The Group's independent compliance function has been established, inter alia, in terms of Section 47 of the Banks Act and Regulation 49 of the Banking Regulations as well as in terms of other key regulatory legislation applicable to the Group as a whole, including FAIS, the Securities Services Act, FICA and the NCA. It thus operates in terms of the overall applicable legislative and regulatory framework. The objective of the function is to ensure that Sasfin continuously manages its regulatory and supervisory risks and complies with applicable laws, regulations and supervisory requirements. At the strategic level, Sasfin sees compliance as a tool supporting an effective level of corporate governance within the organisation. Operational policy documents and procedure manuals are regularly reviewed by the compliance department which provides both legal and regulatory support to the Group.

Over the last few years, Sasfin has been faced with a veritable raft of new regulation and regulatory changes, which has placed considerable additional pressure on banks, and indeed their clients, to ensure that Sasfin satisfies the demands of the regulatory environment. Arguably, this increased workload has had a disproportionate impact on smaller banks.

Sasfin's compliance function operates independently from the overall risk management function and internal audit function, which have themselves been bolstered to facilitate the additional responsibilities arising from the implementation of Basel ll and the increasingly sophisticated legal environment. This structure supports best practice principles and has strengthened Sasfin management of Risk, Internal Audit and Compliance.

FICA, in particular, imposes onerous requirements relative to the identification of clients and the reporting of suspicious transactions. As at June 2009, Sasfin has managed to achieve a compliance level of 99,5%. All remaining accounts have been frozen in accordance with the regulations. During the past year, the Financial Advisory Task Force, an intergovernmental body which sets international anti-money laundering and counter-terrorism policies, conducted its five-yearly country review of South Africa and made a number of recommendations. As a result thereof, substantial changes to FICA are anticipated, which ought to enhance the effectiveness of the anti-money laundering process.

The Compliance division also oversees and monitors the process of transformation within Sasfin. This process is guided by the provisions of the FSC. The FSC came into being in January 2004, following a Nedlac Financial Sector Summit. The FSC was more recently gazetted as a sector code in terms of section 12 of the Broad Based Black Economic Empowerment Act but as a result of the inability of all stakeholders to agree on the alignment process with the generic codes, has not yet been ratified in terms of section 9 of the Act. This process has been dogged by disagreements between the various stakeholders which have not as yet been resolved. This, however, does not detract from the key objectives of the Charter which commit the financial sector to “actively promoting a transformed, vibrant and globally competitive financial sector that reflects the demographics of South Africa, and contributes to the establishment of an equitable society by effectively providing accessible financial services to black people and by directing investment into targeted sectors of the economy.”

Sasfin has submitted its report to the FSC Council in the year under review and is pleased to have retained its “A” rating with an improved score of 89,36%. It has substantially met the targets in respect of the key pillars of ownership and control, procurement, access to financial services, corporate social investment and enterprise development.

The ongoing expansion of the number of services and products offered by Sasfin do increase the burden of compliance, as these products are almost always subjected to regulation. In particular, the expansion of Sasfin's foreign exchange department and the increased number and complexity of wealth management related products pose a continual challenge to the compliance division.

Sasfin is registered as an authorised credit provider in terms of the NCA. Whilst the regulatory framework surrounding the NCA is indeed onerous, it is to be noted that the NCA is primarily aimed at the protection of the individual consumer, who is not part of Sasfin's target market. Unlike the retail banks, Sasfin has not experienced any adverse impact on the demand for credit placed upon it as a result of the NCA. Likewise the recently enacted Consumer Protection Bill although likely to create an additional compliance burden, is not expected to materially impact on Sasfin's target market.

The new Companies Act constitutes a comprehensive overhaul of the Company Law legislative framework. Sasfin is actively taking steps to adjust to the new corporate environment which will be created once the Act comes into operation. The compliance division continues to monitor the legislative environment and ensures that line management complies with all laws and regulations as part of their normal operational duties.

GENERAL

In terms of Regulation 39 of the Banks Act, the Bank's board of directors is required to report to the Registrar of Banks on the effectiveness of the system of internal controls relating to financial and regulatory reporting and their compliance with the Banks Act and Regulations.

To the best of their knowledge, the relevant boards of directors are of the opinion that there are no indications of any material breakdown in the functioning of these controls, procedures and systems, during the period under review.

While the cost of compliance is increasing in parallel with the escalating regulatory load, Sasfin believes that a rigorous compliance regime is essential to the future well being and strategic development of the Group.