................................................................................................................................57

Further processing limitation...........................................................................................................................58

Openness........................................................................................................................................................59

Security safeguards.........................................................................................................................................61

Data subject participation................................................................................................................................63

Penalties..........................................................................................................................................................65

Employment Law 66

Employment Services Act 4 of 2014...............................................................................................................66

Company Secretarial 68

Removal of Director.........................................................................................................................................68

Rotation of auditors (section 92).....................................................................................................................68

Disclosure of Directors’ / Prescribed Officers’ Remuneration.........................................................................69

Annual returns.................................................................................................................................................72

Independent reviews and non-compliance with regulation 29........................................................................77

Forthcoming attractions 79

King IV.............................................................................................................................................................84

Unemployment Insurance Amendment Bill version B 2015............................................................................86

Other important notices 88

Estate Agents – CPD Update..........................................................................................................................88


Special Voluntary Disclosure Programme in respect of offshore assets and income.....................................88


THE FINANCIAL INTELLIGENCE CENTRE ACT 38 OF 2001 AND THE FINANCIAL INTELLIGENCE CENTRE AMENDMENT ACT,

2008 WHAT IS MONEY LAUNDERING?

Money Laundering is the process used by criminals to hide, conceal or disguise the nature, source, location, disposition or movement of the proceeds of unlawful activities or any interest which anyone has in such proceeds.

Criminals who have generated an income from their criminal activities usually follow three common stages to launder their money. The first stage is commonly referred to as ‘placement’. This is when criminals introduce their illegally derived proceeds into legitimate financial systems. An example of this would be splitting a large portion of cash into smaller sums and thereafter depositing the smaller amounts into a bank account, or purchasing a series of monetary instruments (cheques, money orders, etc.) with the smaller amounts.

The second stage is called ‘layering’. During this stage the launderer engages in a series of transactions, conversions or movements of the funds in order to cloud the trail of the funds and separate them from their illegitimate source. The funds might be channeled through various means for example; the purchase and sale of investment instruments, purchasing property and selling it soon after, or the launderer might simply wire the funds through a series of accounts at various banks across the globe.

Although use of all three stages is common, it is not always utilised by the criminal who wishes to launder funds. In some instances, criminals may choose to merely ‘place’ the illegally derived funds into the economy by merely depositing the money into his or her bank account, without any layering occurring. They can withdraw the money and spend it at their will.

WHAT IS TERROR FINANCING?

Financing of terrorism is the collection or provision of funds for the purpose of enhancing the ability of an entity or anyone who is involved in terrorism or related activities to commit an act that is regarded as a terrorist act. Funds may be raised from legitimate sources, such as personal donations and profits from businesses and charitable organisations, as well as from criminal sources, such as the drug trade, the smuggling of weapons and other goods, fraud, kidnapping and extortion.

ACCOUNTABLE INSTITUTIONSThe term “accountable institution” is defined as a person referred to in Schedule 1 of the FIC Act. Thus a person or organisation that carries on the business of any entity listed in Schedule 1 of the Act would be regarded as an accountable institution.

SCHEDULE 1 – LIST OF ACCOUNTABLE INSTITUTIONS

A practitioner who practices as defined in section 1 of the Attorneys Act, 1979 (Act 53 of 1979).

A board of executors or a trust company or any other person that invests, keeps in safe custody, controls or administers trust property within the meaning of the Trust Property Control Act, 1988 (Act 57 of 1988).

An estate agent as defined in the Estate Agency Affairs Act, 1976 (Act 112 of 1976).

An authorised user of an exchange as defined in the Securities Services Act, 2004 (Act 36 of 2004).

A manager registered in terms of the Collective Investment Schemes Control Act, 2002 (Act 45 of 2002), but excludes managers who only conduct business in Part 6 of the Collective Investment Schemes Control Act (Act 45 of 2002).


A person who carries on the business of a bank as defined in the Banks Act, 1990 (Act 94 of 1990).

A mutual bank as defined in the Mutual Banks Act, 1993 (Act 124 of 1993).

A person who carries on a long-term insurance business as defined in the Long-Term Insurance Act, 1998 (Act 52 of 1998).

A person who carries on the business of making available a gambling activity as contemplated in section 3 of the National Gambling Act, 2004 (Act 7 of 2004) in respect of which a license is required to be issued by the National Gambling Board or a provincial licensing authority.

A person who carries on the business of dealing in foreign exchange.

A person who carries on the business of lending money against the security of securities.

A person who carries on the business of a financial service provider requiring authorisation in terms of the Financial Advisory and Intermediary Services Act, 2002 (Act 37 of 2002), to provide advice and intermediary services in respect of the investment of any financial product (but excluding a short term insurance contract or policy referred to in the Short-term Insurance Act, 1998 (Act 53 of 1998) and a health service benefit provided by a medical scheme as defined in section 1(1) of the Medical Schemes Act, 1998 (Act 131 of 1998)).

A person, who issues, sells or redeems travelers’ cheques, money orders or similar instruments.

The Postbank referred to in section 51 of the Postal Services Act, 1998 (Act 124 of 1998).

The Ithala Development Finance Corporation Limited.

A person who carries on the business of a money remitter.

REPORTING INSTITUTIONSA reporting institution refers to a person referred to in Schedule 3 of the FIC Act, and could be either a motor vehicle dealer or a Kruger Rand dealer.

SCHEDULE 3 – LIST OF REPORTING INSTITUTIONS

A person who carries on the business of dealing in motor vehicles

― The Financial Intelligence Centre (FIC) has revised Public Compliance Communication 07 (PCC07) to explain the duties of a motor vehicle dealer when reporting cash transactions of more than R24 999.99 to the FIC.

― The requirement takes effect on the 3 March 2016.

― A motor vehicle dealer’s duty to report cash transactions to the FIC also includes motor vehicle related services provided by the motor vehicle dealer and the buying and selling of motor vehicle parts.

― The Centre views a “person who carries on the business of dealing in motor vehicles” to be any person who is engaged in the business of buying, selling, or exchanging any new and second-hand self-propelled vehicle, including a vehicle having pedals and an engine, or an electric motor as an integral part thereof or attached thereto and which is designed or adapted to be propelled by these means on land, as well as any trailer and caravan.

― This includes persons dealing in both new and second hand vehicles.

A person who carries on the business of dealing in Kruger Rands.

― The Financial Intelligence Centre (FIC) views “a person who carries on the business of dealing in Kruger rands” to be any person who, as a regular feature of his/her business, deals in jewellery,


ornaments, watches or other objects that contain Kruger Rands irrespective of the value of the turnover of the Kruger rand dealer.

― Some businesses including jewellers are buying Kruger Rands and using these Kruger Rands to manufacture jewellery, ornaments and watches that contain the original Kruger Rands.

― The inclusion of a Kruger Rand in another object such as a piece of jewellery, ornament, watches etc. does not alter the intrinsic nature of the Kruger rand.

SUPERVISORY BODIES The Financial Service Board established by the Financial Service Board Act, 1990 (Act 97 of 1990).

The South African Reserve Bank in respect of the powers and duties contemplated in section 10(1)(c) in the South African Reserve Bank Act, 1989, (Act 90 of 1989) and the Registrar as defined in sections 3 and 4 of the Banks Act, 1990, (Act 94 of 1990) and the Financial Surveillance Department in terms of Regulation 22E of the Exchange Control Regulations, 1961.

The Estate Agency Affairs Board established in terms of the Estate Agency Affairs Act , 1976 (Act 112 of 1976).

The Independent Regulatory Board for Auditors established in terms of the Auditing Profession Act , 2005 (Act 26 of 2005).

The National Gambling Board established in terms of the National Gambling Act and retained in terms of the National Gambling Act, 2004 (Act 7 of 2004).

A law society as contemplated in section 56 of the Attorneys Act, 1979 (Act 53 of 1979).

A provincial licensing authority as defined in section 1 the National Gambling Act, 2004 (Act 7 of 2004).

BENEFICIAL OWNER‘Beneficial owner’, in respect of a legal person, means a natural person who, independently or together with another person, directly or indirectly:

Owns the legal person;

Exercises effective control of the legal person.

BUSINESS RELATIONSHIPThe definition of "business relationship" is amended to include in the meaning of business relationship three or more single transactions that appear to be linked to the same person using the same product or service at regular intervals. This definition has been amended, so that accountable institutions will not be required to repeatedly identify and verify customers who regularly conclude single transactions with the same accountable institution.

NON-COMPLIANCEThe definition of "non-compliance" is amended, to make a distinction between what constitutes non-compliance that attracts an administrative sanction from non-compliance that is subject to a criminal sanction.

DOMESTIC PROMINENT INFLUENTIAL PERSON“Domestic prominent influential person” means an individual who holds, including in an acting position for a period exceeding six months, or has held at any time in the preceding 12 months, in the Republic:

A prominent public function including that of:

― The President or a Deputy President;

― A Minister or Deputy Minister;


― The Premier of a province;

― A member of the Executive Council of a province;

― An executive mayor of a municipality as elected in terms of the Local Government: Municipal Structures Act, 1998 (Act No. 117 of 1998);

― A leader of a political party registered in terms of the Electoral Commission Act, 1996 (Act No. 51 of 1996);

― A member of a royal family or senior traditional leader defined in the Traditional Leadership and Governance Framework Act, 2003 (Act No. 41 of 2003);

― A head or chief financial officer of a national or provincial department or government component, defined in section 1 of the Public Service Act, 1994 (Proclamation No. 103 of 1994);

― A municipal manager appointed in terms of section 82(1) of the Local Government: Municipal Structures Act, 1998 (Act No. 111 of 1998);

― The chairperson of the controlling body, Chief Executive Officer, Chief Financial Officer or Chief Investment Officer of:

A public entity listed in Schedule 2, or Part B or D of Schedule 3, to the Public Finance Management Act, 1999 (Act No. 1 of 1999); or

A municipal entity defined in section 1 of the Local Government: Municipal Systems Act, 2000 (Act No. 32 of 2000);

― A constitutional court judge or any other judge defined in section 1 of the Judges’ Remuneration and Conditions of Employment Act, 2001 (Act No. 47 of 2001);

― An ambassador or high commissioner or other senior representative of a foreign Government based in the Republic;

― An officer of the South African National Defence Force above the rank of major-general;

― The position of:

Chairperson of the Board of Directors;

Chairperson of the Audit Committee;

Executive Officer; or

Chief Financial Officer, of a company as defined in the Companies Act, 2008 (Act No. 71 of 2008), if the company provides goods or services to an organ of state and the annual transactional value of the goods or services or both exceeds an amount determined by the Minister by notice in the Gazette; or

○ The position of head or other executive directly accountable to that head, of an international organisation based in the Republic.

EXECUTIVE OFFICER“Executive officer” means a person who:

Exercises general executive control over and management of the whole, or a significant portion, of the business and activities of a company; or

Regularly participates to a material degree in the exercise of general executive control over and management of the whole, or a significant portion, of the business and activities of a company, irrespective of any particular title given by the company to an office held by the person in the company or a function performed by the person for the company.


DEFINITION OF A TRUSTMeaning a trust as defined in the Trust Property Control Act, 1988 (Act No. 57 of 1988), but excludes trusts established:

By virtue of a testamentary writing;

By virtue of a court order;

For persons under curatorship;

by the trustees of a retirement fund in respect of benefits payable to the beneficiaries of that retirement fund.

INCREASED POWERS OF THE FICThe Bill extends the objectives of the FIC to include administering measures requiring accountable institutions to freeze property and transactions pursuant to financial sanctions that may arise from UNSC Resolutions. It also makes provision for the FIC to provide information and guidance to accountable institutions that will assist in meeting requirements to freeze property and transactions pursuant to UNSC resolutions.

The functions of the FIC are extended, to allow explicitly for the FIC to initiate an analysis based on information in its possession or information received from another source. This clarifies the fact that the FIC can conduct an analysis which is not predicated on the receipt of a suspicious transaction report.

REPORTING A SUSPICIOUS AND UNUSUAL TRANSACTION REPORTThe FIC Act requires a person who carries on a business, or is in charge of or manages a business, or who is employed by a business, and who has a suspicion of money laundering or terror financing activity or unusual transaction, to report this to the Centre.

A suspicious transaction will often be one when the transaction raises questions or gives rise to discomfort, apprehension or mistrust. When considering whether there is reason to be suspicious of a particular situation one should assess all the known circumstances relating to that situation. This includes the normal business practices and systems within the industry where the situation arises.

A suspicious situation may involve several factors that may on their own seem insignificant, but, taken together, may raise suspicion concerning that situation. The context, in which a situation arises, therefore, is a significant factor in assessing suspicion. This will vary from business to business and from one customer to another.

Section 29 of the FIC Act imposes obligation on any person who carries on a business or is in charge of or manages a business or who is employed by a business to report suspicious or unusual transactions to the Centre. It provides that required reporters must report if they suspect that:

The business in which they are involved has received or is about to receive the proceeds of any unlawful activity; or

A transaction or series of transactions in which your business is involved has facilitated or is likely to facilitate the transfer of proceeds of unlawful activities from one person to another or from one location to another; or

A transaction or series of transactions in which your business is involved has no apparent business or lawful purpose; or

A transaction or series of transactions in which your business is involved is conducted to avoid giving rise to a reporting duty under FIC Act; or

A transaction or series of transactions in which your business is involved may be of interest to the South African Revenue Service in a possible investigation of tax evasion; or

The business in which you are involved has been used or is about to be used in any way to hide or disguise the proceeds of unlawful activities.


In terms of Regulation 24 a report made under section 29 of FIC Act must be sent to the Centre as soon as possible but not later than fifteen days, excluding Saturdays, Sundays and Public Holidays, after a natural person or any of his or her employees, or any of the employees or officers of a legal person or other entity, has become aware of a fact concerning a transaction on the basis of which knowledge or a suspicion concerning the transaction must be reported. In exceptional cases the Centre may approve of the report being sent after the expiry of this period.

The general rule is that a person may continue with a transaction from which a report emanates. However, section 34 of the FIC Act empowers the Centre to intervene in certain transactions after consulting with an accountable institution, reporting institution or person required to make a report. In such instances the accountable institution, reporting institution or person in question may not proceed with the carrying out of the transaction. The Centre’s intervention is valid for a maximum period of 5 days and is aimed at creating an opportunity for the Centre to make the necessary enquiries and to inform and advise an investigating authority.

Section 38 of the FIC Act provides for a broad range of measures to protect persons who participate in submitting reports to the Centre. It guarantees that “no action, whether criminal or civil, can be instituted against any natural or legal person who complies in good faith with the reporting obligations of the FIC Act”. Consequently, they cannot even be forced to give evidence concerning such a report in criminal proceedings arising from the report. However, such a person may choose to do so voluntarily. If a person who participated in submitting a report to the Centre elects not to testify, no evidence regarding that person’s identity is admissible as evidence in criminal proceedings.

CASH THRESHOLD REPORTING (CTR)Section 28 of the Financial Intelligence Centre Act, Act 38 of 2001 (the FIC Act) makes it obligatory for all accountable institutions and reporting institutions to report cash transactions above the prescribed limit to the Centre in the prescribed format.

The prescribed limit will be R 25 000. Accountable and reporting institutions are obliged to report all cash transactions of R 25 000 and above to the Centre in the prescribed format.

This means all transactions involving domestic and foreign notes and coins, and includes travellers cheques.

Cash transactions above the prescribed limit must be reported to the Centre within two (2) business days of the transaction.

Cash does not include negotiable instruments as defined in the FIC Act. It also does not include a transfer of funds by means of bank cheque, bank draft, electronic funds transfer, wire transfer or other written order that does not involve the physical transfer of cash, and these methods of transferring funds will not be covered by the cash threshold reporting obligation under section 28 of the FIC Act.

Aggregation of transactions does form part of the obligation to report in terms of section 28. This means that the additional transaction/s will be viewed as part of the original transaction. The calculation period for aggregation of transactions is one business day. Thus all smaller transactions entered into in one business day which when added together result in an amount of R 25 000 and above are reportable.

All motor vehicle dealers will also be responsible to report cash received by an agent on their behalf, e.g. cash received by a bank on behalf of a motor vehicle dealer. Does this mean that if the client deposited cash into the bank account of the motor dealer at a branch of a bank, this will have to be reported?

An accountable institution and a reporting institution must, within the prescribed period, report to the Centre the prescribed particulars concerning a transaction concluded with a client if in terms of the transaction an amount of cash in excess of the prescribed amount:

Is paid by the accountable institution or reporting institution to the client, or to a person acting on behalf of the client, or to a person on whose behalf the client is acting; or

Is received by the accountable institution or reporting institution from the client, or from a person acting on behalf of the client, or from a person on whose behalf the client is acting.


Section 28(b) provides for the situation where an agent/person receives the cash on behalf of the accountable/reporting institution. The bank will have to report upon receiving cash from the motor vehicle dealer’s client, and the obligation to report will arise once the motor vehicle dealer has knowledge that cash has been received into their bank account, for example, through a deposit slip or proof of deposit presented to the dealer by the client, or when that transaction is reflected on the bank statement.

A Cash Threshold Report means that if the dealer is aware that the client is going to deposit cash at the bank in terms of the transaction, the dealership and the bank at which the dealer has the account that will be receiving the cash will have to report the transaction in terms of section 28. Section 28 of FIC Act stipulates that:

Both accountable and reporting institutions must report such a transaction if it is above the prescribed limit.

Cash threshold Reporting is a legal obligation in terms of section 28 of the FIC Act. Failure to comply with the provisions of this section is an offence and is punishable with imprisonment for a period not exceeding 15 years or to a fine not exceeding R 100 000 000.

IDENTIFICATION OF CLIENTS AND OTHER PERSONSCustomer due diligence refers to the knowledge that an accountable institution has about its customer and the accountable institution’s understanding of the business that the customer is conducting with it.

A customer due diligence programme, if properly implemented, enables an accountable institution to better manage its relationships with customers, and to better identify possible attempts by customers to abuse the accountable institution’s products and services for illicit purposes.

Customer due diligence is comprised of four basic elements. These are:

Determining the customer’s identity: This entails obtaining information concerning the customer’s identity and verifying that information using reliable, independent information.

Identifying the beneficial owner: This entails whether the customer has a beneficial owner and, if so, obtaining information concerning the beneficial owner’s identity, and taking reasonable measures to verify that information.

Understanding the purpose and intended nature of the business relationship: This entails having an understanding of the particular products or services provided to the customer, and obtaining information from the customer as to the intended purpose for which the customer wants to use the products or services in question.

Conducting ongoing due diligence: This entails that the accountable institution will keep information relating to the business relationship up to date, scrutinise transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the accountable institution’s knowledge of the customer and the customer’s business, and identify anomalies in transaction patterns.

These elements must be linked with an accountable institution’s application of a risk-based approach through the institution’s AML and CFT compliance and risk management program.

The application of a risk-based approach entails that an accountable institution should identify, assess, and understand its money laundering and terrorism financing risks. The notion of "money laundering and terrorism financing risks", in this context, refers to the risk that an accountable institution’s products or services may be abused by its customers in order to carry out money laundering or terrorism financing activities. These risks emanate from a combination of factors, such as the customers, countries, products, delivery channels, etc., involved in a given scenario. An accountable institution should then apply its knowledge and understanding of its money laundering and terrorism financing risks in the development of control measures to prevent or mitigate the risks identified.

By adopting a risk-based approach, both the supervisory body and accountable institutions are able to ensure that measures to prevent or mitigate money laundering and terrorism financing are commensurate with the risks identified. This will ensure that resources are directed in accordance with priorities, so that the greatest risks receive the highest


attention. Where lower risks are identified, the requirements to identify and verify are lowered, creating opportunities for accountable institutions to explore more innovative ways of offering financial services to a broader range of customers, and bring previously excluded sectors of society into the formal economy. This will improve the efficacy of measures to combat terrorism financing and money laundering, while also promoting financial inclusion.

Accountable institutions are required to ascertain from a prospective client what the purpose and intended nature of the business relationship will be, as well as to obtain information on the source of funds that the prospective client expects to use in the course of the business relationship.

A key component of customer due diligence measures is the identification of beneficial owners. In many instances (including in the case of corruption) where criminals wish to obscure the ownership or control of funds in the financial system, they will make use of a corporate vehicle to transact with financial and other institutions "at arm’s length".

Requiring the identification of the beneficial ownership of customers which are not natural persons is a key step to bring greater transparency to activities in a financial system. This not only enhances the ability of accountable institutions to better assess customer related risks in the course of managing business relationships, but also greatly improves the ability of authorities to detect, investigate and prosecute abuses of financial and other institutions for money laundering and terrorism financing purposes.

Over and above the identification of the customer and its beneficial owner(s), financial and other institutions should also understand the nature of its business, and the ownership and control structure of the customer.

The starting point for the effective implementation of measures relating to persons who are entrusted with prominent public or private sector functions, is for all financial and other institutions (referred to as "accountable institutions" in the FIC Act) to have effective measures in place to know who their customers are and to understand their customers’ business.

Typically, this process happens when an institution takes on a new customer. The institution needs to establish who the prospective customer is, by using reliable and independent source documents. In instances where the customer is a business, the institution will need to make sure that it knows, among other matters, who the beneficial owner is, what the ownership and control structure of the business is, and the nature of the business. Over the lifetime of the relationship with the customer, the institution is required to monitor the customer’s on-going transactions, to ensure that they fit the profile of the customer.

The Bill amends the customer due diligence provisions of the FIC Act, by requiring accountable institutions to have appropriate risk-management systems in place, that focus their efforts on those cases where there is a higher probability that their products and services will be abused by criminals. This will enable them to take proactive steps to determine whether a potential customer (domestic or foreign) or the beneficial owner of a business should be considered to be a prominent person. If an institution finds out that it is dealing with a foreign prominent public official, senior management approval is needed to establish the business relationship if a customer is regarded as being a domestic prominent influential person, then the accountable institution will need to decide if the customer brings higher risk. If so, then the accountable institution will need to determine the source of wealth and funds, and thereafter monitor the account to spot transactions that seem anomalous given the recognised customer profile. The amendments also apply to immediate family members of such prominent persons, as well as known close associates.

Customer due diligence (including the identification of beneficial owners and persons entrusted with prominent public or private sector functions) brings greater transparency to the financial system, which is one of the tools in the fight against corruption. Customer due diligence is designed to better safeguard the integrity of the public sector and protect financial and other institutions from abuse by criminals. When used effectively in conjunction with other measures to address corruption, customer due diligence and measures relating to prominent persons will help in the detection, investigation and prosecution of corrupt activities and lead to the recovery of stolen assets.

An accountable institution may not establish a business relationship or conclude a single transaction with an anonymous client or a client with an apparent false or fictitious name.

When an accountable institution engages with a prospective client to establish a business relationship the institution must, in addition to the steps required under section 21 and in accordance with its Risk Management and Compliance


Programme, obtain information to reasonably enable the accountable institution to determine whether future transactions that will be performed in the course of the business relationship concerned are consistent with the institution’s knowledge of that prospective client, including information describing:

The nature of the business relationship concerned;

The intended purpose of the business relationship concerned; and

The source of the funds which that prospective client expects to use in concluding transactions in the course of the business relationship concerned.

An accountable institution must, in accordance with its Risk Management and Compliance Programme, conduct ongoing due diligence in respect of a business relationship which includes:

Monitoring of transactions undertaken throughout the course of the relationship, including, where necessary:

― The source of funds, to ensure that the transactions are consistent with the accountable institution’s knowledge of the client and the client’s business and risk profile; and

― The background and purpose of all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent business or lawful purpose; and

― Keeping information obtained for the purpose of establishing and verifying the identities of clients up to-date.

When an accountable institution, subsequent to entering into a single transaction or establishing a business relationship, doubts the veracity or adequacy of previously obtained information which the institution is required to verify, the institution must repeat the steps in accordance with its Risk Management and Compliance Programme and to the extent that is necessary to confirm the information in question.

If an accountable institution is unable to:

Establish and verify the identity of a client or other relevant person;

Obtain the information contemplated in section 21A; or

Conduct ongoing due diligence, the institution:

― May not establish a business relationship or conclude a single transaction with a client;

― May not conclude a transaction in the course of a business relationship, or perform any act to give effect to a single transaction; or

― Must terminate, in accordance with its Risk Management and Compliance Programme, an existing business relationship with a client, as the case may be, and consider making a suspicious transaction report.

If an accountable institution determines that a prospective client with whom it engages to establish a business relationship, or the beneficial owner of that prospective client, is a domestic prominent influential person or a foreign prominent public official and that, in accordance with its Risk Management and Compliance Programme, the prospective business relationship entails higher risk, the institution must:

Obtain senior management approval for establishing the business relationship;

Take reasonable measures to establish the source of wealth and source of funds of the client; and

Conduct enhanced ongoing monitoring of the business relationship.

The above also applies to immediate family members and known close associates of a person in a foreign or domestic prominent position. An immediate family member includes:


The spouse, civil partner or life partner;

The previous spouse, civil partner or life partner, if applicable;

Children and step children and their spouse, civil partner or life partner;

Parents; and

Sibling and step sibling and their spouse, civil partner or life partner.

OBLIGATION TO KEEP CUSTOMER DUE DILIGENCE RECORDSWhen an accountable institution is required to obtain information pertaining to a client or prospective client the institution must keep a record of that information.

The records must:

Include copies of, or references to, information provided to or obtained by the accountable institution to verify a person’s identity; and

In the case of a business relationship:

― The nature of the business relationship;

― The intended purpose of the business relationship; and

― The source of the funds which the prospective client is expected to use in concluding transactions in the course of the business relationship.

OBLIGATION TO KEEP TRANSACTION RECORDSAn accountable institution must keep a record of every transaction, whether the transaction is a single transaction or concluded in the course of a business relationship which that accountable institution has with the client, that are reasonably necessary to enable that transaction to be readily reconstructed.

The records must reflect the following:

The amount involved and the currency in which it was denominated;

The date on which the transaction was concluded;

The parties to the transaction;

The nature of the transaction;

Business correspondence; and

If an accountable institution provides account facilities to its clients, the identifying particulars of all accounts and the account files at the accountable institution that are related to the transaction.

PERIOD FOR WHICH RECORDS MUST BE KEPTAn accountable institution must keep the records which relate to:

The establishment of a business relationship for at least five years from the date on which the business relationship is terminated;

A transaction which is concluded, for at least five years from the date on which that transaction is concluded; and

A transaction or activity which gave rise to a report contemplated in section 29, for at least five years from the date on which the report was submitted to the Centre.


Records may be kept in electronic form and must be capable of being reproduced in a legible format.

NOTIFICATION OF PERSONS AND ENTITIES IDENTIFIED BY SECURITY COUNCIL OF THE UNITED NATIONS

Upon the adoption of a resolution by the Security Council of the United Nations under Chapter VII of the Charter of the United Nations, providing for financial sanctions which entail the identification of persons or entities against whom member states of the United Nations must take the actions specified in the resolution, the Minister must announce the adoption of the resolution by notice in the Gazette and other appropriate means of publication.

PROHIBITIONS RELATING TO PERSONS AND ENTITIES IDENTIFIED BY SECURITY COUNCIL OF THE UNITED NATIONS

No person may, directly or indirectly, in whole or in part, and by any means or method:

Acquire, collect, use, possess or own property;

Provide or make available, or invite a person to provide or make available property;

Provide or make available, or invite a person to provide or make available any financial or other service;

Provide or make available, or invite a person to provide or make available economic support; or

Facilitate the acquisition, collection, use or provision of property, or the provision of any financial or other service, or the provision of economic support, intending that the property, financial or other service or economic support, as the case may be, be used, or while the person knows or ought reasonably to have known or suspected that the property, service or support concerned will be used, directly or indirectly, in whole or in part, for the benefit of, or on behalf of, or at the direction of, or under the control of a person or an entity identified pursuant to a resolution of the Security Council of the United Nations.

No person may, directly or indirectly, in whole or in part, and by any means or method deal with, enter into or facilitate any transaction or perform any other act in connection with property which such person knows or ought reasonably to have known or suspected to have been acquired, collected, used, possessed, owned or provided for the benefit of, or on behalf of, or at the direction of, or under the control of a person or an entity identified pursuant to a resolution of the Security Council of the United Nations.

No person who knows or ought reasonably to have known or suspected that such property is property referred above, may enter into, or become concerned in, an arrangement which in any way has or is likely to have the effect of:

― Making it possible for a person or an entity identified pursuant to a resolution of the Security Council of the United Nations to retain or control the property;

― Converting the property;

― Concealing or disguising the nature, source, location, disposition or movement of the property, the ownership thereof or any interest anyone may have therein;

― Removing the property from a jurisdiction; or

― Transferring the property to a nominee.

PERMITTED FINANCIAL SERVICES AND DEALING WITH PROPERTYThe Minister may, in writing and on the conditions as he or she considers appropriate and in accordance with a resolution of the Security Council of the United Nations, permit a person to conduct financial services or deal with the above property in the circumstances referred to below:

The Minister may permit the provision of financial services or the dealing with property if it is necessary to:


Provide for basic expenses, including, at least foodstuffs, rent or mortgage, medicines or medical treatment, taxes, insurance premiums, public utility charges, maintenance orders, reasonable professional fees, and, reimbursement of expenses associated with the provision of legal services or to satisfy a judgment or arbitral award that was made before the date on which the person or entity was identified by the Security Council of the United Nations.

REPORTING OBLIGATIONS TO ADVISE CENTRE OF CLIENTSIf an authorised representative of the Centre requests an accountable institution, a reporting institution or a person that is required to make a report in terms of section 29 of this Act to advise:

Whether a specified person is or has been a client of the accountable institution, reporting institution or person;

Whether a specified person is acting or has acted on behalf of any client of the accountable institution, reporting institution or person;

Whether a client of the accountable institution, reporting institution or person is acting or has acted for a specified person;

Whether a number specified by the Centre was allocated by the accountable institution, reporting institution or person to a person with whom the accountable institution, reporting institution or person has or has had a business relationship; or

On the type and status of a business relationship with a client of the accountable institution, reporting institution or person, the accountable institution, reporting institution or person must inform the Centre accordingly.

PROPERTY ASSOCIATED WITH TERRORIST AND RELATED ACTIVITIES An accountable institution which has in its possession or under its control property owned or controlled by or on behalf of, or at the direction of:

Any entity which has committed, or attempted to commit, or facilitated the commission of a specified offence as defined in the Protection of Constitutional Democracy against Terrorist and Related Activities Act, 2004;

A specific entity identified in a notice issued by the President, under section 25 of the Protection of Constitutional Democracy against Terrorist and Related Activities Act, 2004; or

A person or an entity identified pursuant to a resolution of the Security Council of the United Nations;

must within the prescribed period report that fact and the prescribed particulars to the Centre.

An accountable institution must upon:

Publication of a proclamation by the President under section 25 of the Protection of Constitutional Democracy against Terrorist and Related Activities Act, 2004; or

Notice being given by the Director under section 26A(3), scrutinise its information concerning clients with whom the accountable institution has business relationships in order to determine whether any such client is a person or entity mentioned in the proclamation by the President or the notice by the Director.

ACCESS TO INFORMATION HELD BY CENTREThe Centre must make information reported to it, or obtained by it, and information generated by its analysis of information so reported or obtained, available to:

An investigating authority in the Republic;

The National Prosecuting Authority;


The Independent Police Investigative Directorate;

An intelligence service;

The Intelligence Division of the National Defence Force;

A Special Investigating Unit;

An investigative division in an organ of state;

The Public Protector; or

The South African Revenue Service;

An entity outside the Republic performing similar functions to those of the Centre, or an investigating authority outside the Republic;

A person who is entitled to receive such information in terms of an order of a court; or

A person who is entitled to receive such information in terms of other national legislation.

RISK MANAGEMENT AND COMPLIANCE PROGRAMSThe customer due diligence measures mentioned above are linked with an accountable institution’s application of a risk-based approach through the institution’s AML and CFT compliance and risk management programme. Accountable institutions must develop, document, maintain and implement a Risk Management and Compliance Programme. The Program must include, among other matters, measures to assess the risks that the products or services that the accountable institution provides may involve money laundering or the financing of terrorism. The Board of Directors, senior management or other person exercising the highest level of authority in that institution must approve the Risk Management and Compliance Programme.

GOVERNANCE OF AML AND CFT COMPLIANCEThe Board of directors or the senior management of an accountable institution is responsible for ensuring compliance with the FIC Act and its Risk Management and Compliance Programme.

The Board of directors of an accountable institution which is a legal person with a board of directors, or the senior management of an accountable institution without a board of directors, must ensure compliance by the accountable institution and its employees with the provisions of this Act and its Risk Management and Compliance Programme.

An accountable institution which is a legal person must:

Have a compliance function to assist the Board of directors or the senior management, as the case may be, of the institution in discharging their obligations; and

Assign a person with sufficient competence and seniority to ensure the effectiveness of the compliance function.

The person or persons exercising the highest level of authority in an accountable institution which is not a legal person must ensure compliance by the employees of the institution with the provisions of this Act and its Risk Management and Compliance Programme, in so far as the functions of those employees relate to the obligations of the institution.

An accountable institution which is not a legal person, except for an accountable institution which is a sole practitioner, must appoint a person or persons with sufficient competence to assist the person or persons exercising the highest level of authority in the accountable institution in discharging their obligations.


TRAINING RELATING TO AML AND CFT COMPLIANCEThere is an obligation on the accountable institution to ensure that its employees are trained to enable them to comply with the FIC Act as well as its Risk Management and Compliance Programme.

An accountable institution must provide ongoing training to its employees to enable them to comply with the provisions of this Act and the Risk Management and Compliance Programme which are applicable to them.

INSPECTIONSThe Constitutional Court, in the matter of Estate Agency Affairs Board v Auction Alliance (Pty) Ltd and Others (CCT 94/13) [2014] ZACC 3; 2014 (3) SA 106 (CC); 2014 (4) BCLR 373 (CC) (27 February 2014), made a ruling declaring parts of section 45B of the FIC Act to be unconstitutional, to the extent that the section allows for inspections without a warrant in certain instances. The declaration of invalidity was suspended for 24 months, to allow Parliament to amend the section. Clause 29 gives effect to the Constitutional Court’s judgment, by amending section 45B to provide for a warrant requirement, and to state in which circumstances a warrant would not be required.

An inspector appointed may enter the premises, excluding a private residence, of an accountable institution or reporting institution which is registered or otherwise licensed or authorised by the supervisory body and inspect the affairs of an accountable institution or reporting institution, for the purposes of determining compliance with this Act or any order, determination or directive made in terms of this Act.

An inspector appointed may, for the purposes of determining compliance with this Act or any order, determination or directive made in terms of this Act, and on the authority of a warrant issued, enter:

A private residence; or

Any premises other than premises contemplated in subsection (1), if the Centre or, when acting in terms of section 45(1), the supervisory body, as the case may be, reasonably believes that the residence or premises are used for a business to which the provisions of this Act apply.

A magistrate or judge may issue a warrant:

On written application by the Centre or a supervisory body setting out under oath or affirmation why it is necessary for an inspector to have access to the premises; and

If it appears to the magistrate or judge from the information under oath or affirmation that:

○ There are reasonable grounds for suspecting that an act of non-compliance has occurred;

○ Entry to the residence or premises is likely to yield information pertaining to the non-compliance; and

○ Entry to the residence or premises is reasonably necessary for the purposes of this Act.

An inspector otherwise required to obtain a warrant may enter any premises without a warrant:

With the consent of the owner or person apparently in physical control of the premises after that owner or person was informed that he or she is under no obligation to admit the inspector in the absence of a warrant; or

If the inspector on reasonable grounds believes that a warrant will be issued if the inspector applied for it; and

The delay in obtaining the warrant is likely to defeat the purpose for which the inspector seeks to enter the premises.

Where an inspector enters premises without a warrant, he or she must do so:

At a reasonable time;

With reasonable notice, where appropriate; and


With strict regard to decency and good order, including to a person’s right to:

― Respect for and the protection of dignity;

― Freedom and security; and

― Personal privacy.

ADMINISTRATIVE SANCTIONSThe following acts performed by/omitted by accountable Institutions will be regarded as non-complaint and will be subject to an administrative sanction:

Performs any act to give effect to a business relationship or single transaction and fails to identify persons;

Fails to comply with the duty to perform additional due diligence measures;

Fails to keep proper records of information in terms of the provision of the Act;

That fails, within the prescribed period, to report to the Centre the prescribed information in respect of a cash transaction;

An accountable institution that fails to:

― Develop, document, maintain and implement an anti-money laundering and counter-terrorist financing Risk Management and Compliance programme;

― Obtain approval for its Risk Management and Compliance Programme;

― Review its Risk Management and Compliance Programme at regular intervals;

― Make the Risk Management and Compliance Programme available to its employees; or

― Make a copy of its Risk Management and Compliance Programme available to the Centre or a supervisory body.

Fails to register with the Centre;

The Board of directors or senior management, or both, of an accountable institution that fails to ensure compliance;

Fails to provide training to its employees;

Fails to comply with a directive of the Centre or a supervisory body;

Failure to report electronic transfers;

Failure to comply with a direction of Centre;

Failure to comply with duty in regard to governance.

OFFENCE PROVISIONS The following will constitute an offence in terms of this Act:

An accountable institution that fails to give assistance to a representative of the Centre;

Any person who is in contravention of prohibitions relating to persons and entities identified by the Security Council of United Nations;

Failure to advise Centre of client;

Failure to report cash transactions;


Failure to report property associated with terrorist and related activities;

Failure to comply with a direction by the Director in accordance with section 28A(2);

An accountable institution that fails to scrutinise the information as contemplated in section 28A(3);

Failure to report electronic transfers;

Failure to comply with a direction of Centre.

JURISDICTIONS WITH STRATEGIC DEFICIENCIES IN THEIR MEASURES AGAINST MONEY LAUNDERING AND TERROR FINANCING

The FATF has indicated that there are on-going and substantial money laundering and terror financing risks emanating from the Islamic Republic of Iran (Iran) and the Democratic People’s Republic of Korea (DPRK).

The FATF reaffirms its call on members and urges all jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with Iran, including Iranian companies and financial institutions.

The FATF continues to urge jurisdictions to protect against correspondent relationships being used to bypass or evade counter-measures and risk mitigation practices and to take into account ML/FT risks when considering requests by Iranian financial institutions to open branches and subsidiaries in their jurisdiction. Due to the continuing terrorist financing threat emanating from Iran, jurisdictions should consider the steps already taken and possible additional safeguards or strengthen existing ones.

PREVENTION OF ORGANISED CRIME ACT – SCHEDULE 1 AMENDMENTSchedule 1 in POCA shows the list of offences. The Criminal Matters Amendment Act 18 of 2015 is effective from 1 June 2016 and one of the amendments deals with inserting a new offence into Schedule 1 of POCA.

Criminal Matters Amendment Act 18 of 2015.

Definition amendments:

‘‘Basic service’’ means a service, provided by the public or private sector, relating to energy, transport, water, sanitation and communication, the interference with which may prejudice the livelihood, well-being, daily operations or economic activity of the public;

‘‘Essential infrastructure’’ means any installation, structure, facility or system, whether publicly or privately owned, the loss or damage of, or the tampering with, which may interfere with the provision or distribution of a basic service to the public; and

‘‘Tamper’’ includes to alter, cut, disturb, interfere with, interrupt, manipulate, obstruct, remove or uproot by any means, method or device, and ‘‘tampering’’ shall be construed accordingly.

Offence relating to essential infrastructure

Any person who unlawfully and intentionally:

Tampers with, damages or destroys essential infrastructure; or

Colludes with or assists another person in the commission, performance or carrying out of an activity referred to above;

and who knows or ought reasonably to have known or suspected that it is essential infrastructure, is guilty of an offence and liable on conviction to a period of imprisonment not exceeding 30 years or, in the case of a corporate body as contemplated in section 332(2) of the Criminal Procedure Act, 1977, a fine not exceeding R100 million.

A person ought reasonably to have known or suspected a fact if the conclusions that he or she ought to have reached are those which would have been reached by a reasonably diligent and vigilant person having both:


The general knowledge, skill, training and experience that may reasonably be expected of a person in his or her position; and

The general knowledge, skill, training and experience that he or she in fact has.

STATISTICSThe number of accountable and reporting institutions registered with the FIC increased from 26 316 to 30 461 in the 12 months ending 31 March 2015. Nearly 7 million reports (2013/14: about 6.5 million) were submitted to the FIC over the same period. These included R 6.7 million cash threshold reports (CTRs) on cash transactions of R25 000 or more and 267 398 suspicious transaction reports (STRs).

Financial intelligence provided by the FIC supported the preservation, forfeiture or confiscation of assets to the value of about R2.3 billion during 2014/15 (2013/14: R412 million).


Together, supervisory bodies and the FIC conducted 740 inspections.

The FIC toughened its stance on enforcement. For the first time, the FIC issued financial sanctions within the sectors it supervises directly, mainly motor vehicle dealers.

Supervisory bodies, in consultation with the FIC, issued almost R140 million in financial sanctions and imposed other administrative sanctions on banks and bookmakers.

In 2014/15, 740 FIC Act inspections were conducted. Of these, 130 were conducted by the FIC for the entities it supervises. The FIC issued inspection reports to all the entities concerned, 44 of which related to follow-up inspections. The FIC also provided support to 59 inspections conducted by supervisory bodies.


INVESTIGATION REQUEST PER CRIME CATEGORY


REGISTERED INSTITUTIONS


THE NATIONAL CREDIT ACT NO 34 OF 2005 Amended by National Credit Amendment Act 2014 on 13 March 2015.

OVERVIEW OF THE ACTChapter 1 – Interpretation, Purpose and Application

Chapter 2 – Consumer Credit Institutions

Chapter 3 – Consumer Credit Industry Regulation

Chapter 4 – Consumer Credit Policy

Chapter 5 – Consumer Credit Agreements

Chapter 6 – Collection, repayment, surrender and debt enforcement

Chapter 7 – Dispute settlement other than debt enforcement

Chapter 8 – Enforcement of Act

Chapter 9 – General provisions

Schedule 1 – Rules concerning conflicting legislation

Schedule 2 – Amendment of Laws

Schedule 3 – Transitional Provisions

INTERPRETATION, PURPOSE AND APPLICATIONDEFINITIONS

Consumer

The party to whom goods or services are sold under a discount transaction, incidental credit agreement or instalment agreement;

The party to whom money is paid, or credit granted, under a pawn transaction;

The party to whom credit is granted under a credit facility;

The mortgagor under a mortgage agreement;

The borrower under a secured loan;

The lessee under a lease;

The guarantor under a credit guarantee; or

The party to whom or at whose direction money is advanced or credit granted under any other credit agreement.

Credit provider

The party who supplies goods or services under a discount transaction, incidental credit agreement or instalment agreement;

The party who advances money or credit under a pawn transaction;

The party who extends credit under a credit facility;

The mortgagee under a mortgage agreement;


The lender under a secured loan;

The lessor under a lease;

The party to whom an assurance or promise is made under a credit guarantee;

The party who advances money or credit to another under any other credit agreement; or

Any other person who acquires the rights of a credit provider under a credit agreement.

Discount transaction

An agreement, irrespective of its form, in terms of which:

― Goods or services are to be provided to a consumer over a period of time; and

― More than one price is quoted for the goods or service, the lower price being applicable if the account is paid on or before a determined date, and a higher price or prices being applicable if the price is paid after that date, or is paid periodically during the period.

Educational loan

A student loan;

A school loan; or

Another credit agreement entered into by a consumer for purposes related to the consumer’s adult education, training or skill’s development.

Incidental credit agreements

Incidental credit agreement means an agreement, irrespective of its form, in terms of which an account was tendered for goods or services that have been provided to the consumer, or goods or services that are to be provided to a consumer over a period of time and either or both of the following conditions apply:

A fee, charge or interest became payable when payment of an amount charged in terms of that account was not made on or before a determined period or date; or

Two prices were quoted for settlement of the account, the lower price being applicable if the account is paid on or before a determined date, and the higher price being applicable due to the account not having been paid by that date.

Installment agreement

Installment agreement means a sale of movable property in terms of which:

All or part of the price is deferred and is to be paid by periodic payments;

Possession and use of the property is transferred to the consumer;

Ownership of the property either:

― Passes to the consumer only when the agreement is fully complied with; or

― Passes to the consumer immediately subject to a right of the credit provider to re-possess the property if the consumer fails to satisfy all of the consumer’s financial obligations under the agreement.

Interest, fees or other charges are payable to the credit provider in respect of the agreement, or the amount that has been deferred.


Lease

Temporary possession of any movable property is delivered to or at the direction of the consumer, or the right to use any such property is granted to or at the direction of the consumer;

Payment for the possession or use of that property is:

― Made on an agreed or determined periodic basis during the life of the agreement; or

― Deferred in whole or in part for any period during the life of the agreement.

Interest, fees or other charges are payable to the credit provider in respect of the agreement, or the amount that has been deferred; and

At the end of the term of the agreement, ownership of that property either:

― Passes to the consumer absolutely; or

― Passes to the consumer upon satisfaction of specific conditions set out in the agreement.

Large credit agreement

A credit agreement which is greater than R 250 000; or

A mortgage.

Intermediate agreement

A credit agreement of between R 15 001 and R 250 000;

Except a pawn transaction and a mortgage.

Small agreement

Any pawn transaction;

A credit agreement of up to R 15 000, excluding a mortgage.

Payment distribution agent

A person who on behalf of a consumer, that has applied for debt review, distributes payments to credit providers in terms of a debt rearrangement, court order, order of the Tribunal or an agreement.

APPLICATION OF THE ACT

This Act applies to every credit agreement between parties dealing at arm’s length and made within, or having an effect within, the Republic, except a credit agreement in terms of which the consumer is:

A juristic person whose asset value or annual turnover, together with the combined asset value or annual turnover of all related juristic persons, at the time the agreement is made, equals or exceeds R 1 000 000;

The State; or

An organ of State;

A large agreement in terms of which the consumer is a juristic person whose asset value or annual turnover is, at the time the agreement is made, below R 1 000 000;

A credit agreement in terms of which the credit provider is the Reserve Bank of South Africa; or

A credit agreement in respect of which the credit provider is located outside the Republic.


The asset value or annual turnover of a juristic person at the time a credit agreement is made, is the value stated as such by that juristic person at the time it applies for or enters into that agreement.

In any of the following arrangements, the parties are not dealing at arm’s length:

A shareholder loan or other credit agreement between a juristic person, as consumer, and a person who has a controlling interest in that juristic person, as credit provider;

A loan to a shareholder or other credit agreement between a juristic person, as credit provider, and a person who has a controlling interest in that juristic person, as consumer;

A credit agreement between natural persons who are in a familial relationship and:

― Are co-dependent on each other; or

― One is dependent upon the other.

Any other arrangement in which each party is not independent of the other and consequently does not necessarily strive to obtain the utmost possible advantage out of the transaction; or

That is of a type that has been held in law to be between parties who are not dealing at arm’s length;

A juristic person is related to another juristic person if:

― One of them has direct or indirect control over the whole or part of the business of the other; or

― A person has direct or indirect control over both of them.

The Act has limited application to so-called ‘incidental’ credit agreements. These are defined as goods or services provided to the consumer whereby interest becomes payable only when payment is not made on or before a predetermined period. The providers of such types of credit do not have to register in terms of the Act. An incidental credit agreement is distinguished from a trade account. A trade account is one where a credit limit is set for a customer. This is not the same thing as a credit facility. Provided interest is not charged on any overdue amount, the agreement to provide credit does not fall within the ambit of the Act.

CONSUMER CREDIT INDUSTRY REGULATIONREGISTRATION REQUIREMENTS

A person must apply to be registered as a credit provider when the total principal debt owed to that credit provider under all outstanding credit agreements, other than incidental credit agreements, exceeds the threshold prescribed by the Minister, by notice in the Gazette.

A person who is required to be registered as a credit provider, but who is not so registered, must not offer, make available or extend credit, enter into a credit agreement or agree to do any of those things.

A credit agreement entered into by a credit provider who is required to be registered but who is not so registered is an unlawful agreement and void.

On 11 May 2016, the Department of Trade and Industry announced in Government Gazette 39981 that the new credit provider registration threshold will be Nil (R0).

The essence of the newly set threshold is that any person who grants credit within the ambit of the National Credit Act (NCA), irrespective of the principal debt, must apply to be a registered credit provider with the National Credit Regulator (NCR) before giving a loan or granting credit.

Section 40(1) requires a person to apply to be registered as a credit provider if the total principal debt owed to that credit provider under all outstanding credit agreements, other than incidental credit agreements, exceeds the threshold prescribed in terms of section 42(1). The previous threshold set out in section 42(1) was R500 000, but this has now been significantly reduced to zero.


The NCA does not apply to consumers that are juristic persons (together with all its related juristic persons) with an asset value or annual turnover of at least R1 million or where the juristic person concludes a large credit agreement with a principal debt of at least R250 000.

The effect of this new threshold means that:

Any person providing more than one loan bearing interest at commercial rates must register as a credit provider with the NCR;

The person must follow the registration process set out in the NCA which includes providing the NCR with its CIPC documents, auditor details, details of the total value (principal debt) of all credit agreements entered into during the most recent financial year, and signed resolutions and criminal name clearance certificates for all directors. They must also pay an application fee of R550, an initial registration fee, branch fee of R250 and annual renewal fee, as the case may be to the NCR. Unless the two loans are more than R800 plus your costs of registration, you could be considerably out of pocket;

The NCR may impose penalty fees on a credit provider if it fails to pay its annual renewal fees within 30 days of the due date;

Possible administrative fines may be handed down by the National Consumer Tribunal for a failure to register as a credit provider.

The court may declare the credit provider’s credit agreements void from the date the credit agreements were concluded, which will have the unfortunate consequence that the credit provider may only be able to recover the capital amount granted to the consumer, but not any interest or other fees charged to the consumer under those credit agreements.

Section 42(2) of the NCA states that the threshold takes effect six months after the date on which it is published in the Gazette. This means that the new threshold will take effect on 11 November 2016.

If a credit provider is required to register for the first time as a result of the new threshold, the credit provider must apply for registration before 11 November 2016 and may continue to grant credit until the NCR makes a decision in relation to the application. Credit providers must therefore act swiftly and prepare and submit their applications with supporting documents to the NCR before the due date to avoid the dire consequences set out above.

Registered credit providers will now include anyone who lends or grants credit for any amount to two or more people (even friends) if interest or costs are charged at a commercial rate. The net seems to have been cast too wide.

REGISTRATION AND RENEWAL FEES

In terms of the Act and your conditions of registration, you are required to pay a registration renewal fee on or before the anniversary of your registration date.

Should you fail to make payments of the registration renewal fees on the anniversary date, you will have a further thirty (30) days grace period subject to a penalty fee.

Failure to make a payment within the grace period, the National Credit Regulator (“the NCR”) will after the expiry of the thirty (30) days automatically lapse your registration.

Banking detailsFees may be paid by electronic transfer or by direct deposit into the following NCR bank account:

Name: National Credit Regulator (name in full), Account No. 200456490, Bank: Standard Bank of South Africa, Branch: Parktown, Branch Code: 000355, Reference No. Your registration number (NCRCP…/NCRDC…/NCRCB…)

All proof of payments must be sent to [email protected]

Consequences of non-payment


Registration as a registrant of the NCR will automatically be lapsed and the credit provider will be prohibited from offering or engaging in activities that require registration in terms of the Act and holding themselves out in the public as being authorised to offer any such service.

Subsequent payments after the automatic lapse will not be acceptable, and where applicable will be refunded.

Credit Providers should note that all credit agreements concluded after the lapsing of registration will be considered unlawful and of no force or effect.

Debt Counsellors should note that consumers under their profiles will automatically be transferred by the NCR without any further notice after the lapsing of registration.

To be registered again a new application and all supporting registration documents must be submitted.

NATIONAL RECORD OF REGISTRATIONS

The NCR must establish and maintain a register of all persons who have been registered.

CREDIT BUREAU INFORMATIONConsumer credit information means information concerning:

A person's credit history, including applications for credit, credit agreements to which the person is or has been a party, pattern of payment or default under any such credit agreements, debt re-arrangement, incidence of enforcement actions with respect to any such credit agreement, the circumstances of termination of any such credit agreement, and related matters;

A person's financial history, including the person's past and current income, assets and debts, and other matters within the scope of that person's financial means, prospects and obligations, and related matters;

A person's education, employment, career, professional or business history, including the circumstances of termination of any employment, career, professional or business relationship, and related matters; or

A person's identity, including the person's name, date of birth, identity number, marital status and family relationships, past and current addresses and other contact details, and related matters.

Debt adjustment or judgment record removal

A consumer whose debts have been re-arranged must be issued with a clearance certificate by a debt counsellor within seven days after the consumer has:

― Satisfied all the obligations under every credit agreement that was subject to that debt re- arrangement order or agreement, in accordance with that order or agreement; or

― Demonstrated:

Financial ability to satisfy the future obligations in terms of the re-arrangement order or agreement under:

A mortgage agreement which secures a credit agreement for the purchase or improvement of immovable property; or

Any other long term agreement as may be prescribed;

That there are no arrears on the re-arranged agreements; and

That all obligations under every credit agreement included in the re-arrangement order or agreement have been settled in full.

A debt counsellor must within seven days after the issuance of the clearance certificate file a certified copy of that certificate with the national register and all registered credit bureaus.


If the debt counsellor fails to file a certified copy of a clearance certificate, a consumer may file a certified copy of such certificate with the National Credit Regulator and lodge a complaint against such debt counsellor with the National Credit Regulator.

Upon receiving a copy of a clearance certificate, a credit bureau, or the national credit register, must expunge from its records:

The fact that the consumer was subject to the relevant debt re-arrangement order or agreement;

Any information relating to any default by the consumer that may have:

― Precipitated the debt re-arrangement; or

― Been considered in making the debt re-arrangement order or agreement;

Any record that a particular credit agreement was subject to the relevant debt re- arrangement order or agreement.

Upon receiving a copy of a court order rescinding any judgment, a credit bureau must delete from its records all information relating to that judgment.

Automatic removal of adverse consumer credit information

The credit provider must submit to all registered credit bureaus within seven days after settlement by a consumer of any obligation under any credit agreement, information regarding such settlement where an obligation under such credit agreement was the subject of:

An adverse classification of consumer behaviour;

An adverse classification enforcement action against a consumer;

An adverse listing recorded in the payment profile of the consumer; or

A judgement debt.

The credit bureau must remove any adverse listing within seven days after receipt of such information from the credit provider.

If the credit provider fails to submit information regarding a settlement a consumer may lodge a complaint against such credit provider with the National Credit Regulator.

For the purposes of this section:

Adverse classification of consumer behaviour means classification relating to consumer behaviour and includes a classification such as ‘‘delinquent’’, ‘‘default’’, ‘‘slow paying’’, ‘‘absconded’’, or ‘‘not contactable’’; and

Adverse classification of enforcement action means classification relating to enforcement action taken by the credit provider, including a classification such as ‘‘handed over for collection or recovery’’, ‘‘legal action’’, or ‘‘write-off’’.

Accessing and challenging credit information

Every person has a right to:

Be advised by a credit provider within the prescribed time before any prescribed adverse information concerning the person is reported by it to a credit bureau, and to receive a copy of that information upon request;

Inspect any credit bureau, or national credit register, file or information concerning that person without charge:

― As of right once within any period of twelve months;


― If so ordered by a court or the Tribunal; and

― Once within a reasonable period after successfully challenging any information in terms of this section, for the purpose of verifying whether that information has been corrected;

At any other time, upon payment of the inspection fee of the credit bureau or national credit register;

Be compensated by any person who reported incorrect information to a registered credit bureau or to the National Credit Register for the cost of correcting that information.

If a person has challenged the accuracy of information proposed to be reported to a credit bureau or to the national credit register, or held by a credit bureau or the national credit register, the credit provider, credit bureau or national credit register, as the case may be, must take reasonable steps to seek evidence in support of the challenged information, and within the prescribed time after the filing of the challenge must:

Provide a copy of any such credible evidence to the person who filed the challenge; or

Remove the information, and all record of it, from its files, if it is unable to find credible evidence in support of the information.

Within 20 business days after receiving a copy of evidence, the person who challenged the information held by a credit provider, credit bureau or national credit register may apply in the prescribed manner and form to the National Credit Regulator to investigate the disputed information.

A credit bureau or the National Credit Register may not report information that is challenged until the challenge has been resolved.

RECKLESS CREDIT AND OVER-INDEBTEDNESS

A consumer is over-indebted when, according to available information, the consumer will be unable to satisfy in a timely manner all the agreements to which the consumer is a party.

Credit is reckless when:

No assessment was made of the consumer’s ability to pay;

The consumer did not understand his/her obligations;

The specific agreement caused the consumer to become over-indebted.

The Act requires credit providers to do an assessment before entering into any credit agreement. The consumer must disclose information fully and truthfully at the time the agreement is made.

The Court or Tribunal may declare that the credit agreement is reckless.

If a Court or Tribunal declares that a credit agreement is reckless the court or Tribunal may make an order:

Setting aside all or part of the consumer's rights and obligations under that agreement, as the court determines just and reasonable in the circumstances; or

Suspending the force and effect of that credit agreement.

The Court or Tribunal,

Must further consider whether the consumer is over-indebted at the time of those proceedings; and

If the court or Tribunal concludes that the consumer is over-indebted, the said court or Tribunal may make an order:

― Suspending the force and effect of that credit agreement until a date determined by the Court when making the order of suspension; and


― Restructuring the consumer's obligations under any other credit agreements.

Effect of suspension

During the period that the force and effect of a credit agreement is suspended the consumer is not required to make any payment required under the agreement, no interest, fee or other charge under the agreement may be charged to the consumer, and the credit provider's rights under the agreement, or under any law in respect of that agreement, are unenforceable, despite any law to the contrary.

After a suspension of the force and effect of a credit agreement ends, no amount may be charged to the consumer by the credit provider with respect to any interest, fee or other charge that were unable to be charged during the suspension.

It is a complete defence to an allegation that a credit agreement is reckless if:

The credit provider establishes that the consumer failed to fully and truthfully answer any requests for information made by the credit provider as part of the assessment required by this section; and

A court or the Tribunal determines that the consumer’s failure to do so materially affected the ability of the credit provider to make a proper assessment.

DEBT REVIEW APPLICATION

A consumer may apply to a debt counsellor in the prescribed manner and form to have the consumer declared over-indebted.

An application may not be made in respect of, and does not apply to, a particular credit agreement if, at the time of that application, the credit provider under that credit agreement has proceeded to take the steps to enforce that agreement.

A debt counsellor:

May require the consumer to pay an application fee, not exceeding the prescribed amount, before accepting an application; and

May not require or accept a fee from a credit provider in respect of an application.

On receipt of an application a debt counsellor must:

― Provide the consumer with proof of receipt of the application;

― Notify all credit providers that are listed in the application and every registered credit bureau.

A consumer who applies to a debt counsellor, and each credit provider, must:

Comply with any reasonable requests by the debt counsellor to facilitate the evaluation of the consumer's state of indebtedness and the prospects for responsible debt rearrangement; and

Participate in good faith in the review and in any negotiations designed to result in responsible debt rearrangement.

A debt counsellor who has accepted an application must determine:

Whether the consumer appears to be over-indebted; and

If the consumer seeks a declaration of reckless credit, whether any of the consumer’s credit agreements appear to be reckless.

If, as a result of an assessment conducted a debt counsellor reasonably concludes that:

The consumer is not over-indebted, the debt counsellor must reject the application, even if the debt counsellor has concluded that a particular credit agreement was reckless at the time it was entered into;


The consumer is not over-indebted, but is nevertheless experiencing, or likely to experience, difficulty satisfying all the consumer's obligations under credit agreements in a timely manner, the debt counsellor may recommend that the consumer and the respective credit providers voluntarily consider and agree on a plan of debt re-arrangement; or

If the consumer is over-indebted, the debt counsellor may issue a proposal recommending that the Magistrate's Court make either or both of the following orders:

― That one or more of the consumer's credit agreements be declared to be reckless credit, if the debt counsellor has concluded that those agreements appear to be reckless; and

― That one or more of the consumer's obligations be re-arranged by:

Extending the period of the agreement and reducing the amount of each payment due accordingly;

Postponing during a specified period the dates on which payments are due under the agreement;

Extending the period of the agreement and postponing during a specified period the dates on which payments are due under the agreement; or

Recalculating the consumer's obligations.

If a debt counsellor makes a recommendation and:

― The consumer and each credit provider concerned accept that proposal, the debt counsellor must record the proposal in the form of an order, and if it is consented to by the consumer and each credit provider concerned, file it as a consent order.

― The debt counsellor must refer the matter to the Magistrate's Court with the recommendation.

If a debt counsellor rejects an application, the consumer, with leave of the Magistrate's Court, may apply directly to the Magistrate’s Court for an order.

If a consumer is in default under a credit agreement that is being reviewed, the credit provider in respect of that credit agreement may, at any time at least 60 business days after the date on which the consumer applied for the debt review, give notice to terminate the review in the prescribed manner to:

The consumer;

The debt counsellor; and

The National Credit Regulator.

No credit provider may terminate an application for debt review lodged if application for review has already been filed in court or in the Tribunal.

If a credit provider who has given notice to terminate a review proceeds to enforce that agreement in the court hearing the matter may order that the debt review resume on any conditions the court considers to be just in the circumstances.

Effect of debt review or re-arrangement

A consumer who has filed an application or who has alleged in court that the consumer is over-indebted, must not incur any further charges under a credit facility, or enter into any further credit agreement, other than a consolidation agreement, with any credit provider until one of the following events has occurred:

The debt counsellor rejects the application and the prescribed time period for direct filing has expired without the consumer having so applied;


The court has determined that the consumer is not over-indebted, or has rejected a debt counsellor's proposal or the consumer's application; or

A court having made an order or the consumer and credit providers having made an agreement re-arranging the consumer’s obligations, all the consumer's obligations under the credit agreements as re-arranged are fulfilled, unless the consumer fulfilled the obligations by way of a consolidation agreement.

A credit provider who receives notice of court proceedings may not exercise or enforce by litigation or other judicial process any right or security under that credit agreement until the consumer is in default under the credit agreement.

CONSUMER CREDIT AGREEMENTSUNLAWFUL AGREEMENTS The Act declares the following credit agreements as unlawful:

Agreements where the consumer is a minor and was not assisted by a guardian at the time the agreement was signed by the consumer. If the consumer misleads the credit provider into believing that he/she is no longer a minor then the agreement will be enforceable;

Agreements entered into with a consumer who has been declared mentally unfit;

Agreements entered into with a consumer who is subject to an administration order where the administrator did not consent to the agreement being entered into;

Agreements which are a result of negative option marketing;

Agreements where the credit provider is not registered with the NCR, despite being legally required to do so. A registered credit provider is required to display a registration certificate as well as a decal issued by the NCR;

If a credit agreement is unlawful a court must make a just and equitable order including but not limited to an order that the credit agreement is void as from the date the agreement was entered into.

The Constitutional Court has confirmed that section 89(5)(c) is constitutionally invalid as the provision: (i) Is a punitive measure to protect consumers against unregistered credit providers which compels a court to declare the agreement void and order that the unregistered credit provider’s right to claim restitution based on unjustified enrichment of the consumer, be cancelled or forfeited to the state, with no discretion to a court to keep the restitution claim intact; (ii) Results in arbitrary deprivation of property in breach of the right to property, with the reason provided for this deprivation not sufficient and the means used to achieve the purpose of the provision disproportionate; and (iii) Did not result in a deprivation that was a reasonable and justifiable limitation of the right, as there are less restrictive means to achieve the purpose of the provision.

UNLAWFUL PROVISIONS

The Act does not allow certain provisions/clauses to be included in credit agreements. The prohibition of these terms and conditions serves to protect the consumer against certain practices by credit providers. Among the provisions/clauses that are prohibited are:

Provisions/clauses which mislead the consumer or subject the consumer to potential fraud;

Provisions/clauses which determine that the consumer has waived certain of his/her rights that may apply to credit agreements. The rights that cannot be waived include a consumer's right to have their debt restructured, the right to have repossessed goods sold at a fair, market-related price, and the right to dispute any debits that pass through a consumer's account;


Provisions/clauses which require the consumer to acknowledge that he/she has received goods or any information from the credit provider, before the goods or information have actually been received by the consumer;

Provisions/clauses which require the consumer to agree to forfeit monies paid to the credit provider in the event of the consumer terminating the agreement;

Provisions/clauses which require the consumer to leave items such as identity document, bank cards or PIN numbers of bank cards with the credit provider;

Provisions/clauses that authorise the credit provider to set-off a consumer's debt against an asset or account of the consumer held by the credit provider, except where the consumer has given the credit provider specific instructions specifying which assets may be set-off against which credit agreement.

A consumer cannot be sued or forced to comply with a provision in a credit agreement which is found to be unlawful. Unlawful provisions affect credit agreements in two ways:

An unlawful provision may cause the entire credit agreement to be unlawful and the consumer cannot be forced to pay the credit provider under that agreement, or

An unlawful provision can be amended by the court or deleted to ensure the agreement remains lawful in which case the consumer will still be bound by the credit agreement and the amended provision.

PRE-AGREEMENT STATEMENTS AND QUOTES The NCA requires that a consumer must be given a pre-agreement statement and a quotation before entering into a credit agreement with a credit provider. A pre-agreement statement is a document which details the terms and conditions of the credit agreement that the credit provider intends entering into with the consumer. In addition, the consumer must be given a quotation disclosing the costs of the credit required.

This quotation must include the principal debt, the interest rate, the total amount payable under the agreement, the instalments and all fees, charges and interest. The pre-agreement statement and the quotation can either be written in one document or in separate documents. The quotation that the consumer receives is valid for five business days. If the credit provider enters into the credit agreement with the consumer within these five days, he/she is obliged to do so at the same rate or costs as noted in the quotation.

COST OF CREDIT

Interest and initiation fees

The NCA regulates interest rates and initiation fees by specifying maximum rates and fees that credit providers may charge consumers for various credit agreements.

Despite any provision of the common law or a credit agreement to the contrary that accrue during the time that a consumer is in default under the credit agreement may not, in aggregate, exceed the unpaid balance of the principal debt under that credit agreement as at the time that the default occurs.

The amounts are initiation fees, service fees, interest, costs of insurance, default administration charges and collection costs.

The consumer cannot waive his or her right to this protection at any time by agreement with the credit provider or debt collector.

The legal position under the common law in duplum rule is that unpaid arrear interest ceases to run when it reaches the unpaid capital amount. When due to payment, unpaid interest drops below the outstanding capital amount, interest again begins to run until it once again equals the amount of the outstanding capital amount.

The position in terms of section 103(5) as outlined by the Supreme Court of Appeal in Nedbank Ltd and others v National Credit Regulator and Another (2011) 3 SA 581 (SCA) is that once the total charges equal the amount of the


unpaid balance of the principal debt, no further charges may be levied and payments made by a consumer thereafter during the period of default do not have the effect of permitting the credit provider to charge further charges while such default persists. It therefore means that after the charges had reached the balance of the unpaid principal debt, the credit provider or debt collector should not levy further charges. Where the consumer had made payments while in default, charges will not accrue again until they reach the balance of the unpaid principal debt and the credit provider and debt collector can no longer charge these amounts in these circumstances.

Collection costs are amounts that may be charged by a credit provider in respect of the enforcement of the consumer's monetary obligations under the credit agreement. The fees charged by and payable to attorneys, advocates, and debt collectors are incurred by the credit providers when collecting the debt and accordingly form part of collection costs. These fees are therefore covered by section 103(5) as collection costs and should be included as part of the calculation of the total charges.

The operation of section 103(5) is not affected by the commencement of legal proceedings by the credit provider or debt collector against the consumer. If during the course of the legal proceedings, the charges accrue to equal the balance of the unpaid principal debt, section 103(5) will prevent these charges from exceeding the balance of the unpaid principal debt. The credit provider or debt collector should not levy further charges anymore once the charges have accrued to equal the balance of the unpaid principal debt. This principle also applies to applications to the court or National Consumer Tribunal to restructure the repayment obligations of consumers.

After judgment has been granted, interest at the rate granted by the court will start to run afresh on the judgment debt. If the consumer defaults on the judgment debt, the unpaid arrear interest stops running once it equals the unpaid balance of the capital amount of the judgment debt. This principle also applies to debt review orders granted by the court or the National Consumer Tribunal.

Section 103(5) applies to credit facilities only in respect of the amount of the credit facility that has been utilised by the consumer. The amount utilised by the consumer serves as the principal debt for the purposes charges that accrue during the time that the consumer is in default should not exceed the balance of the unpaid utilised amount. For example, if a credit provider grants the consumer an overdraft of R 100 000 and the consumer only utilises R 20 000 and subsequently defaults, the charges that accrue while the consumer is in default should not exceed R 20 000.

Service Fees

A service fee is a fee that a credit provider charges a consumer for servicing a credit agreement between them. The fee is for administering or maintaining the credit agreement. The credit provider can charge this fee on a monthly or annual basis. It can also be charged per transaction. The NCA regulates service fees in a number of ways including by specifying the maximum fees that credit providers are allowed to charge and how often the fees can be recovered.

If the credit agreement is settled sooner than originally agreed by the consumer, and within the year to which the annual service fee relates, the credit provider must refund the unused portion of the service fee to the consumer.

Credit insurance

The NCA also regulates credit insurance. This is insurance which can be required by a credit provider when a consumer takes up a specific product such as a home loan or credit card. The insurance would then cover the debt due to the credit provider in certain cases such as the death of the consumer.

The NCA stipulates that the insurance cover taken by the consumer may not exceed the outstanding obligation to the credit provider and the cover must reduce as the outstanding balance due to the credit provider reduces. In the case of a home loan, the insurance may not exceed the value of the property.

In certain instances, a consumer may be offered “optional” insurance which will be to the benefit of the consumer. For example, in the case of vehicle financing, it might be in the consumer's best interest to ensure that the full market value of the vehicle is covered and not only the balance due to the credit provider, failing which in the case of the vehicle being written off, only the outstanding balance to the credit provider will be covered and the consumer will receive nothing for the value of the vehicle.


The Act provides that the consumer may not be forced to take the insurance offered by the credit provider and can in fact select to replace the insurance offered by the credit provider with a policy of the consumer's choice. When the consumer chooses to use his/her own insurance, the credit provider can request that the premiums are paid by the credit provider to the insurance company and that the consumer is billed monthly.

All insurance premiums payable to the credit provider must be by way of monthly premiums except in the case of a large agreement where an annual premium may be recovered. The annual premium has to be recovered at the beginning of the twelve-month period that the agreement will be in place. In the event that the large agreement is settled early, the consumer must be refunded premiums equal to the number of the remaining months.

Default administration charges

This is a charge that a credit provider may charge a consumer who is in arrears with repayments on his/her credit agreement. These charges relate to costs that the credit provider has incurred in attempting to advise the consumer that he/she is in arrears with his/her account. These costs are limited to a letter sent by the credit provider to the consumer, informing him/her that he/she is in default in terms of the agreement. These default administration charges do not include any telephone calls made to the consumer. The Act specifies that a credit provider may not charge a consumer more than the cost actually incurred by the credit provider. The Act specifies that the charge for the letter must be equal to the tariff allowed by the court, plus the actual costs incurred for sending the registered letter.

Collection costs

Collection costs are costs that the credit provider incurs when attempting to collect an outstanding, overdue debt from the consumer. The Act specifies that a credit provider is not allowed to charge a consumer collection costs which are more than the court tariff allows.

On 6 May 2016, the Limitations on Fees and Interest Rates Regulations (Final Regulations) in terms of the National Credit Act, 2005 (NCA) will come into effect. The Final Regulations effectively amend interest rates and fees, which credit providers can levy on, inter alia, consumers’ home loans, credit cards, store cards and unsecured credit transactions.

The maximum interest rates based on the current repo rate which may be levied by credit providers in respect of:

Home loans will be 18.75% per year;

Credit cards and store cards will be 21.48% per year; and

Unsecured credit transactions will be 26.48% per year.

The maximum initiation fees which credit providers may levy on in respect of:

Home loans will be R 5 250;

Credit cards and store cards will be R 1050; and

Unsecured credit transactions, short term credit transactions and other credit agreements will be R 1050.

Lastly, the maximum monthly service fee will be increased from R 50 to R 60.

APPLICATION OF PRESCRIPTION ON DEBT

No person may sell a debt, continue the collection of, or re-activate a debt under a credit agreement to which this Act applies and that has been extinguished by prescription or where the consumer raises the defence of prescription, or would reasonably have raised the defence of prescription had the consumer been aware of such a defence, in response to a demand, whether as part of legal proceedings or otherwise.

It is now unlawful for a credit provider to attempt to collect a debt that has prescribed or to sell debt that has prescribed. A debt prescribes or lapses if a creditor does not start civil proceedings in a court to recover the debt within three years of the last payment.


Before the Act was changed, prescription was interrupted if a debtor acknowledged the old debt or made payment towards it, but it is now unlawful for a credit provider to even try to recover debt that has prescribed.

REQUIRED PROCEDURES BEFORE DEBT ENFORCEMENT

If the consumer is in default under a credit agreement, the credit provider:

May draw the default to the notice of the consumer in writing and propose that the consumer refer the credit agreement to a debt counsellor, alternative dispute resolution agent, consumer court or ombud with jurisdiction, with the intent that the parties resolve any dispute under the agreement or develop and agree on a plan to bring the payments under the agreement up to date; and

May not commence any legal proceedings to enforce the agreement before first providing notice to the consumer.

A consumer may at any time before the credit provider has cancelled the agreement, remedy a default in such credit agreement by paying to the credit provider all amounts that are overdue, together with the credit provider’s prescribed default administration charges and reasonable costs of enforcing the agreement up to the time the default was remedied.

The notice must be delivered to the consumer:

By registered mail; or

To an adult person at the location designated by the consumer.

Proof of delivery is satisfied by:

Written confirmation by the postal service or its authorised agent, of delivery to the relevant post office or postal agency; or

The signature or identifying mark of the recipient.

A credit provider may approach the court for an order to enforce a credit agreement only if, at that time, the consumer is in default and has been in default under that credit agreement for at least 20 business days and:

At least ten business days have elapsed since the credit provider delivered a notice to the consumer and the consumer has not responded to that notice; or responded to the notice by rejecting the credit provider's proposals; and

In the case of an instalment agreement, secured loan, or lease, the consumer has not surrendered the relevant property to the credit provider.

COLLECTION AND DEBT ENFORCEMENT When a consumer is unable to pay, the credit provider will take steps to collect monies that are due to him/her. This is called debt enforcement. The Act prohibits certain practices that credit providers may use to collect overdue monies from consumers. A credit provider is not allowed to retain the following documents for purposes of collection and debt enforcement:

An identity document;

A debit or credit card;

An ATM card;

A PIN number.


COMPLIANCE AND REPORTING STATUTORY REPORTING

A credit provider must submit the following to the NCR:

Compliance report;

Statistical returns;

Annual financial and operational returns;

Assurance report;

If requested by the NCR, any analysis of any item contained in the forms prescribed must be furnished to the NCR within 20 business days after such request.

COMPLIANCE REPORT

A credit provider must complete and submit a compliance report to the NCR on an annual basis within six months after the financial year-end of the credit provider.

STATISTICAL RETURNS

A credit provider whose annual disbursements exceed R15 million must complete and submit the statistical return to the NCR in respect of the quarters and by the dates set out below:

Quarter 1 15 May

Quarter 2 15 August

Quarter 3 15 November

Quarter 4 15 February

All other credit providers must complete and submit the statistical return by the 15 th of February each year for the period 1 January to 31 December.

ANNUAL FINANCIAL STATEMENTS A credit provider must submit its annual financial statements including the auditor or accounting officer’s report to the NCR within six months after the provider’s financial year-end.

ANNUAL FINANCIAL AND OPERATIONAL RETURN

A credit provider must submit an annual financial and operational return to the NCR, within six months after the credit provider’s year-end.

RESPONSIBILITY FOR ASSURANCE ENGAGEMENT

A credit provider must require an accounting officer or auditor to conduct an assurance engagement and issue a report to the NCR on the basis of that person’s finding with regard to that engagement.

A credit provider must submit the report to the NCR within six months after the credit provider’s year-end.

AFFORDABILITY ASSESSMENTS (APPLICABLE FROM 13 MARCH 2015)The regulations under the National Credit Amendment Act introduce criteria that credit providers must use henceforth to assess whether or not a consumer can afford the credit for which they apply. Although it has always been mandatory, under the National Credit Act, for credit providers to carry out affordability assessments before extending credit to a consumer, the Act never prescribed how the assessments had to be done.


Credit providers are now compelled to verify a consumer’s income by checking their latest three bank statements and salary slips. From now on, credit providers must also use the “minimum expense norms” table in the regulations to calculate a consumer’s existing financial obligations according to your gross monthly income. This is to stop both consumers and credit providers from understating a consumer’s monthly expenses.

The regulations state that when conducting an affordability assessment, the credit provider “must take into account all monthly debt repayment obligations in terms of credit agreements as reflected on the consumer’s credit profile held by a registered credit bureau”.

The regulations now also make it mandatory for credit providers to submit credit information to the credit bureaus in a manner and form prescribed by the NCR through conditions of registration and any guidelines issued by the regulator.

The NCR will work with the credit industry to stipulate how data is to be supplied to the bureaus. There will be enforcement action against those who fail to submit and update information.

To prevent reckless lending, credit providers also need to consider disclosure – not only of the full cost of credit, but also in the way they advertise credit – so that consumers fully understand their obligations before they enter into a credit agreement.

Debt counsellors are bound by the Act to investigate whether an over-indebted consumer is the victim of reckless lending and to report it to the NCR.

In the past only a court can declare a credit agreement reckless. Amendments to the Act now empower the National Consumer Tribunal (NCT) to make findings of reckless lending. The enhancing of the tribunal’s powers to decide on reckless lending should result in swifter action against errant lenders.

Reckless lending is not the only cause of over-indebtedness. The overcharging of interest and fees, including collection costs, also leads to over-indebtedness.

Summary of the regulations relating to affordability assessments

Credit Cost Multiple means the ratio of the total cost of credit to the advanced principal debt, that is, the total cost of credit divided by the advanced principal debt expressed as a number to two decimal places.

Discretionary Income means Gross Income less statutory deductions such as, income tax, unemployment insurance fund, maintenance payments and less Necessary Expenses (at a minimum as defined herein); less all other committed payment obligations as disclosed by a consumer including, such as may appear from the applicant's credit records as held by any Credit Bureau which income is the amount available to fund the proposed credit Instalment.

Necessary Expenses means the consumer's minimum living expenses including maintenance payments if applicable as determined in accordance with Regulation 23A(9) excluding monthly debt repayment obligations in terms of credit agreements as reflected on the prospective consumer's credit profile held by a credit bureau.

These Regulations do not apply to a credit agreement in respect of which the consumer is a juristic person and do not apply to:

A developmental credit agreement;

A school loan or a student loan;

A public interest credit agreement;

A pawn transaction;

An incidental credit agreement;

An emergency loan;


A temporary increase in the credit limit under a credit facility;

A unilateral credit limit increase in terms of sections 119(1)(c);119(4); and 119(5) of the Act under a credit facility;

A pre-existing credit agreement;

Any change to a credit agreement and/or any deferral or waiver of an amount under an existing credit agreement.

A credit provider must take practicable steps to validate gross income, in relation to:

Consumers t h a t receive a salary from an employer:

― At least three (3) payslips; or

― Latest bank statements showing latest three (3) salary deposits;

Consumers that do not receive a salary by requiring:

― Latest three (3) documented proof of income; or

― Latest three (3) months bank statements;

Consumers that are self-employed, informally employed or employed in a way through which they do not

Receive a payslip or proof of income by requiring:

― Latest three (3) months bank statements; or

― Latest financial s tatements .

Where the consumer's monthly gross income shows material variance, the average gross income over the period of not less than three (3) pay periods preceding the credit application must be utilised.

The consumer must accurately disclose to the credit provider all financial obligations to enable the credit provider to conduct the affordability assessment.

The consumer must provide authentic documentation to the credit provider to enable the credit provider to conduct the affordability assessment.

The credit provider must utilise the minimum expense norms table below, broken down by monthly gross income when calculating the existing financial obligations of consumers.

Minimum Maximum Minimum monthly Fixed Factor

Monthly Fixed Factor = % of Income Above Band minimum

R 0.00 R 800.00 R 0.00 100%

R 800.01 R 6.250.00 R 800.00 6.75%

R 6,250.01 R 25 000.00 R 1167.88 9.00%

R 25.000.01 R 50 000.00 R 2 855.38 8.20%

R 50,000.01 Unlimited R 4 905.38 6.75%


The credit provider may however on an exceptional basis, where justified, accept the consumer's declared minimum expenses which are lower than those set out in the above table provided the questionnaire, as issued from time to time, is completed by the consumer or joint consumers.

When conducting the affordability assessment, the credit provider must:

Calculate the consumer's discretionary income;

Take into account all monthly debt repayment obligations in terms of credit agreements as reflected on the consumer's credit profile held by a registered credit bureau; and

Take into account maintenance obligations and other necessary expenses.

Debt re-payment history as a Consumer under Credit Agreements.

A credit provider must take into account the consumer's debt repayment history as a consumer under credit agreements, and must ensure that this requirement is performed:

Within seven (7) business days immediately prior to the initial approval of credit or the increasing of an existing credit limit; and

Within fourteen (14) business days with regards to mortgages.

A credit provider must:

Disclose to the consumer the credit cost multiple and total cost of credit in the pre-agreement statement and quotation;

Ensure that the credit cost multiple disclosures for credit facilities is based on one year of full utilisation up to the credit limit proposed;

Ensure that the attention of the prospective consumer is drawn to the credit cost multiple;

Ensure that the cost of credit is understood by the prospective consumer;

Disclose a total cost of credit which includes but not limited to, the following items:

― The principal debt;

― Interest;

― Initiation fee, if any;

― Service fee aggregated to the life of a loan; and

― Credit insurance aggregated to the life of a loan.

A consumer who is aggrieved by the outcome of affordability assessment may at any time lodge a with the credit provider for dispute resolution. The credit provider must attempt to resolve the complaint within fourteen (14) business days after receiving notification of the complaint from the Ombud. If the grievance is not addressed by the credit provider within the required period, the consumer can approach the National Credit Regulator. The National Credit Regulator must resolve the complaint within seven (7) business days.

SUBMITTING INFORMATION BY A CREDIT PROVIDER OR ACCESSING OF INFORMATION HELD BY A CREDIT PROVIDER

No source of information may submit adverse or other information to a credit bureau in respect of a debt that has prescribed.

No source of information shall submit consumer credit information containing adverse information to a credit bureau, unless the required minimum monthly or such other instalment payments have not been paid for a minimum period of at least three (3) consecutive billing cycles.


No source of information shall submit consumer credit information comprising adverse information to a credit bureau without giving the consumer notice.

No source of information shall submit consumer credit information containing adverse information if any arrears owing on an account are settled within the period of the notice or if the consumer has disputed liability for the outstanding amounts.

Upon settlement of the amount in arrears which forms the subject matter of the adverse information, the source of data must in its next data of submission to the credit bureaus, advise such credit bureaus that the arrear amounts have been settled. The credit bureau must update the consumer's credit records within seven (7) days of being notified as such.

Upon the settlement of the capital amount of a judgment debt and administration order, the source of data must advise the credit bureaus that the judgment or order has been settled within the period and the credit bureaus must update the consumer's credit record within seven (7) days of being notified.

A consumer credit record may not be accessed by an employment agency, recruitment consultant, staffing company or employer unless they certify that any and all requests for consumer credit records relate to positions requiring honesty in dealing with cash or finances and the job descriptions of such positions are clearly outlined.


CONSUMER PROTECTION ACT APPLICATION OF THE CONSUMER PROTECTION ACT

A supplier is any person who markets goods and services in the ordinary course of their business.

This includes government and large municipalities, businesses (company, CC, sole proprietors etc.), clubs, trade unions, associations and societies.

It does not apply to private sellers of homes and motor vehicles but may apply to a landlord even if it is not their full time occupation.

One of the central features of the CPA is that it requires suppliers to provide information fully, honestly and in an understandable format in order to enable consumers to make informed choices. So long as the suppliers have done what they are supposed to do, consumers will generally be bound by agreements that they enter into with the suppliers.

CONSUMER GOODS AND SERVICES OMBUD The Office of the Consumer Goods and Services Ombud (CGSO) is the consumer goods and services industry’s compulsory Ombud scheme, set up in line with the Consumer Protection Act.

The CGSO enforces the Consumer Goods and Services Industry Code of Conduct by receiving and dealing with consumer goods complaints by a consumer free of charge and investigating alleged contraventions.

The CGSO is obligated to enforce the Consumer Goods and Services Industry Code of Conduct by:

Receiving and dealing with complaints and disputes by a consumer relating to its Code of Conduct or the Consumer Protection Act free of charge;

Investigating alleged contraventions;

Attempting to facilitate a settlement between parties;

Addressing each complaint in an unbiased manner;

Making recommendations as to how the dispute should be settled.

WHO MUST REGISTER?All Participants and/or entities involved in the Supply Chain that provides, markets and/or offers to supply Goods and Services to Consumers.

‘‘Supply chain’’, with respect to any particular goods or services, means the collectivity of all suppliers who directly or indirectly contribute in turn to the ultimate supply of those goods or services to a consumer, whether as a producer, importer, distributor or retailer of goods, or as a service provider;

The Code applies to all Participants, unless they are regulated elsewhere by other public regulation, a Code prescribed by the Minister in terms of section 82 of the CPA and/or where a complaint falls within the jurisdiction of an Ombud with Jurisdiction, or an Industry Ombud accredited in terms of section 82 (6).

The following entities need not register:

This Code excludes: transactions that are not covered by the CPA and/or that are governed by other public regulation; the automotive industry, Electronic Communication Service as defined in section 1 of the Electronic Communications Act, 2005 (Act No. 36 of 2005) and transactions with organs of state or financial institutions.

It is mandatory for all Participants as listed above to comply with the provisions of this Code, to register with the CGSO in accordance with the procedures provided on the CGSO website from time to time, and contribute towards the funding of the CGSO in accordance with the funding model if they wish to operate in the Industry.


Failure to register is a contravention of section 82(8) of the CPA.

REGISTRATION FEES AND ANNUAL LEVIESParticipants in the Industry shall contribute to the funding of the running of the CGSO by means of the payment of a joining fee and an annual levy and (if necessary) a special levy, as shall be determined from time to time by the Board of the CGSO.

A special levy may be raised when deemed necessary by the Board to provide for un-anticipated expenditure incurred by the CGSO due to the increased caseloads or any other reason acceptable to the Board.

The CGSO may be entitled to take legal action to recover any outstanding fees or levies owed by either a Participant.

FEES PAYABLE BY PARTICIPANT

CGSO Group Turnover Range Annual Fee

Group 1 R3 bil + R 250 000

Group 2 Above R1 bil to R3 bil R 150 000

Group 3 Above R500 mil to R1 bil R 50 000

Group 4 Above R5 mil to R500 mil R 3 000

Group 5 Above R1 mil to R5 mil R 1 500

Group 6 R1 to R1 mil no cost

WHAT IS A COMPLAINT?When a consumer who referred a complaint to the subscriber and is dissatisfied with the manner in which the subscriber is dealing with it, or the outcome.

The consumer may now refer the complaint to the CGSO.

This must be done as soon as reasonably possible and within 36 months of the consumer becoming aware of the event resulting in the complaint.

WHO CAN COMPLAIN?The CGSO may consider a complaint brought by or on behalf of the consumer who is:

A private individual; or a juristic person (company, trust or partnership);

Small business whose asset value or annual turnover is below the threshold amount determined from time to by the Minister. (Presently R 2 million).

WHEN WILL THE CGSO NOT CONSIDER A COMPLAINT?The CGSO may not consider a complaint or dispute that relates to a juristic person as a consumer whose asset value or annual turnover equals or exceeds the threshold amount determined from time to by the (Presently R 2 million).

The CGSO may not consider a complaint or dispute that relates to an act or omission which occurred before the Act came into effect or in any event more than 36 (thirty-six) months prior to the date when the complaint was lodged with the CGSO as such claims have become prescribed by law. The period of 36 (thirty-six) months commences on the date on which the complainant became aware or ought reasonably to have become aware of such occurrence, whichever occurs first.


If a complaint is more than 30 months old and you intend approaching the Tribunal or a court if you are unsuccessful in resolving it through CGSO, you are advised rather to approach the National Consumer Commission directly. The CGSO cannot take responsibility for a claim prescribing while it is dealing with it.

If after a preliminary assessment of the complaint or at any stage during the process that any of the factors referred to below become apparent, the CGSO shall not further consider a complaint or dispute that is in the opinion of the Ombud:

Falls within the jurisdiction of any other statutory Ombud as enabling legislation; or

Is based on the same event and facts as any matter which is, was, or becomes, the subject of any proceedings in any court, tribunal or regulatory body or by a statutory Ombud of any jurisdiction, unless CGSO has considered it appropriate to intervene and is not prohibited from doing so under any law; or

Would more appropriately be dealt with by the police, a court of law, by any regulatory body or through any other dispute resolution process.

CGSO shall not further consider a complaint or dispute that is in the opinion of the Ombud:

Is being pursued in an unreasonable, frivolous, vexatious, offensive, threatening or abusive manner;

Does not allege any facts which, if true, would constitute grounds for a remedy under the Code or Act;

Is lacking in substantive merit;

Has been substantially dealt with by the CGSO;

Is based on the same event and facts as any matter which is, was, or becomes, the subject of any proceedings in any court or other independent dispute resolving body;

Is under consideration by a legal practitioner on behalf of a consumer, whether or not with a view to institute legal proceedings, unless the Ombud determines that the involvement of a legal practitioner is appropriate in the circumstances.

HOW TO LAY A COMPLIANT?If the consumer is dissatisfied with goods / a service received the following process must be followed:

The consumer must, as soon as possible, first refer the matter to the participant (the organisation the complaint is being laid against) by the following means:

― Contacting the supplier’s customer care line/ department directly.

― Calling the CGSO call center (860 000 272) which will capture the complaint and refer it to the participant, or

― Completing and submitting the complaint form.

The complaint must be referred in accordance with the participant’s internal complaints handling process.

Should the consumer go to the CGSO first, the Ombud will refer the consumer back to the participant.

COMPLAINT RESOLUTION BY THE PARTICIPANTIf a Complainant is referred to a Participant by the CGSO, the Participant shall:

Contact the Complainant to clarify any issue, to ascertain the essence of the Complaint and to attempt to settle the Complaint to the reasonable satisfaction of the Complainant;

If able to resolve the Complaint, provide CGSO with reasonable proof that the Complaint has been settled and that any undertaking made by the Participant has been compiled with;


Undertake any investigate that is necessary; the level of investigation should commensurate with the seriousness, frequency of occurrence and severity of the Complaint;

If the Participant is unable to resolve the Complaint referred to it by the CGSO, provide the CGSO with a report outlining the investigation that it undertook and the reasons that the matter was not resolved and its reasons for repudiating the Complaint.

WITHDRAWING OF A COMPLAINT BY THE CONSUMERA complainant may at any time terminate the CGSO’s handling of the complaint and resort to litigation or other dispute resolution process by withdrawing the complaint in writing to the CGSO. Should the complaint wish to approach the National Consumer Commission or Tribunal, CGSO shall inform the complainant of the processes for doing so.

WHAT CAN A CONSUMER COMPLAIN ABOUT?Delivery, Defects and Exchanges

The product has a defect or does not do what it was supposed to do in the first 6 months after you bought it;

The product you ordered was not delivered when agreed/ in a reasonable time;

The product that was delivered less than 10 business days ago and is not what you ordered / it was damaged;

The product was sold past its sell by date and its quality or appearance was not as expected;

A defect in the product caused you some damage/ harm;

A defect in the product caused you some injury/ illness.

Unsatisfactory service

Services include repairs, construction, painting, gardening, dressmaking, hair cutting, the provision of any education, information, advice or consultation, transportation of an individual or any goods; the provision of any accommodation or sustenance; any entertainment or access thereto and the right of access, to an event or to any premises, activity or facility.

You cancel an advance reservation, booking, order or a contract

There may be a cancellation penalty.

Display Price

The price was not displayed on the goods.

The price advertised/ displayed was incorrect.

Stock

The item was advertised but there is no stock.

Shocking, rude or discriminatory treatment

This includes the use of physical force against a consumer, coercion, undue influence, pressure, duress or harassment, unfair tactics etc. at any stage of the interaction or where a supplier takes advantage of a consumer’s inability to protect their own interests owing to physical or mental disability, illiteracy, ignorance, inability to understand the language of an agreement etc; or

Unfairly discriminating on the grounds of the Constitution (race, gender, sex, pregnancy, marital status, ethnic or social origin, colour, sexual orientation, age, disability, religion, conscience, belief, culture, language and birth) or Chapter 2 of the Promotion of Equality and Prevention of Unfair Discrimination Act.


CONSEQUENCES OF FAILURE TO CO-OPERATE WITH THE OMBUDSMANThe Consumer Goods and Services Ombud (CGSO) has named and shamed businesses who failed to follow its recommendations.

The ombudsman’s rulings are not binding and he cannot impose sanctions on businesses but those who refuse to cooperate with the process or follow recommendations may be referred to the National Consumer Commission for action to be taken against them.


PROTECTION OF PERSONAL INFORMATION ACT NO. 4 OF 2013

INTRODUCTIONThe new Protection of Personal Information Act (POPI) was signed into law in November 2013. POPI is legislation similar to the UK’s Data Protection Act and aims to give effect to the constitutional right to privacy as enshrined in section 14 of our Constitution.

POPI has been “signed into law”, therefore meaning that it is an Act (and no longer a Bill that may still change). The majority of provisions are not yet in force. This means that the majority of provisions cannot yet be enforced.

POPI is principled based. POPI prescribes certain principles (similar to “good business practices” but with the intention to compel businesses to implement these practices) that all businesses will need to adhere to.

PURPOSE OF THE ACTPOPI is to promote the protection of personal information:

Processed by public and private bodies;

To introduce information protection principles so as to establish minimum requirements for the processing of personal information;

Establish an Information Protection Regulator;

To provide for the issuing of codes of conduct;

To provide for the rights of persons regarding unsolicited electronic communications and automated decision making;

To regulate the flow of personal information across the borders of the Republic; and

To provide for matters connected therewith.

APPLICATION OF THE ACTThe Act applies to any public or private body or any other person who (alone or in conjunction with others) determines the purpose of, and means for, processing Personal Information (called a "Responsible Party").

The Act regulates the processing of "Personal Information", being information relating to an identifiable, living, individual, and where applicable, an identifiable, existing juristic person such as a company or close corporation (the "Data Subject").

DIFFERENT TYPES OF PERSONAL INFORMATIONPOPI requires that all businesses that “process” “personal information” must comply with the requirements prescribed in the Act. In terms of the Act, “processing” refers to any use of information by an organisation. This could, for example, include any sharing of a record, storing it, destroying it, etc. In essence, whatever form of use of the record, is likely to fall within the umbrella of the term “processing” in terms of the Act.

Another important definition is of course that of “personal Information”. This term refers to any information pertaining to any identifiable person or business, and includes a whole long list of items that should be considered.

The Act differentiates between the following types of PI:

Normal or ordinary personal information for example:

― Identity Document number or registration number (if it’s a business);

― Cell or telephone number;


― E- mail address;

― Physical address.

“Special personal information” for example:

― Religious or philosophical beliefs;

― Race or ethnic origin;

― Trade union membership;

― Political persuasion;

― Health or sex life;

― Criminal behaviour, or

― Biometric information.

“Children’s personal information”:

― This information refers to any information relating to any natural person under the age of 18 years.

THE DIFFERENT ROLE PLAYERSPOPI talks about a “data subject”, a “responsible party” and an “operator”.

The data subject is the one whose PI is being processed for example a candidate or employee; a customer or prospect; a vendor or applying vendor; or any other person whose PI is being processed. Legal entities’ PI is also included within the ambit of POPI, meaning that if you process information relating to an identifiable legal entity, that legal entity would also be a data subject.

The responsible party is the one who decides what to do with the information. An operator is someone who processes the PI on behalf of the responsible party.

Practical examples would include the following:

An employer recruiting employees:

― The employer who receives CVs of candidates is the responsible party.

― The candidate is the data subject.

― A third party service provider that processes the information on behalf of the responsible party, is the operator.

― The operator cannot take those CVs and do with it whatever it wants to.

― It may only process it on behalf of the employer.

A retailer sending marketing material to its customers:

― The retailer will be the responsible party (deciding to process its customers’ details for marketing purposes).

― The customer will be the data subject.

― If the retailer as part of this process makes use of a third party to send the actual sms messages or emails to the customers on behalf of the retailer, the third party would be the operator.

― The third party cannot take the customers’ details and use it for any other purposes.

ACCOUNTABILITYThe responsible party must ensure conditions for lawful processing.


Accountability is essentially the point of departure in that it provides for a general requirement to take the necessary steps to ensure that all other POPI conditions and requirements are met.

Accountability relates to accepting responsibility by taking ownership to ensure that the organisation processes personal information in the manner intended by the Act.

Who is accountable in this regard?

In terms of POPI, this responsibility has been put squarely on the shoulders of the person (natural or juristic) whom the Act refers to as the “Responsible Party”. The Act defines a “Responsible Party” as follows: “a public or private body or any other person which, alone or in conjunction with others, determines the purpose of and means for processing personal information”.

It requires the Responsible Party to ensure that all conditions are complied with from the time the PI is collected up to and including the time of destruction.

An Information Officer should be appointed for the organisation.

It would be best to implement a strategy in terms whereof each department within the business takes responsibility for POPI compliance by that division – being accountable as a business unit.

Organisations will need to implement measures to keep individuals accountable, meaning that there should be consequences for “not doing what you are supposed to be doing”. For example, if a policy exists (consider something like a clean desk policy for example), the business division will need to take responsibility to ensure (and monitor) that the division actually implements the policy.

On-going training will of course also assist with this challenging task to become and remain an organisation that processes personal information in accordance with the POPI principles.

PROCESSING LIMITATIONThis condition hinges on four key requirements: (i) lawfulness of processing; (ii) minimality; (iii) consent, justification and objection; and (iv) collection of PI directly from Data Subjects.

Lawfulness of processing

Personal information must be processed:

Lawfully; and

In a reasonable manner that does not infringe the privacy of the data subject.”

In essence, this requirement comes down to acting in a manner that is “reasonable”. When looking at “lawfulness”, the RP must conduct itself within the confines of the law. In terms of our law, one may not steal. Loosely speaking, this also applies to PI – one cannot “steal” another company’s database and hope not to breach the requirement of lawfulness. It should be obvious that “stealing” a database or information, will be “unlawful”. If one considers POPI as a whole, the responsible party should at all times be able to say that it conducted itself in a manner that would not (reasonably) infringe on the privacy of the DS.

Minimality

The question of how much PI is “more than is necessary” will depend on the purpose for which the PI is processed. The default position is that the RP should only collect and/or process as little PI as is necessary to achieve its business objectives It simply means that if you only need a name and telephone number, don’t ask for address and ID number just because…. POPI says you must only process what you need to!

Consent, justification and objectionIn essence, consent is one of 6 grounds on which a RP can rely to process PI. This means that without consent, a RP can still be seen to process PI lawfully – but only if it can rely on one of the other 5 grounds provided for in this section.


Personal information may only be processed if:

The data subject or a competent person where the data subject is a child consents to the processing;

Processing is necessary to carry out actions for the conclusion or performance of a contract to which the data subject is party;

Processing complies with an obligation imposed by law on the responsible party;

Processing protects a legitimate interest of the data subject;

Processing is necessary for the proper performance of a public law duty by a public body; or

Processing is necessary for pursuing the legitimate interests of the responsible party or of a third party to whom the information is supplied.

Examples when POPI allows processing without consent:

If processing is necessary to fulfil a contractual agreement in which the DS is involved [This refers to a situation where the RP has to process my PI in order to perform in terms of a contract with me];

If processing is in accordance with the law [This refers to a situation where the law requires from the RP to process my PI. It would be irrelevant whether I consented to it or not – the RP has an obligation in law to do certain things with my PI. Reporting my behaviour to authorities (where a law requires from the RP to report certain behaviour) may be an example of this.];

If processing is necessary to protect the legitimate interests of either the RP or third. An example could be the following: I enter into a credit agreement with company X for a credit facility to purchase clothing on credit. I do not honour my agreement and I am in arrears. Company X did not ask for my consent for them to trace me and collect on debt that I owe them. Even though they did not obtain my consent, company X can argue that they can (lawfully) trace me and collect debt from me, because it is in their “legitimate interest” to collect on debt that I owe to them.

In the event of a data subject challenging the RP whether there was consent or not, the RP will bear the burden of proof, to prove consent. This could be very relevant – particularly for marketers.

Can that consent be revoked by the data subject? Yes, POPI provides for a mechanism in terms whereof a data subject can “object” to processing in certain circumstances. This means that even though (for example) a direct marketing consent was obtained when the data subject entered into an agreement with the RP, that data subject may at any time request that marketing to stop – basically “objecting” to the processing for the purpose of marketing.

Collection of PI directly from the data subject Organisations should collect the PI relating to a particular data subject, directly from that data subject. As with many other provisions, again some exceptions will apply, meaning that even though PI was not collected directly from the DS as per the general rule, but it was rather collected from a third party, the RP would still be seen to have collected PI in a lawful manner.

Examples where collection from another source would be lawful:

Where PI was made deliberately public by the data subject [This could mean that if I make my PI publically available to anyone on Facebook, without using any security and privacy settings, I should not have the expectation that no one will collect my PI from Facebook. (note that processing of that PI must still need to comply with POPI, but RPs could collect from this source – rather than from me directly)];


There has been a consent to collection from another party [Where I for example consent that company X may share my information with company Y for marketing purposes, company Y can “lawfully” collect my PI from company X (and not from me directly), because I consented to it];

Where collection from other sources is necessary to protect the legitimate interests of the organisation [Again, one can look at the collections environment: If I owe money to a credit provider that is entitled to collect on the debt, and I have moved address, surely the credit provider can justify that he must collect my updated details from a tracing agency for example – in this case the credit provider should be able to justify that it was necessary to collect my updated details from a third party – in order to protect its legitimate interests..

PURPOSE SPECIFICATIONThe purpose of collection or processing of personal information is the crux of a number of the POPI requirements as set out in the different conditions for lawful processing. This condition is comprised of two elements, namely: Collection for specific purpose as well as retention and restriction of records.

Collection for a specific purposePersonal information must be collected for a specific, explicitly defined and lawful purpose related to a function or activity of the responsible party.

Steps must be taken to ensure that the data subject is aware of the purpose of the collection of the information.

Responsible parties will need to define the different reasons for which personal information will be processed and also make sure that these reasons tie in with the responsible party’s general business activities. The current practice for many organisations is to obtain as many information fields as the data subject would complete. POPI require organisations to consider the reasons why the information is being collected (and processed) and then only process the relevant information fields, as required for the particular business operation.

This principle will also apply when the responsible party shares information with third parties. If for example, your business makes use of a third party to send out your bulk marketing messages, you should only share with the third party the information that they need to send out the messages on your behalf. Do not share all the information fields relating to the data subjects if the third party only needs cell phone numbers or email addresses.

Once the organisation has determined the various purposes for which it may want to use the personal information, a further step is required from a POPI point of view. The responsible party has a duty to bring to the attention of the data subject, these defined purposes for processing. The intention is that if I provide my information to your company, I should know for which purposes you are going to use my information. (And if you plan to use it for purposes that I don’t like, and you don’t have a right in law to process it for those reasons, I may object to the processing for that purpose!)

Reasonably practicable steps must be taken to make the data subject aware of the specific collection and processing of the personal information.

Retention and restriction of recordsRecords of personal information must not be retained any longer than is necessary for achieving the purpose for which the information was collected or subsequently processed, unless:

Retention of the record is required or authorised by law;

The responsible party reasonably requires the record for lawful purposes related to its functions or activities;

Retention of the record is required by a contract between the parties thereto; or

The data subject or a competent person where the data subject is a child has consented to the retention of the record.

Records of personal information may be retained for longer periods for historical, statistical or research purposes if the responsible party has established appropriate safeguards against the records being used for any other purposes.


In practice, this element relates, mostly to the role the management has in ensuring that there are policies and/ or procedures in place to categorise the PI collected or processed and define retention periods to apply the different categories of personal information.

The default position in this regard is that the RP may only keep PI for the period necessary to achieve the objective for which it was collected, unless one of the exceptions apply.

Organisations should identify the different purposes for which information is collected and processed, and then develop retention policies in accordance with the reasons for which the information was collected. Where another piece of legislation, like the National Credit Act, or FICA, or Companies Act, or tax or labour legislation for example specify a minimum period, the specified period will need to be applied in the retention policy.

It will be difficult to justify retention for an indefinite period. Even if marketing is the purpose for which the information is being retained, it would be hard to justify why information that was for example collected 10 years ago and not processed in the meantime could still be retained “for marketing purposes”.

FURTHER PROCESSING LIMITATIONPOPI allows responsible parties to “further process” PI provided that the further processing is within the parameters of the POPI provisions. The general rule is that the further processing must be in accordance with or compatible with the purpose for which it was collected the first time.

In practical terms this means that you cannot collect personal information for a specifically defined purpose, and then use it for a purpose that is not linked to the original purpose at all e.g a lawyer collects information about his/her client. If he/she collects information for purposes of a specific matter, one could argue that if the client returns after a period of time for another matter, the information collected the first time, could be used under the “further processing” provisions of POPI because the two reasons for processing are closely linked (both being for purposes of assisting with a legal matter, although the two matters have got nothing to do with one another.)

If however, the lawyer collects the information for the first matter from the client (client 1) and knows that another client (client 2) would be very interested to meet with client 1 or use client 1’s information for its own purposes, and he/she passes on client 1’s information to client 2, this processing action would not be linked to the original purpose for which client 1 provided his information and the lawyer would fall foul of the further processing provisions of POPI.

Each time that a responsible party intends to “further process” personal information, the responsible party should therefore assess whether the further processing is “compatible” with the original purpose for which it was collected.

If the data subject consents to the further processing, the responsible party can further process it e.g. the lawyer phones the client and obtains his consent to pass on the client’s information to the third party (client 2), there would be no problem.

Further processing is allowed if the information is available in or derived from a public record OR has deliberately been made public by the data subject. (Facebook for example). Section 1 defines a “public record” as a record that is accessible in the public domain and which is in the possession of or under the control of a public body, whether or not it was created by that public body.

If the further processing is necessary for purposes of maintenance of the law, to comply with legislation, for the conduct of court proceedings, or if it is in the interests of national security, it will be allowed e.g. the client wants to settle the lawyer’s bill of R 100 000 in cash, the lawyers have a duty in law to report this to the relevant authorities, and that further processing action to report it (without consent from the client) would indeed be allowed.

If the further processing is necessary to prevent or mitigate a threat to public health or safety or the life/health of the data subject or another individual, further processing is allowed. If for example a person needed urgent medical treatment in a situation where his life was in danger, the lawyer would be able to argue that sharing the personal information with medical staff (if this could ever be relevant) would be justified under this exception.

Further processing is allowed for historical statistical and research purposes provided that the information is not in identifiable form.


The further processing will be allowed if it is in accordance with an exemption that was granted by the Information Regulator (once established). This could be where the further processing is necessary for public interest purposes and an exemption was granted.

OPENNESSThis condition is premised on two primary elements, namely:

Documentation; and

Notification to the Data Subject.

DocumentationA responsible party must maintain the documentation of all processing operations under its responsibility as referred to in section 14 or 51 of the Promotion of Access to Information Act.

In terms of this section, a responsible party must consider the provisions of sections 14 or 51 of the Promotion of Access to Information Act 2000 (“PAIA”). Note that for private bodies, section 51 will apply. In terms of section 51 of PAIA certain private bodies need to disclose specified information through a manual – generally referred to as a PAIA Manual. Note that POPI will be amending the PAIA to provide for additional information that must be included in a company’s PAIA manual.

Responsible parties must remember to amend their PAIA manuals to include the required information.

Notification to data subject when collecting personal informationIf personal information is collected, the responsible party must take reasonably practicable steps to ensure that the data subject is aware of:

The information being collected and where the information is not collected from the data subject, the source from which it is collected;

The name and address of the responsible party;

The purpose for which the information is being collected;

Whether or not the supply of the information by that data subject is voluntary or mandatory;

The consequences of failure to provide the information;

Any particular law authorising or requiring the collection of the information;

The fact that, where applicable, the responsible party intends to transfer the information to a third country or international organisation and the level of protection afforded to the information by that third country or international organisation;

Any further information such as the:

― Recipient or category of recipients of the information;

― Nature or category of the information;

― Existence of the right of access to and the right to rectify the information collected;

― The existence of the right to object to the processing of personal information; and

― Right to lodge a complaint to the Information Regulator and the contact details of the Information Regulator, which is necessary, having regard to the specific circumstances in which the information is or is not to be processed, to enable processing in respect of the data subject to be reasonable.

The following steps must be followed:


If the personal information is collected directly from the data subject, before the information is collected, unless the data subject is already aware of the information referred to in that subsection; or

In any other case, before the information is collected or as soon as reasonably practicable after it has been collected.

It is not necessary for a responsible party to comply if:

The data subject or a competent person where the data subject is a child has provided consent for the non-compliance;

Non-compliance would not prejudice the legitimate interests of the data subject;

Non-compliance is necessary:

― To avoid prejudice to the maintenance of the law by any public body, including the prevention, detection, investigation, prosecution and punishment of offences;

― To comply with an obligation imposed by law or to enforce legislation concerning the collection of revenue as defined in section 1 of the South African Revenue Service Act, 1997 (Act No. 34 of 1997);

― For the conduct of proceedings in any court or tribunal that have been commenced or are reasonably contemplated; or

In the interests of national security;

Compliance would prejudice a lawful purpose of the collection;

Compliance is not reasonably practicable in the circumstances of the particular case; or

The information will:

― Not be used in a form in which the data subject may be identified; or

― Be used for historical, statistical or research purposes.

From the above it follows that in terms of this condition, a responsible party has an obligation to notify a data subject of certain specified information each time that information about the data subject is being collected from which ever source, unless the responsible party can rely on one of the exceptions to the general rule, in terms whereof the responsible party can justify why notification is not necessary.

Compliance with this section will clearly be very onerous on business and could also be a costly exercise.

Reasons for including this section are the following:

Currently information flows between companies without data subjects ever realising what is happening with their information.

Data subjects provide their personal information to companies for specific reasons, but companies often take the information and do with it whatever they want to, including to use it for reasons that would never have been intended by the data subject.

Data subjects do not know which companies hold their personal information.

Companies will therefore need to inform data subjects of the reasons for which they would use the data subject’s information. They also need to inform them of the type of companies with whom the personal information will be shared, including where information will be shared with third party service providers who will have access to the information or receive the information for processing on behalf of the responsible party.

Notification must happen even before the information is collected, if you collect it directly from the data subject, or if not directly from the data subject, before you collect or as soon as reasonably possible after you have collected it.


POPI does not provide exact details on how this notification needs to take place. Once the Regulator has been set up, we may get a better idea of the expectations around ways to notify. Currently it seems that the most popular way would be to include the information in privacy policies. This is not a no go, but without the data subject knowing about the privacy policy and the notification information provided through the policy, it may have little effect. The proposed solution is to include some specific reference to the policy in your customer terms, application forms, or other applicable documentation and then include the majority of the required information in the actual policy.

By far the biggest challenge will come in where information is not collected directly from the data subject. This happens on a daily basis and a few examples include:

Collecting information about a relative / friend of your customer;

Collecting information from the credit bureau;

Collecting information from third party data suppliers;

Collecting information from fraud data bases;

Collecting information from other companies within your group of companies;

Collecting information from business partners.

SECURITY SAFEGUARDSA responsible party must secure the integrity and confidentiality of personal information in its possession or under its control by taking appropriate, reasonable technical and organisational measures to prevent:

Loss of, damage to or unauthorised destruction of personal information; and

Unlawful access to or processing of personal information.

The responsible party must take reasonable measures to:

Identify all reasonably foreseeable internal and external risks to personal information in its possession or under its control;

Establish and maintain appropriate safeguards against the risks identified;

Regularly verify that the safeguards are effectively implemented; and

Ensure that the safeguards are continually updated in response to new risks or deficiencies in previously implemented safeguards.

POPI does not provide a “tick list” of security requirements to meet. Responsible parties must consider applicable industry security practices and then implement security appropriate security measures for the business.

An operator or anyone processing personal information on behalf of a responsible party or an operator, must:

Process such information only with the knowledge or authorisation of the responsible party; and

Treat personal information which comes to their knowledge as confidential and must not disclose it, unless required by law or in the course of the proper performance of their duties.

A responsible party must, in terms of a written contract between the responsible party and the operator, ensure that the operator which processes personal information for the responsible party establishes and maintains the security measures.

The operator must notify the responsible party immediately where there are reasonable grounds to believe that the personal information of a data subject has been accessed or acquired by any unauthorised person.


As responsible party you will have an on-going obligation to safeguard the PI in your possession from being destroyed unlawfully, accessed unlawfully, lost or damaged. This obligation entails, your organisation to have reasonable technical and organisational measures in place to protect PI under your control or in your possession. Organisational and technical measures include for example measures in terms whereof organisations restrict unauthorised individuals from entering their premises and implementing controls through which organisation restrict access rights and the usage of their networks, devices, etc.

There is also an ongoing obligation on organisations to identify new risks. These should be prioritized according to the threat posed.

Practical controls or processes in response to risks identified, could include the following:

Review of access rights on an ongoing basis;

Ownership for PI;

Physical access controls;

Computer/ device passwords;

Firewalls;

Encryption;

Remote destruction;

Anti-virus programs;

Exit process.

If your organisation outsources any functions involving the processing of personal information to a third party operator, you will still remain responsible for the processing of the PI. You also have the obligation in terms of POPI to regulate your relationship with the operator by way of written contract to ensure that the operator provides the service in accordance with POPI requirements.

In terms of POPI there is a duty on responsible parties to regularly consider whether there are any new risks and then implement processes to address the risks identified.

As an operator, it is very important to understand that you cannot do with the personal information received from the responsible party as and how you want to. The responsible party as the custodian of the information will authorise you to only use the information for the purposes of the service that you are rendering to the responsible party. You cannot use the information for any of your own purposes.

Security breaches Where there are reasonable grounds to believe that the personal information of a data subject has been accessed or acquired by any unauthorised person, the responsible party must notify:

The Regulator; and

The data subject, unless the identity of such data subject cannot be established.

The law also determines that the notification to the data subject must be in writing and communicated in one of the following ways:

Mailed to the data subject’s last known physical or postal address;

Sent by e-mail to the data subject’s last known e-mail address;

Placed in a prominent position on the website of the responsible party;


Published in the news media; or

As may be directed by the Regulator.

The following information needs to be disclosed in the notification:

A description of the possible consequences of the security compromise;

A description of the measures that the responsible party intends to take or has taken to address the security compromise;

A recommendation with regard to the measures to be taken by the data subject to mitigate the possible adverse effects of the security compromise; and

If known to the responsible party, the identity of the unauthorised person who may have accessed or acquired the personal information.

DATA SUBJECT PARTICIPATION A data subject, having provided adequate proof of identity, has the right to:

Request a responsible party to confirm, free of charge, whether or not the responsible party holds personal information about the data subject; and

Request from a responsible party the record or a description of the personal information about the data subject held by the responsible party, including information about the identity of all third parties, or categories of third parties, who have, or have had, access to the information:

― Within a reasonable time;

― At a prescribed fee, if any;

― In a reasonable manner and format; and

― In a form that is generally understandable.

If a data subject is required by a responsible party to pay a fee for services provided to the data subject to enable the responsible party to respond to a request, the responsible party:

Must give the applicant a written estimate of the fee before providing the services; and

May require the applicant to pay a deposit for all or part of the fee.

A responsible party may or must refuse, to disclose any information requested to which the grounds for refusal of access to records set out in the Promotion of Access to Information Act apply.

Data subjects have a right to access their personal information records and receive copies of these records. This right is not, however, unlimited. A responsible party will have some discretion as to the process to be followed in allowing data subjects to request access to their information, as well as the means through which the data subject will be obliged to identify him/herself before being given access to their personal information. One method of regulating these requests may be through a responsible party’s PAIA manual or a similar ‘personal information request document’.

If it appears that a responsible party is indeed in possession of certain information about a data subject, the data subject may request that responsible party to provide it with a record of this information.

Within that record provided to the data subject, the responsible party will have to bring to the attention of the data subject that it has the right to request a correction to such information.

Depending on the costs that a responsible party may have incurred or anticipates incurring in the process of providing the above information to the data subject, the responsible party may request the data subject for reimbursement thereof.


Where the provisions of the Promotion of Access to Information Act 4 of 2000 (“PAIA”) so permit, a responsible party may refuse to disclose particular information to the data subject.

A data subject may, in the prescribed manner, request a responsible party to:

Correct or delete personal information about the data subject in its possession or under its control that is inaccurate, irrelevant, excessive, out of date, incomplete, misleading or obtained unlawfully; or

Destroy or delete a record of personal information about the data subject that the responsible party is no longer authorised to retain.

On receipt of a request a responsible party must, as soon as reasonably practicable:

Correct the information;

Destroy or delete the information;

Provide the data subject, to his or her satisfaction, with credible evidence in support of the information; or

Where agreement cannot be reached between the responsible party and the data subject, and if the data subject so requests, take such steps as are reasonable in the circumstances, to attach to the information in such a manner that it will always be read with the information, an indication that a correction of the information has been requested but has not been made.

After receiving a record of personal information from a responsible party, a data subject may request the deletion or correction of such personal information.

Any request made by a data subject should be made on the basis of the personal information in question being inaccurate, irrelevant, excessive, out of date, incomplete, misleading or obtained unlawfully.

If the data subject has requested the deletion or correction of its personal, the responsible party may do so, alternatively, it may provide the data subject with credible evidence in support of the personal information, or where agreement cannot be reached and the responsible party believes it is entitled to maintain the personal information, there may be circumstances in which a kind of disclaimer is attached to the information, informing users that a correction to this information has been requested but not made.

If a responsible party has changed information in relation to a data subject, and this change has an impact on decisions that have been or will be taken in respect of that data subject, the responsible party must (if reasonably practicable) inform each person to whom that personal information has been disclosed of such change.

The data subject may make use of the relevant provisions in PAIA to make a request for personal information.

In each PAIA request for personal information, there will need to be a procedure through which the responsible party appropriately identifies the data subject as the person to whom the relevant personal information relates.

PENALTIESPenalties of up to R 10 000 000 could be imposed, but the real risk factor is a reputational risk that should also be considered.


EMPLOYMENT LAW EMPLOYMENT SERVICES ACT 4 OF 2014

The Employment Services Act, No 4 of 2014 (ESA) came into effect on 9 August 2015. The Government Gazette dealing with the commencement of the Act specifically excludes section 13 from coming into operation. This section deals with the registration of private employment agencies.

The ESA repeals the Employment Services provisions contained in the Skills Development Act, No 97 of 1998 (SDA). The purpose of ESA is to establish productivity within South Africa, decrease levels of unemployment, and provide for the training of unskilled workers.

The ESA provides for the registration of private employment agencies, which includes recruitment agencies and temporary employment services, more commonly known as labour brokers. As mentioned above though, the provisions relating to this have not yet come into effect.

ESA further provides for the creation of a Public Employment Service, which will be established and managed by the state. The rationale behind the creation of the Public Employment Service is to provide state assistance to unemployed job seekers.

The Public Employment Service will register job seekers and placement opportunities. The aim is then to match job seekers with services and placement opportunities. The Public Employment Service will also provide training for unskilled job seekers and give the unemployed access to career information. Employers in certain industries may be required to register vacancies and specific categories of work with the Public Employment Service. Employers may also be required to interview individuals recommended by the Public Employment Service and pay license fees to assist in funding the Public Employment Service.

The purpose of this Act is to:

Promote employment;

Improve access to the labour market for work seekers;

Provide opportunities for new entrants to the labour market to gain work experience;

Improve the employment prospects of work seekers, in particular vulnerable work seekers;

Improve the employment and re-employment prospects of employees facing retrenchments;

Facilitate access to education and training for work seekers, in particular vulnerable work seekers;

Promote employment, growth and workplace productivity; and

Facilitate the employment of foreign nationals in the South African economy, where their contribution is needed in a manner:

― That gives effect to the right to fair labour practices contemplated in section 23 of the Constitution;

― That does not impact adversely on existing labour standards or the rights and expectations of South African workers; and

― That promotes the training of South African citizens and permanent residents.

The purpose is to be achieved by:

Providing comprehensive and integrated free public employment services;

Coordinating the activities of public sector agencies whose activities impact on the provision of employment services;


Encouraging partnerships, including in the provision of employment services, to promote employment;

Establishing schemes and other measures to promote employment; and

Providing a regulatory framework for the operation of private employment agencies.


COMPANY SECRETARIAL REMOVAL OF DIRECTOR

Practice Note 40 of 2015.

Removal of Director in terms of Section 71 of Companies Act, 71 of 2008.

Based on the number of applications queried due to non-compliance to the requirements as well as objections to the filings where directors are not aware of their removals the companies’ attention is brought to the following:

A director may be removed by an ordinary resolution adopted at a shareholders meeting by persons entitled to vote in an election of directors, with the following additional supporting documents:

― Proof that a notice was sent to the director concerned;

― Attendance register; and

― Certified copy of the share register.

When a director is removed by the Board on the grounds of being ineligible or disqualified, or due to incapacity, neglect or derelict, the company must have more than 2 directors with the following additional supporting documents:

― Proof of notice was sent to the director(s) concerned with detailed information stated in Section 71(4)(a); and

― Attendance register.

Paragraph 2 above does not apply if the company has fewer than three directors and Section 71(8) applies whereby the Companies Tribunal may be approached to make a determination. The above requirements are not substituting the current requirements however they add over and above the required documentation for change of directors.

Please note that when a director is disqualified an order of court confirming such disqualification is required and when the director is rehabilitated a court order is also required with the stamp of the Registrar of Court.

Date of notice: 8 July 2015.

ROTATION OF AUDITORS (SECTION 92)Section 92 of the Act, provides for audit partner rotation, more specifically that "an individual may not serve as an auditor or designated auditor of a company for more than 5 consecutive financial years".

If an individual has been an auditor or designated auditor of a company for 2 or more consecutive years, and then ceases to be an auditor, the individual may not be appointed again until after the expiry of at least a further 2 financial years.

If a company has appointed 2 or more persons as joint auditors, the company must manage the rotation required by this section in such a manner that all of the joint auditors do not relinquish office in the same year.

King III has similar requirements in relation to auditor independence. Specifically, principle 3.9, paragraph 77 states that "The audit committee must review, monitor and report on the external auditor's independence and objectivity and should assess the effectiveness of the audit process every year. At least five yearly, rotation at an individual engagement partner or designated partner level enhances actual and perceived independence".

Further mechanisms to achieve auditor independence in South Africa are included in the SAICA (South African Institute of Chartered Accountants) and IRBA (Independent Regulatory Board for Auditors) codes of professional conduct which require audit partner rotation.


In addition, an auditor is required to be independent and where there are threats to their independence, they are required to implement measures to reduce the threats to an acceptable level. If this is not possible, the auditor is prohibited from accepting the engagement that would compromise their independence.

To which companies does the requirement of rotation of auditors (section 92) apply?It applies to all companies and close corporations that are mandated to have an audit in terms of the Companies Act requirements. This includes:

Public companies;

State-owned companies;

Companies or close corporations that have a public interest score above 350;

Companies that have a public interest score of between 100 and 350 and their financial statements are internally compiled; and

Companies and close corporations that have included the audit requirement in their Memorandum of Incorporation ("MOl") or association agreement.

Section 92 only applies to companies I close corporations that are registered under the Companies Act 2008.

Section 92 applies to close corporations that are registered under the Close Corporations Act, as per the amendments in Schedule 3 of the Companies Act. Schedule 3 states that where the Companies Act refers to a company the reference to a close corporation must now be included.

Section 92 is effective from 1 May 2011. The section does not apply retrospectively. This requirement of rotation applies to individual auditors only and not to firms.

With the enforcement of section 90 from 1 May 2011, the counting of the 5-year period starts from 2011 thus brining upon full compliance from 1 May 2016.

However, on 1 May 2016, the auditor would be in contravention of the provision if he also supplied accounting/bookkeeping services in the previous 5 years, commencing on 1 May 2011.

There will be no transitional provisions, and compliance with the section will be monitored from 1 May 2016.

If the company requests the auditor to perform an audit, although the auditor is in breach of section 92, can the auditor cannot accept the appointment? The auditor must comply with the relevant legislation

If the auditor is in breach of Section 92 the relevant professional bodies will investigate the breach in terms of a breach of their respective Codes of Professional Conduct and institute the necessary disciplinary proceedings if required.

DISCLOSURE OF DIRECTORS’ / PRESCRIBED OFFICERS’ REMUNERATION The Companies Act, No. 71 of 2008 (“the Act”) requires that certain companies must include the disclosure of directors’ and prescribed officers’ remuneration per individual in the company’s annual financial statements.

The Close Corporations Act, No. 58 of 1984 has also been amended to require close corporations to disclose members’ remuneration.

The Act states that the annual financial statements of “each company that is required in terms of this Act to have its annual financial statements audited” must disclose the prescribed remuneration. This requirement therefore applies to:

Public companies;

State-owned companies;


Any company that, in the ordinary course of its primary activities, holds assets in a fiduciary capacity for persons who are not related to the company, and the aggregate value of such assets held at any time during the financial year exceeds R5 million;

Any non-profit company, if it was incorporated:

― Directly or indirectly by the state, an organ of state, a state-owned company, an international entity, a foreign state entity or a foreign company; or

― Primarily to perform a statutory or regulatory function in terms of any legislation, or to carry out a public function at the direct or indirect initiation or direction of an organ of state, a state-owned company, an international entity, or a foreign state entity, or for a purpose ancillary to any such function;

Any other company that has a public interest (PI) score of 350 or more; and

Any other company that has a PI score of at least 100 if the annual financial statements for that year were internally compiled.

The requirement to disclose directors’ and prescribed officers’ remuneration, applies only to those companies required to be audited in terms of the Act. Accordingly, companies that are audited voluntarily i.e. where the requirement arises in terms of the company’s MOI, a shareholders’ resolution, or a decision of the board of directors, are not required to disclose directors’ and prescribed officers’ remuneration in their annual financial statements.

The Act states that the remuneration and benefits received by each director or individual that holds any prescribed office in the company must be disclosed. This is interpreted as stating that the name of each director or prescribed officer must be disclosed in the annual financial statements. Also note that this disclosure is on an individual basis per director or prescribed officer and not in aggregate.

Disclosure of all remuneration and benefits paid to or receivable by the directors’ and prescribed officers’ of the company for services rendered as a director or prescribed officer of any company must be disclosed.

If the director or prescribed officer is not a director or prescribed officer at the end of the financial year , the director or prescribed officer still received remuneration during the financial year and the remuneration and benefits was still paid to or receivable by the directors and the prescribed officers. As such, the remuneration or benefits paid to or received by the director or prescribed officer during the financial year must be disclosed.

It is therefore SAICA’s view that the disclosure should include any directors or prescribed officer who had been in office during the course of the year. The only exception to this, in SAICA’s view, is S30(4)(e), which specifically only requires the disclosure of the details of service contracts of current directors and prescribed officers.

The information to be disclosed must satisfy the prescribed standards, and must show the amount of any remuneration or benefits paid to or receivable by persons in respect of:

Services rendered as directors or prescribed officers of the company; or

Services rendered while being directors or prescribed officers of the company:

― As directors or prescribed officers of any other company within the same group of companies; or

― Otherwise in connection with the carrying on of the affairs of the company or any other company within the same group of companies.

The effect of these requirements is that all remuneration paid to or receivable by directors and prescribed officers of Company A in respect of services rendered to Company A or any other company within the same group of companies must be disclosed in the annual financial statements of Company A. If a person serves as director and/or prescribed officer of more than one company in a group of companies, that person’s total remuneration would be disclosed in the annual financial statements of all the companies in the group that are required to disclose


remuneration. The detail of the person’s total remuneration, i.e. the split between the disclosure would however differ in the various sets of annual financial statements.

The source of payment does not determine the disclosure – rather, the question is whether or not a particular director/prescribed officer received any remuneration for his/her services to the company. Accordingly, even if payment is made from a foreign source, disclosure is nevertheless required if a director/prescribed officer received the remuneration/benefit for services as director/prescribed officer of a South African company which is required to disclose the remuneration/benefit.

Therefore, there will be circumstances where the amount recognised as an expense in a company’s Statement of Comprehensive Income does not agree with the amounts disclosed in its annual financial statements.

“Carrying on of the affairs” has a broad meaning and extends to services provided in the director / prescribed officer’s capacity as an employee. If a person is a director of a company (that is required to be audited by the Act) in a group of companies and the same person is also an employee of another company in the group, the company where the person is a director will have to disclose in its annual financial statements the person’s remuneration received as director of the company and the salary earned as an employee of the other company within the same group of companies (i.e. for the carrying on of the affairs of the company).

The Act defines a “group of companies” as meaning: “ A holding company and all of its subsidiaries”. A “group of companies” therefore consists of every holding company (as defined in the Act) and every subsidiary (as defined in the Act) of that holding company. Consider, for example, a holding company with one subsidiary. The “group of companies” will consist of the holding company and its subsidiary. The subsidiary will thus be part of a “group of companies” even though the subsidiary itself has no subsidiaries. Services rendered to every company in the same group of companies therefore includes the holding company, all subsidiaries and fellow subsidiaries (thus looking upward, downward and sideways in the group structure).

In terms of the Act, a “company” is defined as a juristic person incorporated in terms of the previous or current Companies Act and would include South African companies only. Therefore, any amounts paid to directors and prescribed officers in respect of services rendered to a trust or a foreign company within the group would not be disclosed, since trusts and foreign companies are not “companies” as defined by the Act.

Section 30(4) of the Act requires the company’s annual financial statements to include particulars regarding directors’ and prescribed officers’ remuneration. The annual financial statements include the directors’ report.

Although SAICA recommends that the disclosure required be made in the notes to the financial statements, it is permissible for the directors to include the disclosure in the directors’ report. However, the auditor remains responsible for auditing the directors’ and prescribed officers’ remuneration disclosure.

Section 30(4) – (6) of the Companies Act, No. 71 of 2008The annual financial statements of each company that is required in terms of this Act to have its annual financial statements audited, must include particulars showing:

The remuneration, as defined in subsection (6), and benefits received by each director, or individual holding any prescribed office in the company;

The amount of:

― Any pensions paid by the company to or receivable by current or past directors or individuals who hold or have held any prescribed office in the company;

― Any amount paid or payable by the company to a pension scheme with respect to current or past directors or individuals who hold or have held any prescribed office in the company.

The amount of any compensation paid in respect of loss of office to current or past directors or individuals who hold or have held any prescribed office in the company;


The number and class of any securities issued to a director or person holding any prescribed office in the company, or to any person related to any of them, and the consideration received by the company for those securities; and

Details of service contracts of current directors and individuals who hold any prescribed office in the company.

The information to be disclosed must satisfy the prescribed standards, and must show the amount of any remuneration or benefits paid to or receivable by persons in respect of:

Services rendered as directors or prescribed officers of the company; or

Services rendered while being directors or prescribed officers of the company:

― As directors or prescribed officers of any other company within the same group of companies; or

― Otherwise in connection with the carrying on of the affairs of the company or any other company within the same group of companies.

Remuneration’ includes:

Fees paid to directors for services rendered by them to or on behalf of the company, including any amount paid to a person in respect of the person’s accepting the office of director;

Salary, bonuses and performance-related payments;

Expense allowances, to the extent that the director is not required to account for the allowance;

Contributions paid under any pension scheme;

The value of any option or right given directly or indirectly to a director, past director or future director, or person related to any of them;

Financial assistance to a director, past director or future director, or person related to any of them, for the subscription of options or securities, or the purchase of securities; and

With respect to any loan or other financial assistance by the company to a director, past director or future director, or a person related to any of them, or any loan made by a third party to any such person, if the company is a guarantor of that loan, the value of:

― Any interest deferred, waived or forgiven; or

― The difference in value between:

The interest that would reasonably be charged in comparable circumstances at fair market rates in an arm’s length transaction; and

The interest actually charged to the borrower, if less.

ANNUAL RETURNSThe Companies Act, 2008 and the Close Corporations Act, 1984 require the company or close corporation itself, (it also include its authorised representative) to file the annual return.

Companies and close corporations are required to file annual returns once a year within a given time period. Companies must file within 30 business days after the anniversary date of its incorporation while close corporations must file within the anniversary month of its incorporation up until the month thereafter.

A clear distinction must be made between an annual return and a tax return. An annual return is a sort of “renewal” and has the purpose to confirm whether CIPC is in possession of the most up to date information of a company or close corporation and that the company or close corporation is still conducting business. A tax return focuses on


taxable income of a company or close corporation in order to determine the tax liability of the company or close corporation to the State and is filed with SARS.

Compliance with the one does not mean that there is automatic compliance with the other. It is two different processes administered in terms of different legislation by two different government departments. Therefore, even if the tax return has been filed with SARS, the annual return must still be filed with CIPC.

An annual return is not an amendment form and therefore, the annual return must be followed by the appropriate statutory form to update the CIPC registers after filing if CIPC is not in possession of the most up to date information. An example of this is if the company address changes, a form CoR21.1 must still be completed and submitted to CIPC.

If a close corporation converts to a company and the conversion application on Form CoR18.1 is received on or before the last day before the start of the anniversary month of the close corporation, then the annual return for such year does not need to be filed. The reason for this is that no obligation has yet arisen for the filing of the annual return for the current year. All other outstanding years must be brought up to date.

For future filing of annual returns, the anniversary month will then be the month within which the close corporation was converted.

Should the close corporation file its application for conversion within the month of the anniversary of its incorporation or the month thereafter then all annual returns must be brought up to date including the annual return for the current year.

Annual return filings are only accepted electronically via the CIPC website by logging in as a customer, and clicking on Annual returns/submit and pay annual returns.

In determining the appropriate fee for the filing of an annual return, a distinction must be made between a company and close corporation filing, and the date on which the annual return became due, since different fee structures are used for companies and close corporations.

Companies Act, 2008 fee table:

Close Corporations Act, 1984 fee table:


A company or close corporation is mandated by law to file annual returns annually and therefore, CIPC cannot exempt companies and close corporations from filing/complying with such requirement.

The prescribed filing fees for annual returns are legislated, and therefore such cannot be waived by the CIPC. The CIPC also cannot make arrangements for payment of annual returns in “installments” since the prescribed fee must accompany the filing. If the prescribed fee does not accompany the filing, the filing is invalidated and must be refiled.

The Close Companies Act, 2008 (and its predecessor Companies Act, 1973) and Corporations Act, 1984 does not make a distinction between an active and inactive company or close corporation. Therefore, even if the company or close corporation was inactive, it is still legally required to file and pay annual returns.

Once an annual return is filed, none of the information provided can be updated. In cases where the incorrect turnover has been provided the customer code used for the original filing may be issued with either a credit note (indicated turnover larger than the actual turnover) or a debit note (indicated turnover less than the actual turnover).

In order for CIPC to credit/debit the customer code the following documents are required:

The financial statements for the annual return year in question;

The entity name, registration number and the annual return year in question;

Indication of the reason for the incorrect turnover being provided;

Certified ID copy of the owner of the customer code used to file the annual return, and

A letter providing permission to the CIPC to credit/debit the difference.

This information must be e-mailed to any of the following e-mail addresses [email protected], [email protected] or [email protected].

Companies and close corporations by law are required to either file its audited financials, reviewed financials or financial supplement with its annual returns. Due to current system limitations, only audited financial statements must be filed.

All companies and close corporations, if it is required to prepare audited financial statements in terms of Companies Regulation 28 read with Companies Regulation 26, must file such with CIPC at the same time of filing is annual returns by emailing the financial statements to [email protected].

It should be noted that only the audited financial statements must currently be filed with the CIPC. A company or close corporation, that is not required to file its audited financial statements, may still file such or its reviewed financial statements via [email protected].

Companies and close corporations that is neither required to file its audited financial statements, nor voluntarily filed its audited financial statements or reviewed financial statements, must file a financial accountability supplement (CoR30.2) with its annual returns

A company or close corporation must use its latest approved financial statements for purposes of determining the turnover for purposes of filing annual returns.

Turnover of an entity is the amount of money taken by a company or close corporation during its financial year. Roughly stated, the turnover of the company or close corporation is its revenue or income for the financial year.


During the deregistration process notifications are mailed to the company or close corporation’s registered postal address as per CIPC records, informing it of the intended deregistration and a request to either provide confirmation that it is still active or to file outstanding annual returns. At the time of notification, the company or close corporation’s legal persona is not yet removed. The notification only serves to inform the company or close corporation of the intention to deregister it, if no objection or filing of annual returns occurs.

If deregistration is due to annual return noncompliance, deregistration process will be cancelled if all outstanding annual returns are filed while it is still in such status. If the cause for deregistration is any other reason, a written objection to deregistration must be filed by posting or hand delivering the objection to CIPC. This objection must be addressed to the Deregistration Unit of CIPC.

Once a company or close corporation is “final deregistered” no annual return or objection can be processed.

It is advised that the objection be posted by registered mail to CIPC in order to act as proof that the objection was received by CIPC and should have been processed.

Once a company or close corporation has been finally deregistered, the company or close corporation or any third person may apply for re-instatement upon filing of a Form CoR40.5 and if required, supporting documents. Upon the processing of the re-instatement application, the status will be changed to “in re-instatement process”.

Non-submission of annual financial statements and late submission of annual financial statementsCIPC has been administering the Companies Act, Act 71 of 2008 as amended since 01 May 2011 and in terms of the same Act, Section 187 (3) ''The Commission must promote the reliability of financial statements by, among other things (a) monitoring patterns of compliance with, and contraventions of, financial reporting standards; and (b) making recommendations to the Council for amendments to financial reporting standards, to secure better reliability and compliance".

The Commission made the following observations with regards to the pattern of compliance for submission of annual financial statements, viz.:

There are many Companies who are still not submitting their annual financial statements as required in terms of the Act;

There remains many Companies who submit their annual financial statements late with the regulator.

CIPC has been empowered with investigative and enforcement powers to take action against companies who do not comply with the requirement to submit their annual financial statements for review and public disclosure in line with the principles of maintaining transparency and high standards of corporate governance.

Therefore, if you are a director of a company; a member of a close corporation and continue to ignore the requirements to prepare and submit annual financial statements to CIPC, you are in contravention of the Act. Any continued non-compliance can trigger a formal investigation by the Commission which can lead to the issuance of a compliance notice and other actions which can be imposed in collaboration with other regulators.

To submit Annual Financial Statements, please use the dedicated e-mail address, financialst a te m e n [email protected] , please submit on time and ensure that the financial statements comply with the Companies Act and the International Financial Reporting Standards.

Date of Notice: 1 February 2016.

THE MEMORANDUM OF INCORPORATION (MOI) Notice 10 of 2016

One of the most important changes brought about by the Companies Act 2008 (“the Act”) is the creation of a new founding document for companies, called a Memorandum of Incorporation (“the MOI”), which combines the current memorandum of association and articles of association of a company into one document. The MOI specifies the rights, duties and responsibilities of shareholders, directors and others within and in relation to a company and other related matters.


The Act provides that:

The MOI may include matters not addressed in the Act and alterations of alterable provisions;

The MOI must be consistent with the Act and is void to the extent that it contravenes or is inconsistent with the Act; and

Any provision of a shareholders’ agreement that is inconsistent with the Act or the MOI is void to the extent of the inconsistency.

The Act has allowed companies to file a notice of amendment of its current founding documents to bring it in harmony with the Act by no later than the 30th April 2013 to avoid certain automatic consequences. Companies had the following options during the above period:

In the event of a conflict between the pre-existing company’s founding documents, being its memorandum and articles of association and the Act, the existing memorandum and articles of association will prevail, except to the extent that Schedule 5 in the Act provides otherwise; and

In the event of a conflict between a shareholders’ agreement and the pre-existing company’s existing memorandum and articles of association or the Act, the shareholders’ agreement prevails.

There are many wide exceptions to this rule as stated in Schedule 5 and these exceptions have immediate effect (i.e. they will override the MOI (the memorandum and articles of association) and the shareholders’ agreement, even during the above period), which includes provisions regulating:

Conversion from par value shares to no par value shares;

The approvals required for any distribution, financial assistance, insider share issues, or options;

The duties, conduct and liability of directors;

Meetings of shareholders and directors and the adoption of resolutions;

Fundamental transactions and regulation by the Takeover Regulation Panel; and

Business rescue.

Should a company fail to amend its founding documents in line with the Act, the result will be that, after 30 th April 2013, those provisions of its founding documents which are not compliant are overridden by the Act and its shareholders’ agreement will be void to the extent of any inconsistency. It is therefore important for all companies to conduct a review of its current founding documents and shareholders’ agreements in order to establish the extent of inconsistencies between them and the Act in order to bring it in line with the Act at the soonest possible time.

Failing to do so could result in some of the companies’ actions / decisions being questionable for not having been implemented legally. Depending on the nature of the non-compliance, there may be severe consequences for the company.

By adopting a new MOI, a company may be able to preserve most of its previous internal and administrative procedures by adjusting the flexible provisions of the Act to suit its particular needs. Once a company’s new MOI has been adopted, it may be wise to conclude a supplement to the existing shareholders’ agreement to record in writing those provisions of the agreement which will no longer apply due to them being in conflict with the MOI and / or the Act and / or which are no longer applicable under the new dispensation.

All decisions taken by the company before the effective date will be binding provisions and those provisions will continue to have force and effect for two years after the effective date. After the two year period those provisions will only be binding to the extent that they are consistent with the Act.

If a company decides to change their MOI after the two years, the normal lodgement fee for amending the MOI will apply, as well as the fee for the registration of the special resolution.


Date of Notice: 7 March 2016

INDEPENDENT REVIEWS AND NON-COMPLIANCE WITH REGULATION 29An Independent Review of Annual Financial Statements (AFS) is dealt with by Regulation 29 of the Companies Regulations, 2011.

'Reportable Irregularity' (RI) means any act or omission committed by any person responsible for the management of a company who:

Unlawfully has caused or is likely to cause material financial loss to any member, shareholder, creditor or investor of the company in respect of his, her or its dealing with that entity; or

Is fraudulent or amounts to theft; or

Causes or has caused the company to trade under insolvent circumstances.

It is important to note that the inclusion of 29(1)(b)(iii) above differs from the definition of reportable irregularity for audit engagements as such a requirement does not form part of the RI definition in terms of section 1 of the Auditing Professions Act.

The effect is that the RI definition for Independent Reviews are more onerous than that for audits since the existence of any insolvent circumstance would require the Independent Reviewer to report an RI to the Commission and Intellectuals Property Commission (CIPC).

It is also important to note that the regulation 29(1)(b)(iii) simply states insolvent circumstances which is interpreted to mean both commercial and factual insolvency.

Information required to be contained in a report from an IR practitioner:

With regards to the IR's report to the Commission, the RI must be set out clearly and concisely, with the relevant alleged contravention of the Companies Act being stated; that is, the actual section of the Act.

Proof of communication to the management of the said company must also be included with the report.

Contact details, such as a reference person (director or manager). telephone numbers, e-mail addresses, and/or postal addresses must also be included in the (2ndd) report, if a reportable irregularity is still continuing.

Process that the IR practitioner must follow when reporting an irregularity

An independent reviewer of a company that is satisfied or has reason to believe that a reportable irregularity has taken place or is taking place in respect of that company must, without delay, send a written report to the Commission.

The report must give particulars of the reportable irregularity and must include such other information and particulars as the independent reviewer considers appropriate.

The independent reviewer must within three business days of sending the report to the Commission notify the members of the board of the company in writing of the sending of the report.

A copy of the report to the Commission must accompany the Notice.

The independent reviewer must as soon as reasonably possible but not later than 20 business days from the date on which the report was sent to the Commission:

Take all reasonable measures to discuss the report with the members of the board of the company;

Afford the members of the board of the company an opportunity to make representations in respect of the report; and


Send another report to the Commission, which report must include a statement that the independent reviewer is of the opinion that;

― No reportable irregularity has taken place or is taking place; or

― The suspected reportable irregularity is no longer taking place and that adequate steps have been taken for the prevention or recovery of any loss as a result thereof, if relevant; or

― The reportable irregularity is continuing; and

― Detailed particulars and information supporting the statement.

A dedicated e-mail address has been set up for the purpose of receiving IR reports: [email protected].

It is imperative for all independent review practitioners and professional bodies to comply with the afore-stated provisions, as a failure to do so will result in a contravention under the Companies Act (Regulations) Act 71 of 2008 as amended.


FORTHCOMING ATTRACTIONS THE COMMUNITY SCHEMES OMBUD SERVICES ACT

The Community Schemes Ombud Services Act, 9 of 2011 has not yet commenced.

The Draft Regulations were Gazetted on 2 October 2015.

A large number of commercial and private properties will be affected.

Community scheme A community scheme is a scheme or arrangement where there is shared use of and responsibility for parts of land and buildings (such as sectional titles, share block companies, home owners' associations, property owners' associations, housing schemes for retired persons, housing co-operatives etc.).

The definition from the Act is: Any scheme or arrangement in terms of which there is shared use of and responsibility for parts of land and buildings, including but not limited to a sectional titles development scheme, a share block company, a home or property owner's association, however constituted, established to administer a property development, a housing scheme for retired persons, and a housing co-operative as contemplated in the South African Co-operatives Act, 2005 (Act 14 of 2005).

Ombud Service levies It has been proposed that, in addition to other property taxes, levies will be payable to the Ombud Service based on the municipal property valuation per unit. The purpose appears to be that a community scheme pays a levy annually to the Ombud Service and receives it from the unit owners in the scheme.

Purpose of the levy

With this imposed fee property owner will fund the Ombud who is meant to:

Provide dispute resolution: Dispute here refers to a dispute in regard to the administration of a community scheme between persons who have a material interest in that scheme, of which one of the parties is the association, occupier or owner, acting individually or jointly;

Train employees: Conciliators, adjudicators and other Ombud employees will be trained with this levy;

Control documentation: The Ombud plans to regulate, monitor and control the quality of all sectional titles scheme governance documentation and such other scheme governance documentation as may be gazetted;

Control information: The Ombud plans to take custody of, preserve and provide public access electronically or by other means to sectional title scheme governance documentation and such other scheme governance documents as may be gazetted;

Educate: Education and information programmes are planned for owners, occupiers, executive committees and other persons who have rights and obligations in community schemes;

Governance control: Monitor and promote good governance of a community scheme; and

Waivers and exemptions Some provision is made for application for waivers and exemptions:

Individual units within a community scheme with a total property value not exceeding R 500 000 in terms of the municipal valuation roll are entitled to a 100% percentage waiver of the levies;

Any person or category of persons whose monthly net household (gross income less PAYE) income is below R5 500 are entitled to a 100% waiver of application and adjudication fees; and


Any person of category of persons who may not qualify in terms of the above criteria may lodge an application for discount and/or waiver for consideration by the Chief Ombud depending on the applicant.

Annual payment Every community scheme must pay the levy referred to in this regulation on or before 30 September of each calendar year or as gazetted, with interest at above prime rate for any late or incorrect payment.

The Minister may, by gazette, set and amend:

A levy factor for each of various stated categories of scheme, with definitions of each category;

A maximum amount of the levy for a community scheme in each category; and

The rates of discount or waivers of levies, with details of the qualifications.

Governance duties placed on trustees, directors or other persons who exercise executive control.

A scheme executive must, in addition to other common law and statutory duties:

Know the scheme: Take reasonable steps to inform and educate himself or herself about the community scheme, its affairs and activities and the legislation and governance documentation in terms of which the community scheme operates;

Be informed: Take reasonable steps to obtain sufficient information and advice about all matters to be decided by the scheme executives to enable him or her to make conscientious and informed decisions;

Be present: Attend all meetings of the scheme executives and any annual general meeting, unless excused in writing by the chairperson of the scheme executives on reasonable grounds;

Be independent: Exercise an active and independent opinion with respect to all matters to be decided by the scheme executives; and

Take care: Exercise due diligence in relation to any business of, and necessary preparation for and attendance at meetings.

Insurance duties placed on a scheme A community scheme must insure against the risk of loss of money belonging to the community scheme or for which it is responsible, sustained as a result of any act of fraud or dishonesty committed by any insurable person being:

A scheme executive;

An employee or agent of a community scheme who has control over its money;

A managing agent (namely any person who provides management services to a community scheme for reward); or

A contractor, employee or other person acting on behalf of or under the direction of a managing agent, who in the normal course of the community scheme's affairs has access to or control over the monies of the community scheme.

The minimum amount of the required fidelity insurance cover is the total value of:

The community scheme's investments and reserves at the end of its last financial year; and

25% of the community scheme's operational budget for its current financial year.

The insurance cover must:

Provide for payment of a loss by the insurer to the community scheme within a reasonable period after reasonably satisfactory proof of the loss has been furnished to the insurer; and


Not require that criminal or civil proceedings be taken or completed against the insured person before payment is made under the insurance policy.

A community scheme is not obliged to obtain fidelity cover for an insurable person if that person has delivered to the body corporate written proof that:

The monies of the community scheme are covered by fidelity insurance that complies with the minimum amount and enforcement requirements above; and

The insurer concerned has noted the scheme's interest in the application of the proceeds of the policy and undertaken not to cancel or withdraw cover without giving the community scheme at least 30 days written notice.

Duties placed on access to documents The chief Ombud may by written notice to a community scheme, require that:

The scheme governance documents be lodged with the Service within 30 (thirty) days after the establishment of a community scheme in terms of any applicable law;

Any parts of such documentation that is illegible, incomplete or missing from the records of the community scheme must be replaced; and

The document and all amendments made to it by the community scheme or in terms of any applicable law must be consolidated so as to produce an updated document.

Scheme governance documentation and information A copy of the annual financial statements and any other prescribed document or information must be filed before 31 October each year. Additional fees may be charged for the:

Annual return;

Applications by developers and sectional titles bodies corporate for approval of sectional title body corporate rules;

Applications for and supply of copies of documents;

Applications for the supply of information;

Application for registration of a community scheme;

Further prescribed additional documents and information;

A community scheme must file the application and prescribed fee, within 90 days of:

Coming into effect of the regulation; or

Its date of incorporation in terms of applicable laws.

Legal representation The notice in regard to legal representation during the adjudication process specifically states that legal representation is only allowed if the adjudicator and all parties agree, or the adjudicator determines that a party cannot deal with the adjudication without legal representation.

Power to enter and inspect

The Adjudicator or his or her appointed representative may request assistance of the South African Police Service if they are refused access to enter any premises.


Appeal against the decision of the Adjudicator

The notice in regard to the right of appeal specifically states that a person who is dissatisfied with an adjudicator's order is entitled to appeal to the High Court, but only on a question of law, and must appeal within 30 days after delivery of the order.

Banking information Form CS1 for the registration of a community scheme requires the name of the bank, bank account number and authorised signatory for banking of a scheme to be provided.

Section 31 of the Act will prohibit the disclosure of information kept by the Ombud Service, and section 34 will make it an offence to do so, punishable by a fine and /or imprisonment of up to 5 years.

However, if the registration form with this information is simply put on the Service Intranet and/or stored in open access physical files all employees of the Service, and persons visiting the offices, could conceivably have access thereto. Unless a person is caught red-handed in the process of disclosing such information it would be difficult to become aware and/or prosecute the offence.

Furthermore, the exceptions in section 31 will allow the disclosure of information when required for monitoring, evaluating, investigating or considering any activity relating to the Service or for the proper functioning of the Service is potentially open for wide interpretation in practice.

The possibility that somebody might be caught and prosecuted for disclosing the banking information of a scheme is little comfort to the scheme which can suffer loss of its investment and operational funds from its banking account(s). This is especially disconcerting in light of section 31 which will safeguard the Service or any of its employees from liability for damage or loss caused by the exercise of a power or a performance of a duty under the Act, or the failure to perform such duty or exercise such power.

Levy concerns The levy is proposed to be based on the municipal valuation of the units in a scheme. There is a measure of inconsistency and uncertainty in the two sets of draft regulations regarding levy calculation and payment liability.

Draft general regulation 11 proposes that:

Every community scheme must pay the levy annually on or before 30 September;

The Minister sets and amends a levy factor, a maximum amount of the levy for each category of community scheme and the rates of discounts and waivers for unit owners; and

The levy is calculated by multiplying the total municipal valuation by the applicable levy factor.

Draft fee regulation 2(1) proposes that the prescribed monthly levy payable by every unit within a community scheme is as per a schedule of monthly levies payable according to the municipal valuation of a unit.

It cannot be that the intention is that two sets of levies are to be payable, one payable monthly by every unit and another payable annually by every community scheme.

In terms of section 9(a) of the Act every community scheme must in each year pay to the Ombud Service a levy calculated as prescribed - no provision is made in the Act that unit owners must also pay monthly levies to the Ombud Service.

The situation is further complicated by the fact that different calculations for levies payable are prescribed by the two sets of draft regulations, and the calculations required by each does not seem to dovetail with the other.

GG 39247 – No. R 907 – 2 October 2015.

LABOUR LAWS AMENDMENT BILLGG 39448 – Notice 1174 of 2015 – 25 November 2015


This Private Members Bill, i.e. the Labour Laws Amendment Bill (“the Bill”), was drafted in line with African Christian Democratic Party (“the ACDP”) policy on family values, the Green Paper on Family and as a result of appeals made to the ACDP by fathers who felt strongly that provision should be made in law for “paternity leave”. Fathers play an important role in the upbringing of their children.

The ACDP is of the opinion that such a provision would facilitate early bonding between fathers and their children and that stronger and healthier families would be one of the many potential benefits for society as a whole.

The Bill, which deals with parental leave and also provides for adoption and surrogacy leave, is drafted so as to ensure harmony with current legislation and to ensure the provisions contained in the Bill will pass constitutional muster.

The Basic Conditions of Employment Act, 1997 (Act No. 75 of 1997) (“the Basic Conditions of Employment Act”) provides that an employee may take four months’ maternity leave in respect of that employee’s child. This maternity leave is paid for by the Unemployment Insurance Fund. It further provides that an employee who is the father of the child may take three days’ family responsibility leave when that employee’s child is born. The family responsibility leave is paid for by the employer.

Although an employee is entitled to adoption benefits from the Unemployment Insurance Fund, there is no legal obligation on an employer to grant an adoptive parent adoption leave, as the Basic Conditions of Employment Act does not make provision for the granting of adoption leave. Currently, adoption leave is a matter for negotiation between individual employees and employers. This can be seen as a major obstacle in the way of encouraging adoption.

The Unemployment Insurance Act, 2001 (Act No. 63 of 2001) (“the Unemployment Insurance Act”) provides for the payment of maternity and adoption benefits from the Unemployment Insurance Fund.

Neither the Basic Conditions of Employment Act nor the Unemployment Insurance Act makes provision for the taking of leave nor the payment of benefits in a case where an employee has become a parent through a surrogate motherhood agreement referred to in the Children’s Act.

The Bill seeks to provide for parental leave, adoption leave and commissioning parental leave. It also provides for the payment of parental benefits as well as commissioning parental benefits from the Unemployment Insurance Fund.

An employee who is a parent and who is not entitled to maternity leave, is entitled to ten consecutive days’ parental leave when that employee’s child is born or when an adoption order is granted.

An employee who is an adoptive parent of a child who is younger than two years is entitled to adoption leave of two months and two weeks consecutively. If there are two adoptive parents, one of the employees is entitled to adoption leave and the other employee is entitled to parental leave.

An employee who is a commissioning parent in a surrogate motherhood agreement is entitled to commissioning parental leave of two months and two weeks consecutively. If there are two commissioning parents, one of the employees is entitled to commissioning parental leave and the other employee is entitled to parental leave.

The proviso that an employee may take family responsibility leave when that employee’s child is born is removed,

a collective agreement concluded in a bargaining council may not reduce an employee’s entitlement to parental leave, adoption leave or commissioning parental leave.

There will be financial implications for the State, in particular the Unemployment Insurance Fund, which will be required to pay the new benefits envisaged in the Bill.

KING IVIntroductionThe new version of the King Code as provides a more practical, principle based approach to good corporate governance, and also incorporates both global public sentiment and international regulatory change since King III was issued in 2009.


The Code is principle-based and follows an outcome-based rather than rule-based approach. This is in line with current international sentiment which promotes greater accountability and transparency. It speaks to the expressed view that the application of the Code should contribute to the performance and health (sustainability) of the company. In this regard it is clear that King IV aims to establish a balance between conformance and performance. The code reinforces corporate governance as a holistic set of arrangements that concerns itself with ethical leadership, attitude, mind-set and behaviour. This echoes global developments in the conduct risk arena and also seeks to address and prevent recent examples of corporate failure.

There is a clear focus on transparency and targeted disclosures in all areas, specifically in the introduction of far more extensive executive remuneration disclosure.

The King IV Report has been structured as a framework that can be applied more easily across listed and unlisted companies, profit and non-profits as well as private and public entities. As such the Code refers to “organisations” and “governing bodies”.

The approach of “apply or explain” of King III is replaced with “apply and explain” – application of all the principles is assumed and companies should explain the practices that have been implemented to give effect to each principle.

King IV applies a principle-and-outcome based approach, and moves away from a tick-box approach. The 75 King III principles have been consolidated into 16 principles, each linked to very distinct outcomes. The focus in King IV is clearly on ensuring that the application of the principles achieves specifically identified outcomes. Each principle is supported by a limited number of recommended practices, and requires specific disclosures.

In line with international developments, remuneration has received far greater prominence in King IV. While King III required the remuneration policy to be tabled for a non-binding advisory vote of shareholders, King IV recommends that both the remuneration policy and an implementation plan (stipulating the various aspects of remuneration together with a link to performance) be tabled for a non-binding advisory vote. However, where the policy or implementation plan is not approved by at least 75% of shareholders, the remuneration committee must consult shareholders and disclose the nature and outcomes of such consultations. Interestingly, the social and ethics committee has been tasked to oversee fair and responsible executive remuneration practices in light of overall employee remuneration.

In light of the prevalence of the Fourth Industrial Revolution, King IV has deliberately separated technology and information. King III first officially introduced IT Governance to Corporate Governance in South Africa and demanded a greater level of IT risk awareness at director level. King IV recognises information separate from technology as a corporate asset and confirms the need for governance structures to protect and enhance this asset.

King IV recommends the establishment of a social and ethics committee (SEC) as a prescribed Board committee as best practice for all organisations. King IV recommends that the role of this committee goes beyond the functions listed in the Companies Act, and be extended to include matters pertaining to ethical behaviour and ethics management. Also, King IV proposes greater integration between the role and function of the SEC and other Board committees.

King IV emphasises the critical role of stakeholders in the governance process. Not only must the Board consider the legitimate and reasonable needs, interests and expectations of stakeholders as a matter that enjoys intrinsic value, but King IV now specifically recognises the role and responsibilities of stakeholders - active stakeholders are required to hold the Board and the company accountable for their actions and disclosures.

King IV has a strong focus on opportunity management and is proposing a name change from risk committee to risk and opportunity committee. Perhaps more significant, the Code recommends the overlap of membership of the risk and audit committee’s where these function as separate committees, for better functioning. If the roles are combined in a single committee, the meeting agendas to address audit, and risk and opportunity, should be separate. While this might seem administrative in nature, it does increase the prominence of the risk and opportunity oversight role of the Board.


King IV has acknowledged the need to assess and confirm the external auditor’s independence, but does not specifically address audit firm rotation. King IV suggests that the audit committee oversees auditor independence, considering the impact of non-audit services, audit firm tenure and audit partner rotation. King IV proposes a number of specific disclosures which may be included in the audit committee report, including any significant audit matters considered and how the committee has addressed the matters.

The concept of independence has evolved from King III where a list of disqualifications from independence was provided. King IV takes a more practical approach and focuses on the perception of independence by an informed third party, rather than factual independence or a tick-box approach. King IV emphasises the fact that independence is predominantly a state of mind which is a moral characteristic and legal duty of all directors.

From a strategy and performance point of view King III encouraged the Board to play a prominent role in the strategy development process. King IV clarifies this position and specifically requires the Board to approve the formal strategy and then provide oversight over the policies and plans that are developed from the approved strategy.

King III introduced the concept of the triple bottom line reporting, where profit, planet and people were taken into consideration when reporting on performance. Since the release of the King III, there have been significant global developments in corporate reporting, notably the release of the Integrated Reporting Framework by the International Integrated Reporting Council (IIRC) in 2013. While there is no formal requirement to apply the IIRC’s Integrated Reporting Framework, the concepts and principles introduced by the IIRC have been reaffirmed in the King IV Code and the philosophy of integrated thinking has been incorporated into the Code.

The underlying theme of King III emphasised the Board’s responsibility for business sustainability. These principles are now well embedded and, as described above, King IV brings a renewed focus on ethical leadership and good governance.

Although the role of ethical leadership was recognised in King III, King IV brings a more refined focus in terms of the obligation of the organisation (to be accountable and transparent) as well as the accountability of the company as broader stakeholder within the broader society.

The Board takes ultimate responsibility for the company as a juristic person and needs to be accountable.

Responsibility – King IV echoes the approach in the Companies Act that emphasises the role of the company in society and its obligation to behave as a responsible citizen. The Board assumes ultimate responsibility for this obligation and has to embed this ethical character and culture in all the strategy, plans, processes and performance of the company. It is critical that the Board understands their obligation with regard to ethical character and culture, and that the Code specifically states that this obligation cannot be delegated.

Stakeholder Accountability – the Board is accountable to all stakeholders for its company’s ethical conduct through the stakeholder inclusive model. As defined by King IV, the Board should consider the legitimate and reasonable needs, interests and expectations of the stakeholders not merely as an instrument to serve the interests of the stakeholder but as a matter of intrinsic value. The intrinsic value of the broader stakeholder (as opposed to only the shareholder) in the creation of value remains prominent in King IV.

King III introduced Integrated Reporting (IR) to the South African market, and this was followed by international developments regarding IR. King IV uses this philosophy and terminology that has been developed with the view of building legitimacy and trust in the value creation process. King IV also incorporates the concept and importance of integrated thinking. The philosophy of integrated thinking is embedded throughout the Code and the practice recommended by the Code is to present the company’s material information in an integrated manner by issuing a report annually.

Introduction to supplements

These should not be read in isolation but together with the King IV Report.


Purpose of the supplements

Provide guidance and direction on how the King IV Code should be interpreted and applied by the various categories and sectors of organisations.

The guidance provided explains how the recommended practices in the Code could be customised to meet the situational specifics of the various sectors.

They illustrate the general approach to the application and interpretation of the Code.

Reconciling King IV to legislation:

Applicable legislation sets the minimum standards to be complied with.

If King IV sets more onerous standards, organisations should strive to achieve the higher standards.

If there is a conflict between the legislation and King IV, the legislation prevails.

UNEMPLOYMENT INSURANCE AMENDMENT BILL VERSION B 2015The Amendment Bill 2015 version B proposes, amongst others:

Requiring every employer before the seventh of a month to provide all prescribed information for the previous month (with exceptions in regulations for domestic employers and small businesses);

Applying the Act to learnership agreements, public sector employees and persons who enter SA to carry out a contract of service, apprenticeship or learnership within SA if upon the termination the employer must repatriate that person or that person is required to leave SA;

Using the fund to finance the retention of contributors in employment and the re-entry of contributors into the labour market and any other scheme aimed at vulnerable workers;

Aligning the enforcement of the Act with other labour laws;

Amending the income replacement rate; and

Revamping benefits, for example:

― Certain loss of income included if due to reduced working time;

― 12 months to apply for general or maternity benefits (18 months for dependents benefits);

― 1-day benefit for every 5 days;

― Maternity benefits, or compensation for occupational injuries or diseases benefits, not to affect unemployment benefits;

― Illness benefits limitation only if less than 7 days ill; and

― Reconsideration of maternity benefits relating to a stillbirth or miscarriage; and

Any nominated beneficiary of the deceased contributor may claim dependant’s benefits if there is no surviving spouse, life partner or dependant children of the deceased contributor.


OTHER IMPORTANT NOTICES ESTATE AGENTS – CPD UPDATE

As the first year of the first CPD cycle draws to a close, it has become apparent that some estate agents on the current CPD cycle may, for one reason or another, have not been able to accumulate the required fifteen verifiable CPD points.

Estate agents are reminded, in this respect, that all persons who held a valid fidelity fund certificate, whether as principal or non-principal estate agents, issued by the EAAB during 2015, excluding only those persons who held intern fidelity fund certificates, were obliged not only to have registered for CPD purposes but also to have accrued fifteen verifiable and five non-verifiable CPD points.

The EAAB has resolved to implement an appropriate catch-up programme designed to assist non-compliant participants to obtain any outstanding verifiable CPD points that may still be required.

The catch-up programme will take the form of a CPD e-learning intervention. Such e-learning may be accessed by all participants still needing to obtain verifiable CPD points through the “MyCPD” portal on the EAAB website (www.eaab.org.za) as from 1 November 2015.

Estate agents who enrolled on-line for participation in the 2015 CPD programme by completing the required Personal Development Plan (“PDP”) and making payment of the required CPD fee, but who failed to accumulate the required fifteen verifiable CPD points for that year, will be granted until 31 December 2016 to ‘catch-up’ on any outstanding points. Such persons will be given internet access, depending on their individual PDPs, to a video recording of relevant CPD presentations made during the course of 2015, including both the slide presentations utilised by the facilitators at those events and the learning guides provided to event participants. The e-learning participants will, after having duly viewed the presentation in question and having also considered the slides and other learning material, be required to answer ten randomly generated multiple-choice questions relating to the presentation in question. Participants correctly answering at least 70% of the multiple-choice questions will be awarded the three verifiable CPD points for that particular CPD intervention. Participants who do not correctly answer at least 70% of the multiple-choice questions will be required to review the presentation and materials until such time as they are able correctly to answer at least 70% of the multiple-choice questions.

SPECIAL VOLUNTARY DISCLOSURE PROGRAMME IN RESPECT OF OFFSHORE ASSETS AND INCOME

The Special Voluntary Disclosure Programme (SVDP) will give an opportunity to non-compliant taxpayers to voluntarily disclose offshore assets and income before the new global standard for automatic exchange of information between tax authorities commences in 2017.

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