Briefing to the Standing Committee on Finance 30 May 2018

FOLLOW-UP BRIEFING ON CAPITEC BANK LIMITED

Agenda – Capitec related issues to be followed up upon during the 30 May 2018 SCOF meeting

1. Responses to Capitec’s written responses since the 20 March meeting & Capitec’s response to the most recent Viceroy report. 2. The role of different regulators and their work on Capitec and VBS Mutual Bank. “1. Responses to Capitec’s written responses since the 20 March meeting & Capitec’s response to the most recent Viceroy report.”

. The FSCA has noted Capitec’s written responses to the SCOF.

. The FSCA has also noted publications made subsequent to 20 March 2018, for example: 27 March 2018 - Capitec: Quarterly Disclosure In Terms Of Regulation 43 of The Regulations Relating To Banks. - Capitec: Summarised Audited Financial Statements For The Year Ended 28 February 2018.

24 April 2018 - Capitec: Integrated Annual Report, Notice of Annual General Meeting And No Change Announcement.

21 May 2018 - Viceroy: Open letter to Capitec’s Audit Committee (dated 16 May 2018) – 6 questions.

24 May 2018 - Capitec: Response from Capitec’s Audit Committee to Viceroy’s open letter.

. Capitec has kept the FSCA appraised of the status of the court cases which Viceroy claim will lead to Capitec being ordered to refund R12.7bn of multi-loan initiation fees.

 STATEMENTS All statements relating to Capitec or its securities, including the most recent that were published during May 2018, must be evaluated to establish whether it was: • False, misleading or deceptive, • In respect of a material fact, and • Whether the person who published the statement knew / ought reasonably to have known that it was false, misleading or deceptive.

 WITNESSES • FSCA may question any person whom it believes is able to furnish information on the subject of the investigation. • All persons of interest to be given a fair opportunity to state their case. • If they choose to not make themselves available for interrogation, there are two options for FSCA: - Use its coercive powers to force the person of interest to testify. - Conclude the investigation without the person’s input. • One of the important role players is of course Mr Perring of Viceroy, whom we would still like to interview.

“3. The role of different regulators and their work on Capitec..”

 The FSCA Market Abuse mandate relates to • insider trading, • prohibited trading practices, and • the publication of false, misleading or deceptive statements.

 The FSCA believes that the door of other regulators (both local and foreign) stands open to it in the event that it should require any information / assistance to execute its mandate.

 Should the FSCA identify anything that may be of concern to another regulator, it will notify such regulator of the concern. That includes the NCR and the Reserve Bank.

The FSCA investigation is on-going, and given the preference to conduct certain further interviews, it is difficult to provide an estimate as to when the investigation will be finalised. The FSCA however understands that SCOF would like to see it conclude its investigation expeditiously, and that it must endeavour to do so to fulfil its regulatory mandate.

THE ROLE OF THE DIFFERENT REGULATORS ON VBS

ENTITIES RELATED TO VBS BANK REGULATED BY FSCA 1. VBS Mutual Bank as an FSP – VBS Mutual Bank: FSP 30857 Date approved: 12 June 2007 for advice and Intermediary services of non banking products • On site visit no material findings • Statutory returns of Financial Statements and Compliance Reports all submitted and compliant • 3 Complaints received 2 related to the activities as a Bank and referred to SARB. The 3rd received on 27 March 2017 from Namibian Authorities RE SME Bank and transactions that flowed through VBS and Mamepe. Full Inspection Instructed on the FSP with material findings. Under Appeal and subject to audi process. ENTITIES RELATED TO VBS BANK 1. VBS Financial Services (Pty) Ltd (FSP 46628) - Intermediary services and advice only 2. Vele Asset Managers (Pty) Ltd(FSP 43059) – No Client assets with VBS Bank 3. Nzalo Insurance Services Ltd (FSP 46850) – Intermediary Services and Advice only 4. Nzalo Short Term Insurance – impacted by Curatorship 5. Bophelo Life Insurance - impacted by Curatorship 6. Insure Group Premium Collection – no premiums held in deposit with VBS. 7. Regua Wealth and Investment Managers (Pty) Ltd (FSP 46627) - Intermediary Services and advice only ( related by individuals not shareholding) CURATORSHIPS OF BOPHELO BENEFICIARY FUND AND BOPHELO BENEFIT SERVICES

Timeline of events

2017 April/May Media reports regarding R255m misappropriated from BBF.

Following FSB investigations and engagements with Bophelo Beneficiary Fund (“BBF”) and Bophelo Benefit Services (“BBS”), a statutory manager (Mr Henry Msimang) was appointed to the institutions, by consent.

08 June Pursuant to a recommendation by the statutory manager, the Registrar appointed Mr Juanito Damons as curator to BBF and BBS.

August Vele Investments purchased Mvunonala Holdings (holding company of BBS) and agreed that a portion of the purchase price (R370m) were to be used to recapitalise BBF and other trusts administered by BBS. The recapitalisation amount was deposited by Vele Investments into a VBS Smart Fixed Deposit Account held in the name of BBS. 2018 Jan-Mar The curator of BBS instructed VBS on numerous occasions to transfer monies held with VBS to a First National Bank account held in the name of BBS.

11 March VBS was placed under curatorship by SARB.

Regulatory Monitoring of Curatorship

1. The curator provides progress reports to the Registrar on a monthly basis and the reports are available on the FSCA website under the following link https://www.fsca.co.za/Enforcement-Matters/Pages/Curatorships.aspx.

2. The curator has reported to the Registrar on inter alia the following relevant matters:

2.1 At the time of the curator’s appointment, BBF and the trusts administered by BBS were funded up to a combined level of 30%.

2.2 During August 2017, Vele Investments purchased the holding company of BBS, Mvunonala Holdings, and as a term of the purchase agreement a portion of the purchase price would be utilised to recapitalise BBF and the trusts administered by BBS.

2.3 The amount apportioned for recapitalisation brought the funding level of BBF and the trusts up to 88%.

2.4 The recapitalisation amount was paid into a VBS bank account held in the name of BBF on 29 August 2017.

2.5 Between the period January 2018 to March 2018, several attempts have been made by the curator to transfer the monies held in the VBS bank account to a First National Bank account held in the name of BBS. The curator’s attempts, in this regard, have culminated in a letter of demand being issued to VBS on 7 March 2018. Regulatory Monitoring of Curatorship

2.6 Notwithstanding the demand, the recapitalisation amount remained in the VBS account. The balance owing to BBS held in the VBS bank account as at 28 February 2018 was R385,862,181.28.

2.7 The curator commissioned SizweNtsalubaGobodo to conduct a forensic audit to verify some of the areas where possible criminal or civil litigation may be warranted in respect of recoveries for BBF. The forensic audit is still in progress.

3. The amount of R385,862,181.28 held in the VBS bank account represents 57% of the total funds available to pay beneficiaries of BBF and the trusts administered by BBS. These beneficiaries represent some of the most vulnerable in society consisting of minor children of deceased members whose financial needs pertaining to school fees and other monthly expenses are paid for from the funds held by BBF and the trusts. THE FSCA ROLE ON CREDIT

FSRA defines the provision of credit provided in terms of a credit agreement regulated in terms of the NCA, as a financial product; and a service related to the provision of credit, including debt collection services, is a financial service.

The FSCA has limited jurisdiction over the former for governance and fit and proper and wider jurisdiction over the latter i.e. we may only regulate and supervise a credit provider for a service related to the provision of credit, including debt collection services

Persons providing such services must be licensed by 1 April 2019.

The MOU with the NCA will cover the jurisdictional limits of the parties and the co- ordination and collaboration of supervisory functions and standard setting powers. It will be necessary to distinguish between- credit providers (section 108 standards); credit providers that perform FSCA activities (licensing and all conduct standards); and other persons performing services relating to credit ((licensing and all conduct standards).

The primary regulator for the conduct of credit providers like Banks will be the National Credit Regulator. The FSCA will only be responsible to supervise and set standards relating to fit and proper and governance requirements. The NCR will remain responsible for matters relating to for eg. reckless lending.

THANK YOU