Regulatory reform
New legislation was introduced to improve access to financial services and products
In order to effectively drive the change the financial services industry requires, government has taken a two-pronged approach towards improving access to financial services and products by introducing new legislation. The Financial Sector Regulation (FSR) Bill — also widely known as the Twin Peaks Bill — is due to be promulgated early next year and will significantly alter the financial services landscape as we know it so as to protect consumers more broadly and encourage financial inclusion.
“Financial inclusion and consumer protection are at the heart of the regulatory changes taking place due to the fact that closing the gap between rich and poor and allowing all South Africans to participate in the economy is critical for economic growth,” says Caroline da Silva, deputy executive officer of Financial Advisory & Intermediary Services (Fais) at the Financial Services Board (FSB). The Twin Peaks model Under the new Twin Peaks regulatory environment the FSB will adopt a new role and restructure as the Financial Sector Conduct Authority (FSCA) — meaning that the organisation will no longer carry out the prudential authority it previously held for the non-banking sector and will instead focus on market conduct by all financial services players, while the SA Reserve Bank will take on oversight related to the financial health of financial institutions as part of its new role as Prudential Authority.
As the market conduct authority, says Da Silva, the newly introduced FSCA will look at the financial sector as a whole. Its approach will focus on being comprehensive and consistent: concentrating less on compliance and a reactive and tick-box approach, and will in future be more out- comes-based. As a result, the FSCA will have to become more forward-looking in order to garner greater trust on the part of consumers.
Structural changes within the organisation are being finalised in order to ensure that the new entity is fully able to carry out its mandate in terms of the focus on how the industry engages with, sells to and deals with customers to ensure good outcomes for customers and that financial services are more open to individuals previously excluded from participating in the industry.
“The role of the new FSCA doesn’t just change the mandate of the organisation, it changes the approach we have to take regarding protection of customers including an inclusion strategy for vulnerable customers,” Da Silva says. “The FSCA will be playing a critical role in ensuring that financial institutions deliver fair and effective services and products to customers. The FSCA will not be a consumer watchdog, but will rather ensure financial institutions deliver good customer outcomes to inspire confidence.”
Regulatory reforms will therefore strive to remove unnecessary barriers to entry that have previously impeded participation and hindered growth and transformation. In addition to protecting consumers, changes in legislation are intended to be more proportionate, thereby not creating unnecessary hurdles for business disproportionately to the risk they pose, in particular small, medium and micro enterprises (SMMEs) to ensure they are able to grow and participate in the economy. “It’s extremely important that legislation and reforms are proportionate so as to ensure that smaller independent companies are not put out of business,” Da Silva says.
Access to the formal sector by all consumers is of critical importance and financial institutions who wish to focus on providing access must be encouraged and enabled to do so. The Insurance Bill, for instance, has incorporated a provision on regulating micro-insurers as part of the move to implement legislation that supports the development of an inclusive insurance sector. It balances lowering regulatory barriers to entry in order to facilitate access and support affordability, while ensuring there is appropriate and sufficient consumer pro-
‘‘ FINANCIAL INCLUSION AND CONSUMER PROTECTION ARE AT THE HEART OF THE REGULATORY CHANGES TAKING PLACE CAROLINE DA SILVA