Authorities flex their muscles

06 June 2018 Jonathan Faurie

When Twin Peaks was implemented in April, a whole new approach to regulation was brought into a market that was already facing massive regulatory reforms. Because of this, a few seeds of concern took root within the industry. There were a lot of questions that needed to be answered, and concerns that needed to be addressed.

In an effort to allay concerns, National Treasury (Treasury), the South African Reserve Bank (SARB) and the Financial Sector Conduct Authority (FSCA) recently held a Twin Peaks Workshop. 

Establishing powers

One of the major concerns that the industry had when the issue of Twin Peaks was discussed was that the division of powers between a section of the SARB which would become the financial services industry’s Prudential Authority (PA) and the FSCA. 

Because of these concerns, many insurers, brokers and advisers began to ask: who am I answerable to? 

For prudentially regulated entities like insurers and banks, the short answer is: you are answerable to both of the new regulators, with the license held by the PA as part of the Banks Act / Insurance Act. 

“You are also answerable to each regulator for different things, to the PA for prudential requirements and to the FSCA for market conduct requirements. This is not different from the pre-twin peaks licensing framework, where entities like banks, insurers and asset managers held multiple licenses with different registrars. A short-term insurer for example would have been licensed under the Short-term Insurance Act and FAIS Act, and others,” said Katherine Gibson, Member of the Transitional Management Committee at the FSCA. 

Speaking at the workshop, Unathi Kamlana - Head: Policy, Statistics and Industry Support Department at the PA, said that the function of the PA will be to regulate and supervise financial market infrastructures, banks and insurers prudentially in terms of some sectoral laws. 

“It is important to note that the PA will only be responsible for supervising those entities that are prudentially regulated – not all financial services – brokers for example will not fall under the PA,” said Caroline da Silva, Executive Regulatory Strategy at the FSCA. 

Key interactions

Gibson adds that even though the PA has taken over the regulation and supervision of insurers from a prudential perspective, the role of the FSCA remains as important as ever for insurance and does not diminish in any way, shape or form.  Its new mandate and powers allow it to focus intensively on achieving the fair treatment of financial customers, across the financial sector including banks, prioritising customer outcomes. This will assist in strengthening consumer protection and levelling the playing field for product and service providers. 

The FSCA and the PA will be engaging on a number of key issues. One of these is dual licensing. Kamlana points out that the approval of both regulators is necessary for an institution to be licensed and that the applicant must satisfy prudential and conduct requirements. 

Licencing clarification

One of the major issues that industry could not get its head around is the licencing structure under Twin Peaks. 

Da Silva said that financial institutions already licensed under sector laws will not be affected by any new licencing requirements. In addition, any new licences will still be issued under sectoral laws. Insurance licencing moves to PA and there is a process for converting current registrations of insurers to licences under the Insurance Act which has been communicated to industry. 

Obviously, a key bill when it comes to Licencing is the envisaged Conduct of Financial Institutions Bill (CoFI Bill). Prior to this, coordination with the PA is to be dealt with in a memorandum of understanding (MoU) with the PA. “The MoU is necessary because no new licences may be issued unless, and until, both authorities are satisfied that the licence may be granted. Work on MoU with PA is well progressed,” said Da Silva. 

Post implementation of CoFI, the FSCA will issue each financial services provider with a conduct licence that authorises them to perform one or more specified activities, with respect to one or more specified classes of financial products, to one or more specified type of customers. Prudentially regulated institutions will then be required to have a Conduct licence and a licence under the PA.  

CoFI will also provide for a more principles-based and proportionate law that takes into account the size and complexity of providers, where possible easing unnecessary regulatory burden whilst at the same time ensuring more effective consumer protection by supporting strong enforcement of those institutions that do not put their customers first. It also takes steps to promote transformation of the financial sector and support new technologies in a way that in turn creates a more inclusive financial sector and economy. 

Editor’s Thoughts:
There is a proverb which says that patience is a virtue. If this is the case, the financial services industry is very virtuous indeed. However, we cannot grumble any longer because clarity is being provided. The proof of the pudding will now be in the eating. Let’s see if this licencing system is easier than it was before. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts


Added by MikeR, 06 Jun 2018
It does seem awfully complicated. Where does the gentleman or lady who just wants to save or invest or be insured actually fit in or are they just incidental in the whole thing?
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Added by kenny, 06 Jun 2018
I get a headache just looking at this!
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