In a recent article published by the FSCA in the Financial Mail, the financial regulator appealed for financial institutions to treat their clients fairly. While the article itself tells us little we do not already know about the FSCA’s role in the South African financial world, the timing of the article is interesting.
It is no secret that South Africa and South Africans have had a bad year financially. A country already wracked by economic difficulties then took a catastrophic hit from the Covid-19 pandemic. This has led to the junking of both government and private debt and a severe economic contraction – Q2 2020 showed an annualised growth rate of -51%.
In amongst the economic and medical drama, the FSCA started cracking down hard on Forex brokers and rogue Forex and cryptocurrency scammers. JP Markets was the first Forex broker to fall, shortly followed by Oinvest. We have since seen Mirror Trading International coming under fire following allegations of massive Bitcoin fraud and new laws drafted to protect consumers who buy cryptocurrencies through service companies.
Which brings us back to the latest appeal by the FSCA for financial companies to treat their customers fairly. In the article, the FSCA’s head of communication, Tembisa Marele, says that firms must ensure that that their products are suitable for the customers they are selling to: “Before selling a product, a service provider should interrogate the quality of that product and whether the circumstances of the customer are suitable for that product”.
This point here is clear, South African Forex brokers need to make sure that their customers’ financial health is sufficient for the high risk attached to Forex trading. It is also insinuated that it is the responsibility of the broker to ensure that its customers have a good understanding of the financial markets and the risks posed.
Somewhat ominously, the article also states that:
“The FSCA continues its work of aligning its regulatory framework that reflects and supports the Treating Customers Fairly initiative and leads to fairer treatment of customers. The FSCA will monitor the compliance of the sector by using proactive supervisory approaches, which enables the authority to anticipate problems and intervene at the right time, to prevent bad customer outcomes.”
Talk of a proactive supervisory approach should come as no surprise following the FSCA’s interventions earlier in the year. What is new here is that the FSCA believes that regulatory changes are necessary to ensure that financial service providers are not mis-selling financial products to under-educated or financially disadvantaged consumers.
Following hot on the heels of new regulations for cryptocurrency brokers, is this statement signalling a shift in focus for the FSCA? While it may not seem that way at first glance – much of the language in the article is innocuous enough – Forex brokers, and other derivative providers, may want to make sure that their due-diligence protocols are up-to-date and are being followed correctly.
Onboarding new clients in the Forex trading industry is very competitive, and some brokers have been known to cut corners in their quest to bring in more business – it may be time take a little extra care.
Image Courtesy: FSCA