Financial regulation for the digital age
IT HAS been said many times that the only constant is change. This rings true for the Financial Services Board (FSB) and its transition to the Financial Services Conduct Authority (FSCA). This is not merely a switch to a new entity; it is also the establishment of a completely new organisation that requires a different mindset and approach within and outside the FSB.
Twenty-five years of regulating South Africa’s non-banking financial services sector is coming to an end for the FSB. However, this certainly does not spell an end for the regulation of the industry and the protection of consumers.
This year will see the establishment of the FSCA under the Twin Peaks model of financial regulation, a transition about which both the financial services industry and consumers of financial products and services in the non-banking sectors should be equally excited.
We live in a world that is becoming digitised, which can result in enhancements to services and products, the aggressive promotion of products and services, changes in how consumers and providers interact, and changes in how consumers experience financial products and services.
Smart technology
Structural changes are inevitable, including new operating models that permeate all aspects of the financial services sector.
The insurance industry is a prime example of such change. According to Avanade research, eight in 10 respondents in insurance organisations said they achieved their customer experience gains by upgrading and/or adopting a marketing technology platform. This is a natural progression, considering the consistent rise in the use of smart technology.
South Africa has the largest number of adults who own smartphones on the African continent, and the number of South Africans who access the internet grew by 1.9 million from 24.9 million in January 2015 to 26.8 million in January 2016.
Although this trend brings great opportunities for increasing consumers’ ability to access appropriate and affordable financial products and services, it also presents challenges in terms of the risks that consumers may encounter when they engage and interact with financial services providers via online or mobile platforms.
Cybercrime and online fraud is one such threat, but technological innovations also present challenges around issues such as data protection, effective disclosure, clear accountability for customer outcomes, and fair risk sharing.
Pre-emptive approach
In light of current and future trends, and the speed with which the environment around us is changing, we are compelled to become pre-emptive of industry developments that may put consumers at risk; be proactive in dealing with the potential risks associated with such trends; and be innovative so that we can serve consumers and the industry more efficiently. These are three cornerstones of the FSCA that will be ushered in this year.
The FSB’s transition to the new regulatory entity has consumer protection at the centre, while closely and constantly managing risks.
The main thrust of the transition is the Treating Customers Fairly framework, the regulatory and supervisory approach designed to ensure that regulated financial firms deliver clearly articulated outcomes for consumers of financial services and products.
Under the current system, consumers have to resolve disputes with financial services providers after the fact, whereas under the FSCA there should be fewer dispute-resolution cases.
The pre-emptive approach will involve the identification and resolution of potential consumer issues before they manifest themselves. This will result in the smoother functioning of financial services organisations and greater peace of mind for consumers.
The FSB is working to ensure a smooth transition to the FSCA. To this end, the regulatory strategy committee, established to support the executive committee in facilitating a smooth transition, is identifying recommendations for the optimal design and structure of the new authority.
The FSCA is what South Africa needs if it is to remain at the forefront of accepted global regulatory standards and ensure that consumers are adequately protected.