'Twin peaks' Act will give you more protection

By Martin Hesse Time of article published Jul 15, 2017

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TOWARDS the end of last month, an important piece of financial legislation was passed by Parliament and sent to President Jacob Zuma to sign into law. Although it will not immediately affect you, as a consumer, it has been designed to provide you with more comprehensive protection when you deal with financial services providers and use their products.

The Financial Sector Regulation Act provides the architecture for the new “twin peaks” regulatory structure that will govern the financial services industry, say Desiree Reddy, a director of law firm Norton Rose Fulbright, and her colleague, financial services lawyer Sascha Graham. They say that although you may not notice any changes immediately, the Act “heralds the commencement of a complete regulatory overhaul of the South African financial services sector”.

Reddy and Graham say that, in February 2011, National Treasury published a policy paper titled “A safer financial sector to serve South Africa better”. The paper assessed the structure and nature of South Africa’s financial sector for gaps and weaknesses and set out proposals to reform the sector’s regulatory system. It was on this paper that the twin peaks structure was based. In 2013, the proposed legislation was made available to the public for input and comment. Its principles were also approved by the International Stability Board.

A big criticism of the Act, and the main reason some opposition parties in Parliament voted against it, is that, in the light of South Africans’ serious problem with debt, its provisions do not cover the National Credit Regulator.

At present, Reddy and Graham say, all banks are regulated by the banking supervision department of the South African Reserve Bank (Sarb) and all non-bank financial institutions (such as insurers, pension funds and collective investment scheme managers) are regulated by the Financial Services Board (FSB). Each institution complies with its own industry-specific legislation.

The Financial Sector Regulation Act, Reddy says, creates two new regulators: the Prudential Authority and the Financial Sector Conduct Authority. 

“The Prudential Authority will be responsible for regulating the prudential aspects of banks and all non-bank financial institutions. The Financial Sector Conduct Authority will be responsible for regulating market conduct and the safety of financial consumers. This new set-up will see the banking supervision department of the Sarb being dissolved and replaced with the Prudential Authority, as well as the FSB transforming into the Financial Sector Conduct Authority. The Sarb will sit above these two new regulators to provide overall financial oversight,” Reddy and Graham say.

The lawyers say that, to their knowledge, there is no formal time frame for the phasing out of the current structures. The FSB is, however, in the process of reviewing its structures, frameworks and resources in preparation for the shift to the new regime and to this end has established the regulatory strategy committee. 

“A core objective of the committee is to ensure that the FSB morphs into the Financial Sector Conduct Authority with as little disruption as possible. In order to facilitate the implementation of the twin peaks model, the Minister of Finance may make regulations providing for transitional arrangements regarding the exercise of powers and performance of functions,” Reddy and Graham say.

They say the Financial Sector Conduct Authority will not be very different from the FSB, and it is likely that the current employees of the FSB will be re-employed by the new authority, although it is also likely that there will be a transfer of skills between the FSB and the Prudential Authority.

For the time being, following the signing into law of the legislation, Reddy and Graham say, the current ambit of financial services legislation will remain in force, all financial institutions will continue to be regulated by their current governing legislation, and there will be no changes to existing financial services licences.

However, each type of financial institution will be allocated a new licensing authority. Banks and insurers will be allocated to the Prudential Authority; other financial institutions will be allocated to the Financial Sector Conduct Authority. New licence applications will be subject to the current licensing procedures provided for in the relevant legislation. 

Going forward, we can expect the eventual phasing-out of industry-specific pieces of legislation, but this is not likely to happen soon, Reddy and Graham say.


While the Prudential Authority will look after the stability of financial institutions, the Financial Sector Conduct Authority will have a more direct effect on your dealings with services providers.

The mandate of the Conduct Authority, Desiree Reddy and Sascha Graham say, will be to protect you by:

• Ensuring that financial institutions treat you fairly;

• Enhancing the efficiency and integrity of the financial system; and

• Providing financial customers and potential customers with financial education programmes, and otherwise promoting financial literacy and financial capability.

In the past, some types of financial companies, notoriously property syndications, fell between cracks in the legislation. In keeping with the consumer-protection objective of the twin peaks model, Reddy and Graham say, the Financial Sector Regulation Act makes provision for the publication of regulations that designate, as a financial product, any facility or arrangement that is not currently regulated in terms of a specific financial sector law. 

“It is likely that financial providers that have until now managed to operate outside the ambit of financial regulation will be caught within the scope of the new regulation,” Reddy and Graham say.

In falling under the ambit of the Conduct Authority, banks will be more tightly regulated than in the past in terms of customer service and applying Treating Customers Fairly principles. “While banks may until now have been regulated on primarily a prudential level, they will be regulated equally strictly on the market conduct front,” Reddy and Graham say.


The twin peaks model will see the establishment of an Ombud Regulatory Council (ORC) to promote and co-ordinate financial sector ombud schemes, providing for powers, responsibilities and governance, say Desiree Reddy and Sascha Graham. 

The ORC will ensure that you have access to appropriate dispute-resolution processes for complaints relating to financial products and services.

“While existing industry ombud schemes will continue to operate, they will be accountable to the ORC and will need to operate within a strengthened and consistent framework for external dispute resolution,” they say.

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