Market conduct regulation aims to prevent, and manage when prevention is not successful, the dangers that arise from a financial institution conducting its business in ways that are unfair to customers or undermines the integrity of financial markets and confidence in the financial system.
In March 2011, the Financial Services Board published “Treating Customers Fairly: The Roadmap” which outlined the 6 outcomes of Treating Customers Fairly (TCF) and gave an introduction to proposed changes in the industry regulation by means of the Twin Peaks Model and the Financial Sector Regulation Bill.
Treating Customers Fairly has become entrenched as part of the culture of most FSPs. TCF has been described by Treasury as ‘an important step in strengthening market conduct objectives in the financial sector’ and as a ‘framework for tougher market conduct oversight’.
The Financial Sector Regulation Bill, tabled in October 2015 and which is due for enactment later this year, gives effect to the decision to shift to a Twin Peaks Model of financial sector regulation for South Africa. The aim is to shift from a fragmented regulatory approach to a more comprehensive and complete one.
The Twin Peaks model will be implemented in two phases. The Financial Sectors Regulation Bill establishes two new regulatory Bodies:
- A Prudential Authority within the South African Reserve Bank which will supervise the safety and soundness of Financial Institutions, and
- A Financial Sector Conduct Authority (FSCA) the FSCA will supervise how financial services firms conduct their business and treat customers.
The Financial Services Board will be transformed into the FSCA to become a dedicated market conduct regulator. The FSCA will be tasked with promoting fair treatment of customers and potential customers, providing customer education and promoting financial literacy of customers and potential customers and maintaining financial stability. The FSC Bill requires co-operation between regulatory bodies including the Prudential Authority, SARB, National Credit Regulator, Financial Intelligence Centre and Council for Medical Schemes. The Financial Sector Conduct Authority may not regulate and supervise credit agreements except with the concurrence of the National Credit Regulator, but may regulate and supervise financial services provided in relation to a credit agreement. In essence the FSR Bill leaves the existing sector specific financial law intact, although it does provide additional supervisory and enforcement powers to the regulators, in addition to those available in existing industry-specific law, to provide them with the necessary tools and scope of responsibility to function effectively in the existing regulatory framework without being hamstrung by gaps in existing laws.
The second phase will be the overhaul and harmonisation of law under which FSCA operates. As it pertains to market conduct specifically, the second phase contemplates structural change through the repeal of current sector specific laws and the introduction of a new streamlined and overarching financial sector legislation – the Conduct of Financial Institutions Act (“COFI”). Once the relevant primary legislation has been repealed and replaced as necessary, the focus will turn to similarly harmonising relevant subordinate legislation.
Proposed as the CoFI Act, will replace current range of industry facing laws, and apply legislation consistently across financial sector.
In light of the above, I thoroughly enjoyed Allan Greenblo’s commentary: