Question NW4003 to the Minister of Finance

Reply:

a) South Africa's financial services sector is sophisticated and well-regulated, and it offers a vast array of financial products and services. This level of variety requires consumers to be equipped with the information, knowledge, and skills necessary to evaluate their options and select the ones that best suit their needs and circumstances. This is especially true for populations that have historically been underserved by our financial system and those with low incomes who confront additional obstacles owing to resource constraints.

Several gaps have been identified as loopholes that allow the existence of bogus financial services that swindle vulnerable people. Firstly, limited financial literacy levels among South African consumers. According to the 2020 Financial Sector Conduct Authority Baseline survey, South Africans have an average financial literacy score of 52 out of 100. This suggests that South African consumers have limited knowledge to understand financial sector products/services. This exposes South Africans to predatory lending, financial scams, and acquiring inappropriate financial products or services with inadequate disclosures. As a result, there is a continued need for comprehensive financial consumer education programmes, complemented with a range of consumer protection measures.

Secondly, the rapid pace of digitalisation has encouraged development of innovative financial sector products and services, creating new opportunities and risks for consumers. While technology and digital financial services offer great opportunities to boost financial inclusion, increase access to the mainstream financial system and increase consumer conveniences, this development, adds complexity to how consumers engage with the financial services industry. Challenges are more pronounced for consumers with low financial and digital literacy.

According to the South African Banking Risk Information Centre annual crime statistics report for 2022[1], South Africa faces challenges related to an array of financial and banking crimes spanning contact crimes, digital offenses, application fraud, and card fraud. Furthermore, South Africans continue to fall prey to get-rich-quick schemes. Scammers are increasingly exploiting conventional and trusted systems, such as stokvels. Scammers may, for instance, present themselves as legitimate stokvels, investment schemes, or property stokvels when, in fact, they are Ponzi or pyramid schemes[2]. The pursuit of unreasonably high returns also makes uninformed consumers easy targets for fraudulent investments. With the emergence of crypto assets, Ponzi schemes that are crypto based have become more common[3]. There is a need for greater vigilance and caution when engaging with this sector of the financial system.

b) National Treasury, through the National Consumer Financial Education Committee (NCFEC), comprising of representatives of government departments, regulators, financial sector industry associations, professional bodies, academia, and non-profit organisations, has annually been running a Money Smart Week South Africa (MSWSA), a financial education awareness campaign since October 2018. A variety of topics[4] including scam awareness are addressed through community radio station interviews, in-person activations and social media channels to relay the messages to consumers.

Furthermore, the Financial Sector Conduct Authority (FSCA) regularly issues warnings to the public on fraudulent companies and individuals purporting to be offering legitimate financial services to the public. Members of the public are always urged to be cautious and verify the authenticity and registration status of service providers, by contacting the FSCA through a number of mechanisms the FSCA has made available on their website.

National Treasury has not been made aware of the existence of bogus medical insurance companies.

1. South African Banking Risk Information Centre annual crime statistics report for 2022 https://www.sabric.co.za/media/gq4hmbjw/sabric-annual-crime-stats-2022.pdf ↑

2. FSCA issues public warning against United African Stokvel https://www.fsca.co.za/News%20Documents/FSCA%20Press%20Release%20-%20FSCA%20warns%20the%20public%20against%20United%20African%20Stokvel%20-%2017%20July%202023.pdf ↑

3. FSCA media statement on investigation on Mirror Trading International Available https://www.fsca.co.za/News%20Documents/FSCA%20Press%20Release%20-%20The%20FSCA%E2%80%99s%20investigation%20on%20Mirror%20Trading%20International%20nears%20completion%2017%20December%202020.pdf ↑

4. Money Smart Week South Africa 2023 Activity List https://www.mswsa.co.za/MSWSA%20Documents/Money%20Smart%20Week%20South%20Africa%202023%20Activity%20List.pdf ↑