“Twin Peaks” to aid low income earners

04 October 2017 Johan Ferreira, African Unity Life
Johan Ferreira, Chief Legal Advisor at African Unity Life.

Johan Ferreira, Chief Legal Advisor at African Unity Life.

President Jacob Zuma recently signed the Financial Sector Regulation Act 2017 into law. Also known as the ‘Twin Peaks’ Bill, the legislation will see financial sector conduct overseen by two separate regulators.

The implementation of this model aims to strengthen South Africa’s approach to consumer protection and create a more resilient and stable financial system. This will have significant implications for the financial sector and, in particular, the insurance industry.

“This is referred to as the Twin Peaks Bill because it introduces two regulatory bodies for the entire industry,” explains Johan Ferreira, African Unity Life’s Chief Legal Advisor. “The current FSB dissolves and is replaced by the Financial Services Conduct Authority (FSCA) that’s responsible for monitoring the conduct of all financial services companies, overseeing how they interact with consumers so that customers are treated fairly.

“The Prudential Authority (PA) will be established within the South African Reserve Bank and will be responsible for supervising the safety and soundness of financial institutions. This draws on lessons learned from the 2008 global financial crisis including ensuring that your big financial institutions are financially stable.”

According to Ferreira the Act is the first piece of legislation in a phased approach that will see a great deal of new legislation being promulgated such as the Insurance Bill, which will give birth to formalised micro insurance in South Africa.

“Microinsurance is supposed to offer risk protection to the poorest members of our society,” he says, “however, it is currently not specifically regulated in South Africa, which exposes these customers to additional risk as well as unscrupulous providers and practices.”

“Providers will have to apply for a microinsurance licence and certain criteria, like a minimal capital adequacy requirement, will have to be met to apply successfully. Hopefully this will bring more providers into the direct regulatory net in order to protect low income customers, which will make a huge difference in helping them to manage their own risk,” adds Ferreira. “It’s a very exciting development in the South African insurance market.”

Another important consumer protection mechanism that is addressed by the Twin Peaks model is the issue of financial literacy. As well as ensuring financial institutions treat customers fairly and enhancing the efficiency and integrity of the financial system, the FSCA is mandated with providing financial customers with financial education programmes, and otherwise promoting financial literacy and financial capability.

Ferreira explains, “This will protect customers by providing them with an understanding of how they can go about promoting their own financial security. This will help them to select products that adequately manage their risk and provide beneficial outcomes.”

Despite its obvious benefits, the new Act is not without its critics, and many have expressed concerns about the financial burden of implementing Twin Peaks with some saying that we are fixing something that is not broken. Whilst Ferreira agrees that the adoption of Twin Peaks could possibly result in customers paying slightly more, he believes that many will feel that the ends justify the means.

“We need to make sure our industry remains safe by evolving our regulatory sphere to protect the financial stability of the country and its consumers. These goals form the cornerstone of the act and it’s hard to dispute their importance,” he concludes.

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