MEDIA RELEASE
ITHALA SOC LIMITED FSP LICENCE SUSPENSION
25 August 2024
Ithala SOC Ltd, established by the government to mobilize financial resources and provide financial and supportive services to the people of KwaZulu-Natal, especially in the rural areas, has reacted to the suspension of its Financial Services Provider (FSP) license by the Financial Sector Conduct Authority (FSCA).
· Ithala has been instrumental in building an inclusive economy, creating wealth, and improving people's lives. Over the past 20 years, since its corporatization, Ithala has consistently met depositors' demands and has never used depositors' funds to cover its losses.
· The suspension of our FSP license follows the refusal by the FSCA to grant Ithala an exemption against the Financial Soundness Requirements, which had been granted for several years. The latest exemption had expired on 30th June 2022.
· It's important to note that the financial soundness requirements outlined 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. Due to the complex nature of Ithala's business, the FSCA had rightly exempted Ithala from the requirements of the BN because of 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.
· The decision to decline Ithala an exemption and to ultimately suspend its FSP license is based on the argument that Ithala no longer enjoys an exemption under the Banks Act, despite Ithala holding deposits in its balance sheet and the presence of the Repayment Administrator who was appointed to safeguard the deposits while a solution is being devised relating to the legislative challenges presented to Ithala.
· The compliance matters raised by the Prudential Authority and the FSCA are consequential to an absence of policy certainty and legal framework governing a State-owned institution like Ithala. This concern has been raised by Ithala during its engagements with National Parliament, National Treasury, the Minister of Finance, and other stakeholders. Currently, there is no legal reason why exemptions cannot be issued pending the determination of a policy and legal framework to regularize the business of Ithala.
· Contrary to previous media reports, Ithala continues to safeguard its customers' premiums and has been submitting its financial statements without fail. Additionally, Ithala does not have a liquidity problem and is solvent to meet its customer demands. Unfortunately, due to the absence of a legal framework to allow Ithala to continue operating, the presence of the Repayment Administrator, and the restrictions imposed by the Prudential Authority and the Regulators, Ithala's future is uncertain, and this will adversely affect its customers.
· We have called for pragmatism in dealing with Ithala, given the pre-existing legislative challenges. Ithala has placed a guarantee as a form of protection to its insurance business. However, all efforts have not assisted, and the business now finds itself in a precarious situation, which will lead to its assets being sold and ultimately being liquidated.
· The entity is now being systematically shut down with a narrative of non-compliance being at play. This is unjust to a State-owned entity serving financially excluded people, and which has had three consecutive years of unqualified audits and without liquidity problems.
· Accordingly, Ithala has complied with the FSCA directive while it continues to work with relevant stakeholders to agree on an alternative plan to regularize its operation. The ordinary people’s bank, Ithala SOC Ltd, will remain open despite the systematic carnage. Therefore, we call on our existing customers not to panic. We will continue providing them with uninterrupted service and shall communicate if there are any changes.
We still believe that a bank should be a catalyst for building an inclusive economy, creating wealth, and transforming people's lives. This is a role Ithala has played over two decades, and it is the role we will continue to play to transform people's lives.
THE END
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