The Financial Sector Regulation Bill was passed by Parliament and sent to the President for assent on 22 June 2017. The Bill provides the architecture for the new twin peaks method of regulation to be adopted across the South African financial services industry.
While the immediate effect of the passing of the Financial Sector Regulation Bill is not extensive, the passing of the Bill heralds the commencement of a complete regulatory overhaul of the South African financial services sector.
Why are we adopting a new method of regulation?
In February 2011, National Treasury published a policy paper entitled ‘A Safer Financial Sector to Serve South Africa Better’. This policy paper assessed the structure and characteristics of South Africa’s financial sector for gaps and weaknesses, and set out proposals to reform the regulatory system for the financial sector. This method of regulation is specifically designed to make the financial sector safer.
Our current regulatory landscape
Currently in South Africa, all banks are regulated by the Banking Supervision Department of the South African Reserve Bank (SARB) and all non-bank financial institutions (FSPs, insurers, pension funds, collective investment schemes and market infrastructures) are regulated by the Financial Services Board (FSB) with each institution complying with its own industry-specific piece of legislation.
Our regulatory landscape under twin peaks
The Financial Sector Regulation Bill creates two brand new regulators – the Prudential Authority and the Financial Sector Conduct Authority. The Prudential Authority will be responsible for regulating the prudential aspects of banks and all non-bank financial institutions and the Financial Sector Conduct Authority will be responsible for regulating market conduct and safety of financial consumers. Practically, this new set-up will see the Banking Supervision Department of the SARB being dissolved and replaced with the Prudential Authority as well as the FSB transforming into the Financial Sector Conduct Authority. The SARB will sit above these two new regulators to provide overall financial oversight.
What is the immediate effect of twin peaks on financial institutions?
- The current ambit of financial services legislation will remain in force.
- All financial institutions will still be regulated by their current governing legislation.
- No changes to existing financial services licenses.
- Each type of financial institution will be allocated a new licensing authority, either the Prudential Authority or the Financial Sector Conduct Authority. Banks and insurers will be allocated to the Prudential Authority while all other financial institutions will be allocated to the Financial Sector Conduct Authority.
- New license applications will be subject to the current licensing procedures provided for in the relevant legislation. For example, a banking license would be subject to the licensing procedures provided for by the Banks Act 1990.
What changes can we expect to see going forward?
- The Financial Sector Regulation Bill empowers the Prudential Authority and the Financial Sector Conduct Authority to publish technical standards (these technical standards must be complied with in addition to existing subordinate legislation published under industry-specific Acts) which will need to be complied with.
- The eventual phase out of industry specific pieces of legislation (not likely to happen in the near future).