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How will the FSCA monitor your business?

19 February 2015 Jonathan Faurie

Uncertainty is never a good thing; this is however an unfortunate side effect when new regulation is implemented. There are so many aspects that need to be defined and put into place that there are very few opportunities to provide the surety the market desperately seeks or needs.

While the industry waits with bated breath for the Financial Services Board (FSB) to give some direction on the possible impact of the new regulation on the market, it is important to bear in mind that the changes are major, and that the FSB itself is going through major changes with its move towards the Twin Peaks model.

First indications

Under the Twin Peaks framework, the FSB will become the Financial Sector Conduct Authority (FSCA) – which will be responsible for making sure that the industry abides by the rules set out by the Prudential Authority. Under this mantle, the FSCA will be responsible for overseeing all of the activities of companies within the financial services industry, including the banking sector.

This is a major task, and one that the FSB is confident that it will be able to accomplish without too many challenges. At the first stakeholder workshop for 2015, the FSB gave some insight into the future direction of regulation and its future supervisory role in the industry.

At the workshop, Leanne Jackson, Head Market Conduct Strategy at the FSB, pointed out that regulation should be transparent, comprehensive, consistent, intensive, intrusive, outcomes based, risk based, proportional, pre-emptive and proactive. Regulation should be a credible deterrent aligned to applicable international standards.

The FSB will be taking a similar approach when it comes to monitoring industry activities as the FSCA.

What is transparent supervision?

The two main ways in which the FSCA will be monitoring the activities of companies is through onsite inspections and through off-site monitoring.

In terms of onsite inspections, there needs to be reasonable notice of inspection - unless an urgent inspection is required - the FSCA needs to provide a clear agenda and expectations of the inspection which will include focus areas, attendees who need to be present during the inspection and the documentation that the FSCA needs during the inspection. A follow-up and feedback will also be provided by the FSCA following the inspection.

The task ahead for the FSCA will be immense, as there are over 10 000 financial services providers that they need to monitor. Therefore, it is impossible for the FSB to do onsite inspections on each and every one. There needs to be a functional off-site monitoring process that needs to be in place.

In order for this to take place, adequate consultation needs to occur prior to introducing the reporting requirements and there needs to be clear instructions regarding the data that is required. An efficient submission process is vital, and the FSCA needs to provide the company with relevant feedback and follow-up with an appropriate publication of the findings (firm-specific and / or aggregated, as appropriate).

What does risk-based & proportional supervision entail?

There have been a lot of questions regarding what being risk based and proportional actually means. The FSB is trying to set a standard for the industry; however, this could mean different things to different companies depending on specific situations.

Jackson pointed out that in terms of onsite inspections, the FSCA would BREAK focus on leadership insight into and accountability for addressing conduct risks in order to assess whether risk management frameworks are geared to identify and manage conduct risk. Further, risk assessment of the company’s key conduct risks is needed. Inspection frequency and scope will be aligned to conduct a risk profile of the company, and targeted ad hoc inspections will take place where significant firm-specific risks are identified.

Who would you be monitored by?

There are a number of regulations that the FSCA will be applying this approach to. However, who will be conducting the onsite inspections, and are these people qualified to do so?

Jackson pointed out that relevant qualified agents from the FSB will be conducting the inspections. All of the inspectors who will be monitoring compliance to the Financial Advisory and Intermediary Services (FAIS) Act have done RE1 exams, so there should be no problem regarding this.

Caroline da Silva, Deputy Executive Officer of FAIS at the FSB mentioned that the agents from the FSB have gone through their exams, but they lack company specific experience.

Therefore, there will be a need for upskilling in the FSB. Both Jackson and Da Silva admitted that skills would need to be brought into the regulator, and the FSB was in the process of conducting a skills and capacity assessment in order to enable the regulator to make a call on how far it can get with the current skills that the company has.

Editor’s Thoughts:
It seems as if the FSCA will be taking a consultative approach to compliance monitoring. Jackson pointed out that the problem with having a big stick approach to the industry is that companies will take a tick box approach in order to avoid the stick. Talking with the industry about its problems is a calmer and more pragmatic approach which builds confidence in the regulator. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by Boitumelo , 09 May 2018
I would like to find out where must i go for claiming mining surplus pensions?
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Added by ayanda, 19 Feb 2015
Sorry Thomas, you are wrong about regulating commission. They do as you suggest already but Bureaucrats can never know what the correct market clearing rate is for any price at any time, let alone the price of insurance distribution. They have been trying it unsuccessfully for 40 years, causing huge market distortion. Even their own senior staff have in the past stated how futile the entire exercise is.
What is really concerning though, is that the FSB (Soon to be the FSCA) is on a hiding to nothing. They are taking on the responsibility of micro-managing every insurer and intermediary's office. May God help each of them face the inevitable consequences!

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Added by thomas, 19 Feb 2015
What the FSB propose is stupid, impractical and simply impossible in theory. There is no way that 10 000 intermediaries could be monitored effectively.
There are a couple of things that should be done first:
The FSB should get of their high horses and first regulate the "product suppliers" a intermediary/advisor are allowed to do business with. This simple action would prevent 80% of all the current problems.
Secondly the FSB should regulate all remuneration /commission for each and every product offered by all insurers/product suppliers we are allowed to sell. Commission for a RA (fro example) should be the same everywhere without any exception. This would prevent advisors/agents/ to use a more expensive product just for the sake of more commission. Advise would play a more important role and intermediaries would be more objective.
Thirdly: The insurers /product suppliers does not really care what the 10 000 intermediaries/advisors sell as long as they sell. It has become time that they benefiting the most out of this whole debacle also take responsibility for the actions of what they have on offer and those that sell these products to clients. Every single application that are handed in by any intermediary should be accompanied by the full record of advise including the remuneration which are signed by client. Now..the insurer/product supplier can review the case and decide if appropriate advise and remuneration has been offered--As soon as they accept ,they must accept the responsibility of any and all consequences from there on.
I regularly hear of and see cases where the clients are literally screwed into oblivion and the insurers which accept the cases turn a blind eye and even congratulate the criminal bastard who made their "figures' and stats glow like a one eyed king in the land of the blind.
The insurers are the key to this whole dilemma--they should be regulated--They are the ones with the power and the funds.. Intermediaries will sell what is on offer and one could argue that the temptation to sell something that are offering more commission is just too great to ignore!.(It is within the law but rediculous) I say again if all remuneration/commissions are regulated/limited(By FSB) for all similar products this will have a far more effect on the industry as a whole then these stupid notions they now have. I have said this before..why the hell would a insurer offer 3 or 4 different types of RA's..different names, same portfolios but different commission structures..Are everybody stupid? What the insurer are saying is: Hi guys, we have on offer "* A RA for advisor that needs money and * A RA for those that wish to offer a better deal for the client--Absolutely absurd!!!!!

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