JOHANNESBURG - The Financial Markets Review released this week after a two-year consultation period recommends among other measures the formation of a Financial Markets Standards Group (FMSG) to ensure its members comply with the required standards and norms among other measures..
National Treasury, the South African Reserve Bank (Sarb) and the Financial Sector Conduct Authority (FSCA) released the final report, which follows a consultation period that started in September 2018 and provides recommendations for conduct practices in domestic over-the-counter fixed income, currency, commodities and derivatives financial markets.
The review offered a broad range of policy alternatives and many of the recommendations highlighted areas,which required modernisation.
"The governance review has highlighted the fact that institutions representing over 90 percent of turnover in the FICC (fixed-income, currency and commodities ) markets in South Africa are well governed and maintain high standards of market conduct," the report said.
It makes 42 recommendations to improve conduct in the financial markets sector, including the following themes:
1. Governance requirements, including that regulators consider exploring legislative governance requirements to establish equivalent, but proportional regulatory regimes for all market participants and to remove gaps or inconsistencies. That regulators considered developing a central source of information relating to corporate governance standards applicable to financial institutions, both listed and unlisted. It also said regulators should consider the implementation of an accountability regime that was equivalent and proportional for all market participants without prescribing individual roles and responsibilities within firms.
Another measure was for regulators to look at rewards to whistle-blowers for providing information about "substantial misconduct" in financial markets that led to a successful enforcement action with monetary sanctions
2. Enhancing the market conduct framework, including establishing equivalent standards market practice, market discipline, addressing conflicts of interest, extending the market abuse regulatory scope, and enhanced monitoring and surveillance by the authorities. This included the FSCA to finalising requirements that short sales be flagged on exchanges and reported to the exchange and/or the regulator as well as regulators to consider obliging market participants to inform them if misconduct is detected or suspected
3. Addressing liquidity through improved price discovery mechanisms, transparency and competition in the domestic financial markets within the market structure. This included addressing the identified restrictions to competition:
capital required to participate in markets, regulatory barriers to entry, the cost of regulatory compliance, and the strict requirements for affiliation with market structures.
4. Developing a regulatory regime and standards for alternative trading venues or algorithmic trading activities, and supporting technology innovation.
5 The foreign exchange review, including recommendations to address limitations of exchange control requirements.
6 The regulatory framework for financial markets within a ‘Twin Peaks’ world, the role of selfregulating organisations and the overall conduct regulatory framework.
An inter-agency committee, namely the Financial Markets Implementation Committee, has been set up to consider and implement these recommendations.