If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck, according to the so-called duck test.
If policymakers get Parliament to agree with their proposals in the Financial Sector Regulation Bill, this will in effect be the test used to determine whether any products or services offered to you are financial ones that should be subject to regulation by two new regulators.
One of these, the proposed Financial Sector Conduct Authority, which will replace the Financial Services Board (FSB), will be expected to be pro-active in identifying who is quacking about something that could be harmful to your finances, and chasing them out of the pond.
The FSB’s inability to be pro-active when products, services or activities do not fall squarely within the laws it regulates has been identified as a key weakness in the regulator’s powers.
After many years, during which consumers have suffered devastating losses at the hands of the likes of Fidentia, failed property syndications and ponzi schemes, it is easy to be sceptical about whether a watchdog with teeth will emerge from the current proposals.
The Financial Sector Regulation Bill – often referred to as the “twin peaks bill” that establishes two regulators – is due to be tabled in Parliament this year.
If it is passed, the conduct authority will be responsible for the way financial services providers behave and treat their customers, while the Prudential Authority, replacing the South African Reserve Bank, will ensure that institutions are financially stable and sufficiently resourced to meet their promises to you.
The re-organisation of the regulators’ roles will bring the banking industry’s role as the provider of your banking products under the supervision of the market conduct authority.
But more than just setting up the institutions and their areas of jurisdiction, the new Act will define a financial product and a financial service.
While the definitions include all the products and services that are already regulated, the Act also gives the Minister of Finance the authority to name a product or service as a financial one subject to regulation by the new authorities.
This means that the products and services of property syndications and the likes of Cambist, the online platform selling debt contracts to investors and promising a 19.5-percent return, can be named and brought within the regulatory net.
It is this, together with the resolve of policymakers and the regulator to shed the regulator’s reputation for being a lame duck when it comes to acting against those whose activities are not squarely within existing laws, that gives the most hope about future regulation of the financial sector.
In the words of Leanne Jackson, head of market conduct strategy at the FSB, the new conduct authority will have a much stronger mandate to protect you, will have more tools to work with to ensure that it is pre-emptive in identifying potential risks for you, and will regulate to prevent these risks materialising.
According to Kathy Gibson, a financial sector policy specialist at the National Treasury, the new authority will have a new culture and will be much more in tune with your needs as a consumer of financial products. It will monitor what you get out of the industry to see if the providers’ stated objectives are indeed achieved.
The principles in the much talked about Treating Customers Fairly (TCF) approach will be incorporated into the legislation. In other words, the new conduct authority won’t just look to see that financial services companies comply with the letter of the law but also the spirit of TCF.
Jackson says the FSB has already engaged consultants to assist its staff through the regulator’s transformation into a new “re-energised” body.
If the reinvented regulator identifies a product or practice as a financial one, a host of measures can be used to minimise any potential harmful effects.
Gibson says policymakers are proposing the new conduct authority be given the power to order an entity to stop or desist from any practice or to rectify it.
Treasury and the FSB are also working on a number of projects to establish standards that will apply to all financial services – such as those for disclosure about the costs of financial products and for the way in which products are sold to you.
Empowering you as a consumer with financial knowledge is another key focus, and besides educating you, Treasury hopes that standardised disclosures will ultimately lead to the day when you will be able to put financial products next to one another and make meaningful comparisons.
The thinking behind the work going on to ensure that the new conduct authority will have all the tools it needs to carry out its role is outlined in a National Treasury discussion document, which is out for comment until April 8.
The document presents an opportunity for anyone who feels they have not been treated fairly, either in a regulated financial product or one that quacks like one, to ensure their experiences are not repeated.