THE Financial Sector Conduct Authority (FSCA) announced on 23 August that it has suspended the licence of Ithala SOC Limited in terms of the Financial Advisory and Intermediary Services Act (FAIS Act). The suspension is effective from 26 July 2024 and will remain in place until Ithala meets the conditions for the lifting of the suspension of its licence.
Ithala was authorised in terms of the FAIS Act, to act as a category 1 Financial Services Provider (FSP). Through ongoing supervision, the FSCA identified that Ithala does not meet the financial soundness requirements specified in the Determination of Fit and Proper Requirements 2017.
“It is imperative that FSPs comply with the requirements of the FAIS Act, which are aimed at protecting the interests of financial customers. Solvency is a critical element for the ongoing viability of any FSP, and compliance with the solvency requirements is of utmost importance. This is relevant to the financial customer protection objective of the Authority,” the FSCA said.
Solvency requirements are imposed inter alia to ensure that an FSP is able to meet unforeseen liquidity needs and to accomplish, where necessary, the orderly resolution of the business of the FSP without prejudicing the interests of clients or other stakeholders.
The FSCA said that the suspension of the licence means that Ithala is prohibited from concluding any new business as envisaged by the FAIS Act, and must, in consultation with the clients and product suppliers concerned, take reasonable steps to ensure that any outstanding business is transferred to another authorised FSP. Under the suspension, Ithala is permitted to continue providing financial services for existing business.
Dr Thulani Vilakazi, Ithala SOC Limited CEO said, “Ithala remains open and operational to service existing clients and accounts and can reassure customers that their funds are safe and there is no need to withdraw their money.
“Those who get tender funding are serviced by Ithala’s parent body, Ithala Development and Finance Corporation (IDFC), which is a separate entity.”
The KwaZulu-Natal MEC for Economic Development, Tourism, and Environmental Affairs, Reverend Musa Zondi, said Ithala SOC Ltd is “a pillar of economic strength for the marginalised, especially rural folk in the province” and will not be allowed to shut its doors.
Addressing the media in the wake of the suspension of Ithala’s FSP licence by the FSCA, the MEC said the Premier of KZN Thami Ntuli (pictured) and the provincial Cabinet will take up the cudgels on behalf of Ithala with the Minister of Finance, the National Treasury as well as President Cyril Ramaphosa.
“Ithala’s problems are not only financial but also political. The political interests of the national government as far as Ithala is concerned must be aligned with that of the provincial government. After all we are one country,” Zondi said.
“The ultimate solution lies with the national government. Hence the provincial leadership will work with the Treasury and other parties to find a lasting solution,” he said.
Vilakazi said Ithala has been a catalyst for building an inclusive economy, creating wealth, and transforming people’s lives.
“Ithala has steered a steady ship – for over 20 years since the corporatisation of Ithala, it has been able to meet depositors’ demands. And one of the key aspects is that Ithala has never ever dipped into the depositors’ funds to cover its losses.
“The suspension of our FSP licence follows a refusal by the FSCA to grant Ithala an exemption against the Financial Soundness Requirements which had been granted for several years, with the latest exemption having expired on 30 June 2022.
“It is important to note that the financial soundness requirements set out in the BN 194 of 15 December: Determination of Fit and Proper Requirements (BN) do not apply to FSPs that are registered banks as provided for in Section 43. Ithala is not a normal FSP as envisaged in the previously mentioned BN and is also not a registered Bank as provided for in Section 1 of the Banks Act.
“The complex nature of a business like Ithala which is the only one in the country is that, despite it not being a registered bank, it was authorised for over two decades to accept and hold deposits. It is for that reason that the FSCA had rightly exempted Ithala from the requirements of the BN due to the impossibility of Ithala to comply with such requirements given the nature of its business. It is important to note that without this blanket exemption, all registered Banks will more likely be unable to comply with these requirements,” Vilakazi said.
Following the suspension decision, Ithala made an application to the Financial Services Tribunal for the reconsideration of the FSCA’s decision and simultaneously applied for the interim suspension of the decision pending the outcome of the reconsideration application. The Tribunal dismissed the interim application on 22 August 2024. A hearing date for the reconsideration application before the Tribunal is expected.
