The passing into law in August of the Financial Sector Regulation Act, which introduces the Twin Peaks regulatory system, is a major milestone for the Financial Services Board (FSB) and South Africa, particularly the financial services sector and its consumers.
It is a progressive move for consumers of financial services and products, because the mandate of the Financial Sector Conduct Authority (FSCA) is the conduct of all financial sector institutions. This means that consumers of financial products or services that were previously outside the FSB’s mandate, such as retail banking services, will now be protected.
Naysayers have said that the FSCA will simply be the FSB with a different title and renamed portfolios. The reality is that the mandate of the new entity will be much wider than that of the FSB.
Although in some cases there may, on the face of it, not be a significant difference, the scope of the FSCA is significantly broader.
It is not only the jurisdiction of the FSCA that will change; the Act also dictates a shift in approach, requiring the regulator to be more proactive and pre-emptive. In order to do this, the regulator will have to be highly data-enabled and have strong research capabilities. This will require recruiting people with new skills, to ensure that we can meet our objectives.
The organisation is being restructured to be more function-focused, as opposed to its current sectoral approach. This will enable a much greater degree of consistency across industries.
As the regulator will have virtually no prudential responsibilities, we will sharpen our focus on market conduct issues to a much greater extent than was previously possible.
Although the Act has been subject to criticism, as is always the case when major changes are introduced, the legislation went through an extensive consultation process and Parliament considered many views when processing the bill.
Issues around the cost of regulation and the need for a dual regulatory system were raised, and National Treasury addressed these in a cost-benefit study.
The negative impact on the financial system, economy and consumers associated with the failure of financial institutions, as experienced as a result of the 2008 global financial crisis, necessitates regulatory reforms to close gaps and ensure that entities are comprehensively regulated. Although this will lead to some increase in costs, it is necessary, and we will closely monitor these costs to ensure they are in line with industry norms.
The Act will be implemented in phases to ensure minimal disruption to the industry and maximum understanding and consensus.
Through our existing Twin Peaks forums, we are engaging with the industry to ensure it is kept up to date with the implementation process, and we have been hosting multi-stakeholder dialogue sessions through various media platforms to ensure that all stakeholders are kept abreast of developments. The next step will be officially to launch our strategy and new brand in 2018.
This process cannot be completely quickly. We have identified immediate priorities to transition the FSB to the FSCA.
It is estimated that at least six to eight months will be required before the Act can be fully implemented.
The Minister of Finance is empowered to provide for the Act’s provisions to become effective on different dates. For the FSCA to be established, the Act states that the minister must follow a process in appointing a commissioner and deputy commissioners. To that end, draft regulations setting out the process will be published for public comment.
Internally, we will continue with our regular engagements with all staff members to ensure a seamless transition and finalise re-organisation.
The process also ensures a smooth transition to the FSCA for cases or investigations that are before the FSB. The Act specifically provides for the possibility that supervisory issues or legal proceedings may not be finalised, and deals with the process of how such pending cases should be dealt with. The Act also specifies that all rights and obligations of the FSB will pass to the FSCA.
We will monitor the impact of the new legislation as it is implemented to ensure that the new system works effectively and efficiently, promoting and maintaining a sound financial investment environment with consumer interests at its heart.
TWIN PEAKS SET-UP
The Financial Sector Regulation Act creates two new regulators: the Prudential Authority and the Financial Sector Conduct Authority (FSCA).
The Prudential Authority will be responsible for regulating the prudential aspects of banks and all non-bank financial institutions. The FSCA will be responsible for regulating market conduct and the safety of consumers of financial products and services.
The set-up will see the banking supervision department of the South African Reserve Bank being replaced with the Prudential Authority, and the Financial Services Board transforming into the FSCA.
Dube Tshidi is the executive officer and registrar of the FSB.