September 5, 2017

SA’s ever-changing regulatory framework

Just as one gets used to the current regulatory landscape the next curve ball hits, which will, in all probability, bring further uncertainty.

I am not referring to the recent Financial Intelligence Centre Amendment Act, Protection of Personal Information Act or the Introduction of Credit Life Regulations in terms of the National Credit Act but the much-anticipated Financial Sector Regulation Act, aka the “Twin Peaks” model.

So, if you operate within the retail, financial and credit industries you are most probably subject to scrutiny by at least one of the following notable regulators:

  • Reserve bank
  • Financial Services Board
  • Consumer Commission
  • National Credit Regulator
  • Competition Commission
  • Information Regulator
  • Financial Intelligence Centre

The Twin Peaks model will mix things up even further by bringing about a prudential regulator within the South African Reserve Bank (SARB) and a market conduct regulator called the Financial Sector Conduct Authority, which will replace the current Financial Services Board (FSB).

SARB will be responsible for both micro and macro prudential regulation. Micro-prudential regulation will aim to secure the sustainability and safety of banks, insurers, financial corporations and market infrastructure. Macro-prudential regulation will aim to promote and secure the stability of our financial system as a whole.

The Market Conduct Regulator will be focused on consumer protection concerning financial services and products.

The Twin Peaks model is designed to streamline interaction between the regulators and the financial services industry, with a more functional approach to regulation and supervision replacing the current industry silo based approach.  The reality is that the silo based approach didn’t do too badly.

Twin Peaks would have made more sense if it included the National Credit Regulator (NCR). The NCR’s exclusion effectively means that there will be two market conduct regulators which will still lead to different approaches concerning the regulation and enforcement of market conduct and will lead to instability within the financial sector.  The existing system of banks being regulated by SARB just makes more sense than incumbering the central bank with prudential regulation of all non-banks not to mention setting the Financial Sector Conduct Authority (old FSB) loose on all the banks with its newly found market conduct powers.

Various analysts and experts are of the view that the Twin Peaks model is infinitely more complex and is unnecessarily complicating our regulatory framework. This is also evident by the establishment of committees, forums, counsels and boards in terms of the new piece of legislation. The old saying of if it ain’t broke, don’t fix it comes to mind. Maybe government should spend the R4.8 Billion per year (anticipated costs of implementing Twin Peaks) elsewhere.

For now, be advised that further uncertainty in financial regulation looms and understand that the tendency these days, as far as regulators are concerned, is that they must be equipped with the ability to conduct pro-active, pre-emptive and very much intrusive investigations coupled with wide powers including search and seizure plus the ability to levy sanctions or fines without any formal judicial oversight.

Do not get caught off guard, prevention is better and cheaper than cure. Ensure that your business, irrespective of its size, is compliant with the legislation applicable to it and make sure you have intricate knowledge of the regulator patrolling the commercial sectors you operate in. Business as usual might be easier said than done, be pro-active and do not hesitate to embark upon a complete and formal compliance exercise.  The regulator patrolling your sector has proper teeth, I guarantee it.

Author: Arno Bosch

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