Ithala’s FSP licence was suspended due to non-compliance issues which included a consistent deficit (liabilities exceeding assets) in the last four years.
This was revealed by the Financial Sector Conduct Authority (FCSA) and the Prudential Authority (PA) during their presentation to the standing committee on finance held in Durban on Wednesday.
The FCSA said it was actively engaging with Ithala Bank to explore possible options for a remedial plan.
The standing committee on finance chairperson, Dr Joe Maswanganyi, said he believes that Ithala’s compliance issues can be resolved.
Last week, KwaZulu-Natal MEC for Economic Development, Tourism and Environmental Affairs, Reverend Musa Zondi and KZN Premier Thami Ntuli said they would be taking the matter of Ithala Bank to the Office of the Presidency.
The FCSA said given Ithala’s previous bank-like status they were exempted from the financial soundness requirements in terms of the Financial Advisory and Intermediary Services Act.
“The financial statements of Ithala from the last four years (2020-2023) show a consistent deficit (liabilities exceeding assets), worsening each year. Ithala has failed to remedy this non-compliance since the expiry of its exemption from the financial soundness requirements on July 30, 2022.”
Ithala Bank, according to the FCSA, has not shown sufficient efforts to meet these requirements and has provided insufficient justification against the licence suspension.
“Consequently, the FSCA suspended Ithala’s FAIS licence on July 26, 2024. The suspension is for a period of three months to allow Ithala to rectify its non-compliance. The FSCA has also notified Ithala of its intention to withdraw the FAIS licence if non-compliance persists.”
According to the FCSA, during this period Ithala is prohibited from conducting any new business. “Ithala is required to inform all affected clients and product suppliers concerned that its licence has been suspended.
“It is required, in consultation with the clients and insurers concerned, to take reasonable steps to ensure that any outstanding business is transferred to another authorised Financial Service Provider (FSP) in the best interest of the clients.”
The financial regulator added that the suspension may be lifted at any time during the three-month suspension period if compliance is demonstrated.
“This includes meeting the necessary solvency requirements as per the FSCA’s fit and proper standards. Ithala must submit proof of compliance with these solvency requirements to the FSCA to initiate the lifting of the suspension.
“If Ithala fails to meet the solvency requirements and provide proof within the three-month period, the FSCA will proceed with the withdrawal of Ithala’s licence upon the expiry of the suspension period. The suspension letter issued to Ithala includes a notification of the FSCA’s intention to withdraw the licence if compliance is not achieved.”
The FCSA also revealed that on August 26 Ithala wrote to them with a proposal regarding the future of its insurance business, which is currently operating under a suspended FSP licence.
“The proposal aims to identify a way forward that ensures the continuity of the insurance business while addressing the concerns that led to the suspension.
The FSCA is actively engaging with Ithala to explore possible options for a remedial plan or alternative solution.”
The PA, which falls under the SA Reserve Bank and regulates financial institutions, said that over the years it had expressed concerns regarding the effectiveness of Ithala’s boards.
“This includes compliance with the exemption notice and applicable legislations and Ithala’s adherence to banking practices as well as the prolonged vacancies, challenges in attracting experienced and skilled banking executives, and the need to establish a succession planning framework.”
The PA added that Ithala has consistently failed to meet the requirements outlined in the Exemption Notice(s), especially those related to the Banks Act.
“Ithala failed to submit its annual financial statements within the specified period and to comply with the requirements for submitting monthly returns.
There are also challenges in attracting experienced and skilled banking executives.”
Maswanganyi said that they needed these presentations to understand the reasons for the suspension of Ithala’s FSP licence.
“We do understand it is a compliance issue. The problem is not that big that it can’t be resolved. If Ithala complies with all the issues, the licence will be reinstated and in the future receive a full banking licence,” said Maswanganyi.
Dr Thulani Vilakazi, CEO of Ithala Bank, said Ithala SOC Limited welcomed the constructive and non-adversarial tone of the parliamentary committee.
“The Standing Committee made it clear that the PA and FSCA should replace their compliance agenda with a roadmap for transformation. It is hoped the regulatory authorities take heed of the advice of the Standing Committee which places high emphasis that Ithala must be accorded special treatment, given its legacy as a grassroots financial institution.”
Vilakazi added that Ithala has steered a steady ship for over 20 years since the corporatisation of the bank and had been able to meet depositors’ demands.
“One of the solvency requirements for a non-bank is that the current or short-term assets must exceed its current or short-term liabilities. Due to the bank’s operating, this requirement of current assets exceeding current liabilities can never be met. Hence all banks are exempted.”
The Mercury