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Supervision

 

In terms of the Financial Markets Act No. 19 of 2012 (FMA), a Central Securities Depository (CSD) must have made arrangements for the proper supervision of compliance by CSD Participants with the depository rules.

The Controlling Body of Strate has delegated the CSD’s self-regulating entity obligations to a Committee of the Controlling Body, namely the Strate Regulatory and Supervisory Committee. The Committee's overall objective is to assist the Controlling Body in discharging its regulatory and supervisory obligations in terms of the FMA and the CSD Rules. The Strate Legal and Regulatory division and STRATE Supervision report to the Committee on their respective regulatory, supervisory and enforcement activities. An annual report provides detailed information on Strate's regulatory and supervisory functions and is available on www.strate.co.za.

The Financial Services Board (FSB), which is the statutory regulator to which Strate reports, acts as an observer on the Strate Board and Board Committees and constantly monitors the CSD's activities and actions. Strate is required to annually renew its CSD and Clearing House licences with the FSB. Failure by Strate to adhere to the FMA and further the objectives of this Act may result in the non-renewal, suspension or withdrawal of licences or the imposition of conditions on the licences.

The Supervision Division is accountable to the Committee for the supervisory and enforcement functions and reporting to the Committee and the FSB on each Participant's compliance with the FMA, CSD Rules and Directives. STRATE Supervision strives to build fair and credible supervisory processes consistent with low-to-medium intensity supervision. The Supervision Division aims to apply and enforce its risk-based, supervisory approach consistently.

In this context, STRATE Supervision continues to ensure that adequate oversight and monitoring controls are deployed to control the specific risks which the division does, or can, confront. The division aligns itself with the wider Strate risk methodology - completing quarterly risk matrix exercises and comprehensive risk reporting to the Committee. The Committee continuously monitors and reviews the Supervision division's risk management programs, systems and performance, and reports this to the Strate Audit, Risk and Compliance Committee on a continual basis.

Appropriate 'Chinese Walls' have been established between Strate's two roles, namely, the role of performing security services as the appointed CSD and the role of a self-regulating entity tasked with supervision of compliance by CSD Participants. A 'Chinese Walls' manual details the structures that have been established and the procedures that must be followed to prevent the inadvertent spread of confidential information between these two roles.

The 'Chinese Walls' structures prevent STRATE Supervision from sharing confidential CSD Participant-related information with Strate's business units, but there are no confidentiality barriers in respect of Strate's business units sharing information with STRATE Supervision where a CSD Participant is believed to be contravening the FMA, CSD Rules and Directives or introducing risk into the market.

STRATE Supervision staff are bound by very stringent confidentiality and code of conduct clauses in their employment contracts. In addition, staff sign an annual declaration as confirmation of their understanding and adherence to the 'Chinese Walls' policies and procedures adopted by Strate.

All staff in the division are constantly reminded of their duty to observe the highest professional standards and are given clear guidance to avoid conflicts of interest, the possible abuse of confidential information, the observance of confidentiality and secrecy, and the observance of procedural fairness.