SA’s finance sector authority slaps Absa with R100K fine

Andile Sicetsha - 19.05.2021

Absa failed to submit an independent audit report on its over-counter derivative transactions, the FSCA revealed.

The Financial Sector Conduct Authority has placed an administrative penalty on Absa for failing to submit an independent audit report on its over-the-counter derivative transactions.

What are over-the-counter derivatives?

Since September 2020, Absa has been an over-the-counter derivatives provider, an alternative cash-generating option for brokers who wish to trade outside of the standardised regulations of the exchange.

In simpler words, over-the-counter derivatives are private contracts entered into by two or more counterparts who negotiate and settle on the value of an asset exchange, which is tailored to meet the needs of all parties involved. The most popular types of OTC derivatives include: forwards, swaptions and exotic options.

Is Absa fixing its books?

Absa, as the provider of this alternative trading option, had six months since the commencement of its OTC derivatives provider licence to submit an independent audit report to the FSCA.

This stipulation, according to the sector authority, is a mandatory practice that allows transparency into a trade option that, for the most part, operates without proper regulation.

“On 1 March 2021, Absa ODP did not submit the said independent audit report, thus it contravened the licence condition. It is worth noting that ABSA ODP was made aware of this requirement in 2019,” the FSCA wrote in a statement.

While Absa’s non-compliance doesn’t necessarily link its conduct to shoddy behaviours, per se, it does leave questions unanswered since the bank “did not request any extension to comply with this licence condition.”

“Absa ODP has accepted the administrative penalty and the Authority is satisfied with the outcome of this matter,” the FSCA concluded.

Absa had not issued a response to this statement at the time this article was published. The bank has 30 days to settle the R100 000 penalty.