FSCA gears up for tougher enforcement as scams and misconduct rise

Rogue insurers, crypto cowboys, exam cheats, and weak anti-money laundering controls – the Financial Sector Conduct Authority has its hands full. With digital platforms fast becoming breeding grounds for financial deception, the regulator is sharpening its focus and bracing for a year of tough enforcement.

In its latest Regulatory Actions Report for 2024/25 year, released this week, the FSCA outlines the key risk areas that will shape its enforcement priorities. These include online harm – such as social media scams, unlicensed signal providers, and “finfluencers” – as well as the misuse of financial licences to front unauthorised operations, fraud linked to the regulatory exams, misleading advertising, and inappropriate product claims.

Non-compliance with anti-money laundering and counter-terrorism financing (AML/CFT) frameworks, along with unauthorised crypto-related financial services, also feature prominently on the FSCA’s enforcement radar.

Digital deception top enforcement priority

Online harm is now enemy number-one for the FSCA. Listed as the top enforcement priority in the report, the Authority warns that financial scams are evolving fast – and social media is fuelling the fire.

At a media roundtable yesterday, the FSCA’s head of enforcement, Gerhard van Deventer, said the threat spans everything from social media scams and deepfake adverts to harmful financial products pushed via online trading platforms.

Consumers are losing significant sums to schemes that are increasingly sophisticated. Paid ads and user-generated content are used to peddle fake investment opportunities, many of which have no ties to legitimate financial services providers.

The report highlights a range of tactics, including unregulated over-the-counter derivative providers targeting South Africans, local FSPs doing business with those providers, the impersonation of licensed entities, copy-trading, and finfluencers offering unauthorised advice.

To fight back, the FSCA has adopted a multi-pronged strategy. In the past year alone, it issued 107 public warnings about unlawful financial activities, many linked to promises of “guaranteed profits”, “unrealistic returns”, and unlicensed operators on social media.

The FSCA is also tracking and investigating harmful online activity, actively reporting dodgy content to platforms such as Facebook and Telegram. In many cases, it requests domain takedowns. But the Authority wants more teeth. Van Deventer shared that a new law is in the works that would allow it to issue direct takedown notices.

“We did start developing relationships with platforms, because we know that this is not something that you can stop with enforcement. It’s not a South African problem, it’s an international problem,” Van Deventer said.

He added that although some platforms co-operate – particularly with website takedowns – hotline-style reporting systems aren’t enough.

“Those lines are really for the public, and the problem with those lines is we don’t get any feedback whether anything has actually been done.”

As part of the International Organization of Securities Commissions, the FSCA is working with its global counterparts to crack down on online scams and hold platforms accountable. Efforts include pushing for stronger gatekeeping, removing fraudulent content, and improving direct engagement between regulators and tech companies.

Crackdown on unregistered insurance, with funeral parlours in the spotlight

Unregistered insurance business continues to be a major concern for the FSCA – and funeral parlours are the biggest offenders. Of the 184 unregistered insurance cases identified in the report, 92% relate to funeral policies.

The Authority notes that many parlours continue to “self-underwrite” policies and collect premiums without a licence, in direct contravention of the Insurance Act. It adds that although these operators may offer essential services, their unregulated status poses serious risks for consumers, who are often left without recourse when claims go unpaid.

“This poses significant risks to the public, as parlours are not subject to prudential oversight,” the FSCA warns. “There are no guarantees that they have the financial capacity on their own to honour claims.”

South Africa’s funeral services sector is vast and loosely regulated, with more than 10 000 entities estimated to be operating – including about 4 000 funeral parlours offering insurance-type products. Many operate informally, using a membership model where customers pay monthly contributions in return for funeral benefits.

The FSCA attributes the rise in enforcement actions to growing awareness, better industry collaboration, and efforts by its dedicated unregistered insurance team. In response to ongoing risks, the FSCA and Prudential Authority have launched a full review of the regulatory framework around funeral insurance distribution.

Read: Updated | Dates for workshops on funeral insurance regulations

Unauthorised guarantee policies

But it’s not just the funeral sector that’s under scrutiny. The FSCA is also flagging concerns over unauthorised guarantee policies, often issued in favour of state entities for infrastructure projects. Several municipalities have suffered financial losses after unlicensed guarantors failed to pay claims, sometimes leading to litigation.

These entities often claim protection under the National Credit Act (NCA), but the FSCA holds that: “Whether a contract for the provision of a guarantee constitutes insurance depends on the features of that contract… The possible application of the NCA does not exclude the application of the Insurance Act.”

Citing two unchallenged High Court decisions – Becker v Registrar of Financial Services Providers (2017) and Fern Finance and Another v Financial Services Tribunal (2022) – the FSCA maintains that any guarantee falling under the definition of non-life insurance must be issued by a licensed insurer.

It is currently opposing a High Court application that seeks to sidestep this requirement by arguing that such guarantees fall solely under the NCA.

The report also raises red flags about unregistered insurance practices in the transport sector. The FSCA has received complaints about relocation companies offering add-on cover that may constitute illegal insurance.

“While some instances appear to stem from a misunderstanding of the applicable legal framework, others suggest a deliberate disregard for the law,” the FSCA notes. It adds that although it does not regulate the transport industry, it will act decisively when financial sector laws are breached.

Weak AML controls a systemic risk

The FSCA is calling out persistent weaknesses in how financial institutions manage money laundering and terror financing risks.

In the report, the Authority highlights widespread non-compliance with the Financial Intelligence Centre Act (FICA), particularly around the implementation of effective Risk Management and Compliance Programmes (RMCPs).

“Many institutions fail to properly develop, document, maintain, and implement an RMCP,” the FSCA notes.

These frameworks are not optional. They’re required by law – and essential for identifying, assessing, and managing the risk of products and services being abused for criminal purposes. The FSCA emphasises that RMCPs must be supported by solid governance and meet the minimum standards set out in FICA.

“A well-implemented RMCP is critical not only for institutional protection but also for preserving the integrity of South Africa’s financial system,” the FSCA warns.

Crucially, the absence of proven money laundering or terrorist financing activity is no excuse. Institutions are still expected to have strong, functioning controls in place – or face enforcement action.

Unauthorised crypto service providers

The FSCA continues to monitor and investigate crypto asset service providers (CASPs) operating without authorisation, following the formal classification of crypto assets as financial products in October 2022.

Entities that applied for a licence by the 30 November 2023 deadline were allowed to operate while their applications were under review. As of 12 May, the FSCA had received 453 applications. Of these, 264 were approved, 109 were voluntarily withdrawn after engagement with the Authority, and 11 were declined.

After the exemption period ended, the FSCA launched investigations into 36 entities suspected of operating as CASPs without approval. Twenty-one of these cases have been closed – in some instances, entities had ceased trading or were found to be compliant under the exemption. Fifteen investigations are ongoing.

Speaking at the roundtable, FSCA Deputy Commissioner Katherine Gibson said the Authority has adopted a risk-based, outcomes-focused approach to investigations, given the nature of the work and the resources required.

“This is regulators’ speak for saying that we focus our attention on cases with the biggest impact. And I say this, and I’m emphasising it, because what we are prioritising as well, is breaking down the time it takes for cases to be concluded.”

Gibson added that quicker resolution of cases will rely on clear prioritisation.

“Case selection is guided by our core priorities and aims to optimise remediation and deterrence,” she said.

Rising fraud targeting RE exam candidates

The FSCA is sounding the alarm on a growing scam targeting individuals who have failed their FAIS Regulatory Examinations (REs). According to its latest report, fraudsters are luring desperate candidates with fake online exams and counterfeit certificates – often using personal registration data to pull off the deception.

The Authority adds that scammers are exploiting social media, particularly RE exam support groups, to find victims. In many cases, they use forged invoices bearing the official exam body’s logo to make their schemes appear legitimate.

This “emerging and concerning trend,” as the FSCA describes it, has prompted the Authority to ramp up its investigations into RE-related fraud. A dedicated team is already tackling a range of offences, including identity theft, social media scams, and forged RE certificates.

But the problem doesn’t stop with the scammers. The FSCA points out that some FSPs are quietly removing employees who present fake RE certificates – without triggering formal debarment proceedings.

“These individuals are then often re-employed by other FSPs, perpetuating the risk to the industry and the public,” the report notes.

The FSCA is urging the sector to tighten its due diligence and verification processes and take misconduct more seriously.

“To address this, the FSCA intends to intensify its supervisory efforts and raise awareness about the importance of considering debarment in cases involving misconduct.”