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The 35, make that 40 items on FSCA to-do-list

11 July 2022 Gareth Stokes

If there is no quote that states “regulation begets more regulation” there should be one, as evidenced by the 35 to 40 items on the to-do-list of South Africa’s Financial Sector Conduct Authority (FSCA), circa June 2022. The authority responsible for enforcement and oversight of most of the country’s domestic financial institutions has just published its FSCA Regulation Plan 2022-25 to set out its focus for the next few years. This publication is, ironically, a legislated requirement contained in the Financial Sector Regulation (FSR) Act.

Setting the stage

“One of the cornerstones of regulation is the regulatory framework, which sets the perimeter of regulation and determines the rules within which financial institutions must operate,” writes the FSCA, in the opening paragraphs of the plan. “Primary legislation enables the FSCA to implement its policy objectives by translating such objectives into subordinate legislation through the exercise of legal authority granted to it through primary legislation”. For now, the primary legislation the FSCA refers to is the FSR Act and, of course, the pending Conduct of Financial Institutions (COFI) Act. The subordinate legislation includes instruments such as the Policyholder Protection Rules: Long- and Short-term (PPRs) and, more recently, Conduct Standards, Prudential Standards and Joint Standards. 

According to the FSCA, there are two major legislative interventions that will demand its attention in the coming three years. These include the COFI Act, still a Bill at the time of writing, and the Financial Markets Act (FMA), currently under review. Readers need little introduction to the COFI Act: it is being put in place to “reshape the future conduct regulatory framework by consolidating the conduct financial sector laws into a single overarching piece of conduct legislation”. You know the drill: once enacted, the COFI Act will result in the repeal of the conduct sections of the Long-term and Short-term Insurance Acts and the Financial Intermediaries and Advisory Services (FAIS) Act, among others. But what about the FMA? 

This goes way beyond insurance!

“The review of the FMA will play a critical part in shaping the responsibilities and approach of South Africa’s regulators in the context of regulating the financial markets in the coming years,” writes the FSCA. This Act, which we have rarely commented on, sets out how the authority should license and regulate exchanges, central securities depositories, clearing house and trade repositories. It regulates and controls securities trading, clearing and settlement and the custody and administration of securities, among a range of other functions. The reason we seldom comment on the FMA is that we focus on institutions and intermediaries in the healthcare, investment and life and non-life sectors. 

“Due to the imminent changing landscape, these [two] legislative developments have a significant impact on how the FSCA will approach its regulatory framework strategy over the course of the next three years,” noted the FSCA. Between 1 April 2022 and 31 March 2025 the authority will focus on three broad areas including: regulatory framework developments focused on conduct; regulatory framework developments focused on the integrity and efficiency of financial markets; and regulatory framework developments focused on a broad scope of cross-cutting-sector developments and themes. This all sounds a bit broad, so we undertook a deep dive into the FSCA Regulation Plan 2022-25 to learn more. Do not fear, dear reader, the FSCA does not have too much on the cards. There are a mere 35 points on its high-level overview, plus five extras just in case. To make matters worse, we had to zoom in a good few times to make sense of the busy table contained in the document. 

Keeping 2022 in view

There is way too much going on in the plan to squeeze everything into this newsletter. To keep things simple, we have scrolled through the table and hand-picked a few Regulatory Framework Projects that stand out. We list these under bullet points with a title, its ranking on the plan, and a comment or update as follows: 

  • COFI Bill (item 1 in the plan): During 2022, the FSCA will continue to provide support to National Treasury until the adoption of the Bill by Parliament.
  • Finalisation of plan to develop regulatory framework under COFI (3): This part of the plan will be finalised in the third quarter of 2022.
  • Draft amendments to the General Code of Conduct (6): This is simply listed by the FSCA as “being finalised” sometime in the second half of 2022.
  • Declaration of crypto assets as a financial product under FAIS (8): This task is included by the FSCA with the rather unhelpful comment that “finalisation and timelines are uncertain”.
  • Amendment to the FAIS Ombud rules (9): Consultation on these changes have been ongoing and were set down to complete between April and September of 2022.
  • Conduct Standards (17-20): Various Conduct Standards are in progress with those for Payment of Pension Funds Contributions (17) and Conditions for Investment in Derivative Instruments (18) set to be finalised before year-end; and those for Conditions for Living Annuities in an Annuity Strategy (19) and Communication of Benefit Projections for Members of Pension Funds (20) to be submitted to Parliament and National Treasury by year-end.
  • Joint Standard for Cyber Security and Cyber Resilience Requirements (30): The FSCA says consultation on this Joint Standard will take place from July 2022 until year-end.
  • Conduct Standard for Financial Consumer Education (32): The FSCA envisages the consultation on this Joint Standard to start in the final quarter of 2022, around October. 

Plenty of consulting on law making to come

It appears there will be plenty to keep the compliance and legal teams at advisory practices, life and non-life insurers and investment firms busy over the coming months and years. It is also worth noting that other tweaks to existing regulatory instruments might be necessary. The FSCA noted that “many existing developments overlap with various aspects that form part of the development of the future conduct framework that will be given effect to under the COFI Bill, creating a potential risk of misalignment”. 

Industry can thus (possibly) look forward to a draft Conduct Standard for Cooperative Financial Institutions, yet another set of draft amendments to the Policyholder Protection Rules under the Long- and Short-term Insurance Acts, still more draft amendments to the regulations under the Long- and Short-term Insurance Acts etc. Do not say you have not been warned! 

Writer’s thoughts:
Having world class financial services regulation is one thing; but this writer could not help but wonder whether the regulators have created a twin peaks monster. It was difficult enough keeping track of the insurance Acts and one or two pieces of subordinate legislation before 2018; now we have the Acts, plus CBR, plus countless Conduct, Prudential and Joint Standards waiting in the wings. And the authorities are just getting warmed up. Would you prefer a less-is-more approach to law making and standard setting?  Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.

 

Comments

Added by Gareth, 23 Jul 2022
Definitely an idea worth exploring @John. The more laws and statutes, the more opportunity to set one off against the other...
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Added by Gareth Stokes, 23 Jul 2022
Tough words @Ayanda, but so true... I cannot see red tape being reduced under Twin Peaks. There is absolutely no chance.
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Added by Ayanda, 11 Jul 2022
The President has promised less red tape, not more! The FSCA and PA make him and his cabinet blatant liars. No wonder there are no independent emergent brokers left. Who would want to be in an industry with an absolutely inscrutable amount of confusing and cross-referencing laws (even if the FSCA and PA run from parliamentary scrutiny by calling these laws "Directives", "Board Notices" and "Standards", etc, etc.
They are entirely out of hand now. Who will bring them to heel - and when?

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Added by John Stapleton, 11 Jul 2022
Thank you for this interesting insight into the plans of our regulatory body. I only have one question: If the regulator aims to protect the public should it not be simplifying rather than complicting the rules? I have always found that when there is only one line to cross, everyone knows when they cross it, but when there are many lines, the ethically challenge get to choose which lines they will cross and claim ignorance due to the confusion that the many lines have created.
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