FSCA suspends Ithala’s licence over solvency concerns
Ithala operated with a renewable banking licence exemption notice, which lapsed in December after Ithala failed to meet some conditions laid out by the PA
23 August 2024 - 15:52
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Office of KwaZulu-Natal state-owned company Ithala. Picture: SUPPLIED
Embattled KwaZulu-Natal owned development agency Ithala, which harbours ambitions of being a fully fledged bank, has suffered another blow after the Financial Sector Conduct Authority (FSCA) suspended its licence.
The FSCA said it failed to meet financial soundness requirements, saying solvency was a critical element for the viability of any financial services provider (FSP).
“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 watchdog said on Friday
“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.”
Business Day reported in 2023 that the Durban-based company was under fire from the FSCA for failing to submit financial reports for two years.
But the regulator at the time stopped short of sanctioning it, directing it instead to remedy its breaches of the law if it wanted to avoid having its licence suspended or withdrawn.
This was after the FSCA found that Ithala did not keep clients’ short- and long-term insurance funds in separate, ring-fenced accounts, as required by the Financial Sector Regulation Act.
“Following the suspension decision, Ithala made an application to the Financial Services Tribunal (“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 August 22 2024. A hearing date for the reconsideration application before the Tribunal has not yet been determined,” the FSCA said.
Ithala has its origin in the establishment of the Bantu Investment Corporation in 1959, which was set up to cater for the black community in KwaZulu-Natal. Now it funds small, medium and micro enterprises, co-ops and infrastructure projects.
The company is scrambling to secure a sponsorship agreement with a bank authorised to clear and settle payments in the national payment system, after its long-term banker, Absa, informed it of its intention to terminate their nearly 20-year agreement.
According to the country’s banking laws, nonclearing financial services companies such as Ithala participate in the national payment system indirectly through sponsorship agreements with other clearing banks. Without a sponsor, it is practically impossible to do business and transact in SA.
Finance minister Enoch Godongwana urged Ithala to lower its ambitions and consider partnering with an established lender or apply for a less strenuous mutual bank licence while it regularises its affairs to qualify to become a commercial bank.
This is as Ithala engages with the Prudential Authority (PA) in a high-stakes game over its lapsed exemption and the appointment of a repayments administrator.
While not a bank, Ithala takes deposits due to an exemption granted to it by the PA. Ithala has, until recently, been operating with a banking licence exemption notice, which is renewable every 12 to 24 months.
The last exemption lapsed in December — after Ithala failed to meet some of the conditions laid out by the PA.
The expiry of the exemption saw the PA appoint Johan Kruger, one of SA’s leading investigators into Ponzi and pyramid schemes, as Ithala’s repayment administrator after a court order in December, essentially taking over Ithala’s deposit-taking activities.
However, the Pietermaritzburg high court ruled in March that Ithala should have been given an opportunity to state its case before court when the application to appoint Kruger was made.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
FSCA suspends Ithala’s licence over solvency concerns
Ithala operated with a renewable banking licence exemption notice, which lapsed in December after Ithala failed to meet some conditions laid out by the PA
Embattled KwaZulu-Natal owned development agency Ithala, which harbours ambitions of being a fully fledged bank, has suffered another blow after the Financial Sector Conduct Authority (FSCA) suspended its licence.
The FSCA said it failed to meet financial soundness requirements, saying solvency was a critical element for the viability of any financial services provider (FSP).
“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 watchdog said on Friday
“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.”
Business Day reported in 2023 that the Durban-based company was under fire from the FSCA for failing to submit financial reports for two years.
But the regulator at the time stopped short of sanctioning it, directing it instead to remedy its breaches of the law if it wanted to avoid having its licence suspended or withdrawn.
This was after the FSCA found that Ithala did not keep clients’ short- and long-term insurance funds in separate, ring-fenced accounts, as required by the Financial Sector Regulation Act.
“Following the suspension decision, Ithala made an application to the Financial Services Tribunal (“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 August 22 2024. A hearing date for the reconsideration application before the Tribunal has not yet been determined,” the FSCA said.
Ithala has its origin in the establishment of the Bantu Investment Corporation in 1959, which was set up to cater for the black community in KwaZulu-Natal. Now it funds small, medium and micro enterprises, co-ops and infrastructure projects.
The company is scrambling to secure a sponsorship agreement with a bank authorised to clear and settle payments in the national payment system, after its long-term banker, Absa, informed it of its intention to terminate their nearly 20-year agreement.
According to the country’s banking laws, nonclearing financial services companies such as Ithala participate in the national payment system indirectly through sponsorship agreements with other clearing banks. Without a sponsor, it is practically impossible to do business and transact in SA.
Finance minister Enoch Godongwana urged Ithala to lower its ambitions and consider partnering with an established lender or apply for a less strenuous mutual bank licence while it regularises its affairs to qualify to become a commercial bank.
This is as Ithala engages with the Prudential Authority (PA) in a high-stakes game over its lapsed exemption and the appointment of a repayments administrator.
While not a bank, Ithala takes deposits due to an exemption granted to it by the PA. Ithala has, until recently, been operating with a banking licence exemption notice, which is renewable every 12 to 24 months.
The last exemption lapsed in December — after Ithala failed to meet some of the conditions laid out by the PA.
The expiry of the exemption saw the PA appoint Johan Kruger, one of SA’s leading investigators into Ponzi and pyramid schemes, as Ithala’s repayment administrator after a court order in December, essentially taking over Ithala’s deposit-taking activities.
However, the Pietermaritzburg high court ruled in March that Ithala should have been given an opportunity to state its case before court when the application to appoint Kruger was made.
Khumalok@businesslive.co.za
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