Following a seven-year planning process, the Financial Sector Conduct Authority (FSCA) was finally launched in June 2018.
This was the culmination of a long journey that regulatory authorities undertook to design appropriate rules and regulations that would govern the industry. However, there are still questions that need to be answered before a complete understanding of how life will be under the regulation of the FSCA is reached.
On 6 June, we published a newsletter that mainly focussed on the licencing element of the new regime. However, the industry’s questions were not limited to this.
Setting the scene
One of the key pieces of legislation under the Twin Peaks regime is the Financial Sector Regulation (FSR) Act.
In essence, the FSR act sets the scene and establishes the context within which the Prudential Authority and the FSCA can operate. According to Caroline da Silva, Executive Regulatory Strategy at the FSCA, the FSR Act also makes consequential amendments to all sectoral laws to align them with the market conduct approach and empowers the FSCA to draft standards for conduct.
All institutions currently regulated by the FSCA will still be subject to the same sectoral laws, as amended by the FSR Act. In addition, financial institutions will be required to adhere to potential new conduct standards that may be developed under it.
A levelled approach
The above provisions will be the status quo until the Conduct of Financial Institution (COFI) Act is drafted and all current licences are converted to a market conduct licence. So clearly the FSR Act is a very important document when it comes to the industry’s conduct standards.
Da Silva points out that the COFI Act will be a risk-based and proportionate piece of market conduct law. This means that when the FSCA sets conduct standards under the intended COFI legislation, it will take into consideration the regulatory and compliance burden on small institutions which do not pose significant risk to customers. At the same time, the FSCA will ensure that those institutions which do pose significant risk are subject to more intrusive supervision.
Da Silva adds that this approach should provide some alleviation for small organisations with regards to regulatory complexity but not from their duty to treat customers fairly.
Additionally, Treating Customers Fairly (TCF) principles will be embedded into the COFI law and the FSCA’s approach will require that financial institutions are able to demonstrate delivery of fair outcomes for financial customers, rather than just ticking a compliance box.
More collaboration on the cards
In the past, the regulation of the financial services sector was limited to the Financial Services Board and National Treasury.
Under the Twin Peaks approach, there will be a lot more collaboration when it comes to regulatory intervention.
According to the FSCA, it will be collaborating with the, Prudential Authority, the National Credit Regulator, the Financial Intelligence Centre and the South African Reserve Bank when performing their functions.
This includes generally assisting and supporting each entity in pursuing objectives such as sharing information about matters of common interest and striving to adopt consistent regulatory strategies.
There is no doubt that consumer education will take centre stage as Treasure has expressed its desire to grow financial inclusion within the country. This means that there will be a greater focus on consumer literacy and it will be interesting to see if the FSCA sounds a rallying call across the industry for financial institutions to lend support to the regulator’s efforts.
Another area of collaboration must be fraud. At the 2018 Insurance Fraud Conference, John Murphey, Business Development Manager Africa Claim Vantage said that Fraud could have cost the long term insurance industry R1,03 billion in 2016. In the same year, fraud could have cost the short term industry between R3 billion and R4 billion. Further, ASISA added that had 2014 fraudulent claims gone undetected, the industry would have lost R755, 2 million to 8 306 cases.
This is a significant challenge. Obviously, the FSCA wants insurers to have enough liquidity and cash on hand to handle claims. And insurers manage to do this despite the challenges that they face every day when it comes to fraud.
This is not a mountain that insurers can face alone. There needs to be more collaboration when it comes to fraud.
A bigger focus on consumer education and the fact that we will see more collaboration when it comes to regulatory intervention is positive. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts email@example.com.
Article published courtesy of FANews