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RSK4802 EXAM PACK 2023
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RSK4802 assignment 1 semester 1 2024(WRITTEN)-Governance and Compliance
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RSK4802EXAM PACK
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,Marking Memorandum RSK 4802 Assignment 2 2018
QUESTION 1
In early April 2016, various newspapers reported that the top four of South Africa commercial banks
disowned one of their main clients, The FAMOUS Guptas brothers business without giving any
specific reason to the public.
a) In your opinion, why did the banks react the way they did? (5)
What risks do you think they were trying to manage by taking the route that they took?
Identify any four major risks and briefly explain them). (10)
b) Discuss risks identified in (a) above in the context of the Bank’s responsibilities under
FICA and argue whether these risks were fully addressed by what the banks did. (10)
Answer
a) Two activities that the banks did
1) The banks closed the Guptas business accounts (1)
2) The Banks Gave no reason to the public for their actions (1)
Why the banks closed the accounts
-The actual reasons why the banks closed the accounts are not known even up to today. (1)
-However as registered FSPs under FICA, Banks are expected to report to the authorities any suspicious
transactions, which may involve the suspicion of money laundering. Should an account be operated in a
suspicious nature , the banks have a right to close the account as not taking action against such clients
may be deemed at law as adding to money laundering activities. (2)
Risks associated with failure to close the accounts
i) Banks were put in a tight corner mainly due to two conflicting interests. Banks in general have a
confidentiality clause with their customers under which they cannot disclose customer
information to third parties without the consent of their client or a directive from a court of law.
ii) Banks could have been pushed into the action of disowning their clients, as there could have
been compliance issues.
The four main risks that the banks could have been trying to manage are as follows
a) Compliance Risk- Compliance risk is the risk that arises because of banks failing to adhere
to legislative requirements. Banks are heavily regulated because of their importance to the
developments of an economy and they are duty bound under FICA to Act on errand
accounts. Failure to do this could result in many penalties being imposed on the bank, which
can even include the withdrawal of a license. The Fact that the banks closed the accounts of
this particular customer is good enough to suggest that they complied although we are not
privy with the details of what actually took place. (2)
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, 2
RSK4802
b) Litigation/Legal Risks. Had the banks disclosed to the public the reasons why they closed
the accounts to the public they could easily have been taken to court for breach on
contractual terms. Banks can only disclose client information to third parties with the
client’s full consent and or to an officer of the state. The fact that the banks did not advise
the public is proof enough to suggest that they avoided this risk (2)
c) Reputational Risk. - Reputational risk is a risk that arises because of loss of confidence/trust
in an institution by the members of the public. There are mixed views from the public but by
not disclosing this information to the public the banks acted correctly as far as the issue of
reputational risk is concerned (2)
d) General Governance/Ethical and political risks. The Gupta Family had become a hot political
issue of late and the banks were in a very tight corner in the sense that they had to act despite
them facing the risk of being labeled as playing politics. Issue of corporate governance and
ethical practices have to come into play in such situations. (2)
(Maximum 10 marks)
b) Discuss risks identified in (a) above in the context of the Bank’s responsibilities
under FICA and argue whether these risks were fully addressed by what the
banks did. (10)
Answer
Under FICA, all registered FSPs are expected to report all suspicious transactions especially cash transactions
(2)
Banks are also expected to monitor the activities on the accounts of their clients to ensure that there are no issues
of money laundering that may be taking place (2)
The Banks had to be seen as acting professionally all the times. They could not disclose to the public
confidential information without the consent of the client concerned or without a directive from a court of law.
However, banks have a duty to report on suspicious transactions to the respective regulatory authority they do
not have an obligation to report issues to the public without being asked to do so by the courts. (4)
In the main, the keys risks associated with money laundering seem to have been addressed by the banks
Whether they reported to the authorities or not remains unclear but what is very clear is that they were aware of
their obligations under the Act and thus acted accordingly (2)
(25 marks)
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, RSK4802/201
Dear Student,
The purpose of the tutorial letter is to provide you with answers to Assignment 01. Please
note that I have provided you with extensive explanations to all the questions. You were
not always expected to include all the facts in your answers. If a question counted out of 5
and you provided 5 correct facts (even if there are more) you will obtained the 5 marks.
Remember your year mark, based on the average mark obtained for the two compulsory
assignments (Assignment 01 and Assignment 02); contribute 30% towards your final mark,
while your examination mark contributes 70%.
The combined weighted average of your year mark and examination mark must be 50% or
higher for you to pass the module/subject. However, you must obtain a minimum of 40% in
the examination, regardless of your year mark. If you obtain less than 40% in the
examination your year mark will not be taken into account and you will fail.
QUESTION 1
You act as a consultant on corporate governance matters and have recently received the
following enquiries:
Enquiry 1 The four executive directors of a mining company have to visit new prospects in
Africa. Due to logistical problems they will have to travel together on certain routes. In view
of fierce competition in the market, this strategic trip will not be publicised.
Enquiry 2 Mr Lincoln acts as the executive chairperson of his company and sits on the
remuneration committee. Mr Lincoln is a major shareholder in the company. His son acts
the Chief Executive Officer of the company, which is listed on the JSE Securities Exchange
SA. The enquiry was received from a minority shareholder.
Enquiry 3 The company has awarded shares and options on shares to its non-executive
directors. The option prices are well below market prices.
Enquiry 4 Mr Clinton is a non-executive director of a company and attends the monthly
management tender committee meetings. A newspaper reported that Mr Clinton did not
recuse himself from a meeting which awarded a major contract to his niece.
Comment on the 4 enquiries, taking into account good corporate governance practices as
envisaged by King III. [15 marks]
ANSWER
Enquiry 1
• Not good CG practice
• Risk in travelling together that corporate knowledge may be destroyed
• What succession planning in place
• What impact on the company and share price if information is disclosed in advance or
not disclosed and something happen.
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