Are South Africa's FSCA's efforts to halt illegal trading sufficient?

Africa's greatest participant in the online FX market is South Africa.

According to experts, the FCSA is progressing slowly.

Africa's greatest participant in the online FX market is South Africa. Over 1000 financial institutions and over 190,000 FX dealers are present in the nation.

The most traded currency in Africa is the South African Rand. It is the 18th most traded currency on a global scale.

Around $25 billion USD is exchanged daily on average in the South African FX market, according to SA Shares, a website that lists equities that are listed on the Johannesburg Stock Exchange.

Additionally, BusinessTech estimates South Africa's total daily foreign exchange turnover for all FX instruments, including Contracts for Difference (CFDs) and Spot Trading, at roughly $2.21 billion in 2019.

Due in large part to the Financial Sector Conduct Authority's strict regulatory environment, South Africa now holds the top position in Africa for foreign exchange (FSCA).

Online forex trading is permitted in the nation when conducted through a registered broker.

The Battle for FSCA Compliance

The country's Financial Service Board of 2004 governed the nation's forex business until the formation of the FSCA, which was established in 2018. The latter is now replaced by the former.

The FCSA is the most established and well-respected regulator on the continent, despite the fact that its structure is not yet as robust as that of foreign authorities. Additionally, it oversees a few of the international brokers operating in Africa.

Late in May, the FSCA penalized Brite Advisors, a financial service provider (FSP), and Nigel James Green, a former director of the organization, administrative penalties of R12.5 million for breaking “several financial sector legislation.”

Earlier in April, the financial watchdog fined Melusi Christian Ntumba, CEO of Smart Billion Investments, an administrative penalty of R10 million since his business only used a “miniscule amount” of customers' trading funds to purchase CFDs.

Additionally, the organization fined Renault Otto Kay, a director of the business, R500,000 in administrative penalties.

The remaining monies of the customers' accounts, according to FSCA, were used for withdrawal requests as well as for personal and professional costs.

Ntumba and Kay were also banned for periods of five and ten years, respectively.

Some of FSCA's regulatory monitoring operations in South Africa include the two most recent instances.

Is the FSCA, Africa's largest regulator of the forex market, doing enough to curtail unlawful trading, though？

How Much Is the FSCA Doing？

The FCSA implemented a new licensing framework in August 2018 that made it necessary for all over-the-counter derivatives providers (ODPs), both new and old, to hold an ODP license before they could supply derivative products to South Africans.

Fanews.co claims that this new regime primarily impacts banks, other non-banking financial institutions, including CFD and FX brokers that provide their clients with OTC derivatives.

Although the license process has been going along, Heinrich Le Roux, the MD of TradeFX, a South African forex broker review website, told Finance Magnates that it has been “moving rather slowly.”

The approval procedure for some ODP applications has taken years. Le Roux added that IG Markets was the first to receive approval and that it underwent a rigorous review process.

According to sources, several firms have varying standards, which further complicates the application process for both current and future candidates.

The “wheels of justice spin slowly,” according to Le Roux, even if the watchdog is trying its best within the limits of its available resources to root out unauthorized operations.

He noted that “reports of investigations lasting years from when they first came to their attention is not uncommon.”

Daniel Chan, the Chief Technical Officer (CTO) of Marketplace Fairness, stated that the FSCA has not been successful in stopping many instances of unlawful trade in South Africa in recent years.

According to the CTO, the watchdog is not doing enough to safeguard customers and make sure they are not being taken advantage of by financial services providers.

Chan noted the same thing as Le Roux: “The FSCA has been hesitant to respond in several circumstances.”

He stated, For instance, the FSCA did not intervene until after Steinhoff's collapse, despite the fact that there were warning indicators even before the collapse.

The CTO said, “This raises concerns about the FSCA's capacity to react swiftly to potential issues in the financial services business.”

Le Roux lamented the susceptibility of South Africans to the numerous foreign forex brokers present in the nation in his conversation with Finance Magnates.

He also bemoaned the rise of “so-called FX experts,” who con unwitting victims out of their money.

“South Africa is still plagued by a significant number of foreign brokers who market to South African consumers, and should South African customers be treated unfairly, there is little to no remedy,” he added.

He made the argument that the FSCA “cannot regulate this in the present day.”

Increasing by two

Le Roux thinks that even while the ODP license has been introduced, it “is a solid step in the right way,” the FCSA needs to respond much more quickly when looking into complaints against any operator.

He noted that they needed more resources at their disposal to do this.

The CEO of TradeFX advocated for greater stakeholder involvement while also criticizing the inadequate participation of industry actors in the development of laws.

To weed out dishonest operators and safeguard South African clients, he said, “Better regulation and a better working relationship with participants would be made possible by more involvement.”

The FSCA is ultimately responsible with carrying out this responsibility.