‘Twin peaks’ bill prom­ises you bet­ter pro­tec­tion

Trea­sury plans to close cur­rent gaps in fi­nan­cial sec­tor reg­u­la­tion with a dras­tic re­vi­sion of au­thor­i­ties’ roles, writes Laura du Preez. CHANGES TO BE IN­TRO­DUCED OVER TIME

Weekend Argus (Saturday Edition) - - PERSONALFINANCE -

A bill out­lin­ing im­proved reg­u­la­tion of the fi­nan­cial sec­tor pro­poses the es­tab­lish­ment of two crit­i­cal com­mit­tees aimed at en­sur­ing that the fi­nan­cial ser­vices you use are sound and you are not ex­ploited by fi­nan­cial in­sti­tu­tions.

The draft Fi­nan­cial Sec­tor Reg­u­la­tion Bill, which was re­leased this week, pro­poses the es­tab­lish­ment of a Coun­cil of Fi­nan­cial Reg­u­la­tors through which two new au­thor­i­ties for fi­nan­cial ser­vices as well as other reg­u­la­tors that cur­rently do not re­port to Fi­nance Min­is­ter Pravin Gord­han will be ex­pected to co-or­di­nate and co-op­er­ate in the reg­u­la­tion of all fi­nan­cial prod­ucts and ser­vices.

The bill also pro­poses the es­tab­lish­ment of a Fi­nan­cial Sta­bil­ity Over­sight Com­mit­tee to mon­i­tor and re­spond to risks in the fi­nan­cial sys­tem and to fi­nan­cial crises, such as the cri­sis of 2008.

Ac­cord­ing to the mem­o­ran­dum of ob­jects pub­lished this week with the draft bill, the Na­tional Credit Reg­u­la­tor, the Coun­cil for Med­i­cal Schemes, the Com­pe­ti­tion Com­mis­sion and the Na­tional Con­sumer Com­mis­sion will be ex­pected to par­tic­i­pate in the Coun­cil of Fi­nan­cial Reg­u­la­tors to co-or­di­nate is­sues re­lat­ing to fi­nan­cial sta­bil­ity, leg­is­la­tion, en­force­ment and the af­fect on con­sumers.

Is­mail Momo­niat, deputy di­rec­tor­gen­eral of the Na­tional Trea­sury, says the coun­cil will fa­cil­i­tate the de­vel­op­ment of a com­mon ap­proach to the li­cens­ing of fi­nan­cial ser­vice providers and to de­ter­min­ing which play­ers are fit and proper and how they should be­have.

The es­tab­lish­ment of the coun­cil is ex­pected to ad­dress some crit­i­cism of a lack of co-or­di­na­tion be­tween reg­u­la­tors, par­tic­u­larly be­tween the Na­tional Credit Reg­u­la­tor (NCR), which reg­u­lates credit providers, and the Fi­nan­cial Ser­vices Board (FSB), which reg­u­lates a num­ber of fi­nan­cial ser­vices play­ers.

Sug­ges­tions have been made that the NCR should be ab­sorbed into the FSB or the Mar­ket Con­duct Au­thor­ity, but the bill is silent on this, and the NCR re­cently is­sued a state­ment crit­i­cis­ing the FSB for sug­gest­ing the NCR lose its in­de­pen­dence.

TWO AU­THOR­I­TIES

The draft Fi­nan­cial Sec­tor Reg­u­la­tion Bill, dubbed the “twin peaks” bill, sets up two new au­thor­i­ties, which, to­gether with the Coun­cil of Fi­nan­cial Reg­u­la­tors, new mea­sures to strengthen the om­buds schemes, and fu­ture Treat­ing Cus­tomers Fairly leg­is­la­tion, are in­tended to en­sure you are bet­ter pro­tected, that all fi­nan­cial in­sti­tu­tions are reg­u­lated and that reg­u­la­tory gaps that al­low you to be ex­ploited are closed.

The twin peaks bill spells out how gov­ern­ment plans to split the func­tions of reg­u­lat­ing the mar­ket con­duct and en­sur­ing the sta­bil­ity of fi­nan­cial in­sti­tu­tions be­tween two new au­thor­i­ties.

If en­acted, the bill will re­con­sti­tute the FSB as the Mar­ket Con­duct Au­thor­ity and The “twin peaks” bill doesn’t give a date on which, if passed, the Act would come into ef­fect, but it in­di­cates that the Min­is­ter of Fi­nance will de­ter­mine dif­fer­ent dates for dif­fer­ent parts of the Act by no­tice in the Gov­ern­ment Gazette.

Na­tional Trea­sury’s deputy di­rec­tor­gen­eral, Is­mail Momo­niat, says Trea­sury hopes to get the bill through Par­lia­ment in the first half of next year and to have the Mar­ket Con­duct Au­thor­ity and Pru­den­tial Au­thor­ity es­tab­lished next year and fully op­er­a­tional in 2015.

A Trea­sury state­ment re­leased with the draft bill states that it is the first in a se­ries of bills that will give ef­fect to the twin peaks model of fi­nan­cial reg­u­la­tion that was first out­lined by Trea­sury in a doc­u­ment re­leased with the 2011 Bud­get.

The state­ment says that in a sec­ond will es­tab­lish a Pru­den­tial Au­thor­ity, which will be headed by a deputy gov­er­nor of the Re­serve Bank and staffed by its em­ploy­ees.

The bill pro­poses that the Pru­den­tial Au­thor­ity be un­der the over­sight of a com­mit­tee con­sist­ing of the gov­er­nor of the Re­serve Bank, the deputy gov­er­nor, who will be the chief ex­ec­u­tive of the Pru­den­tial Au­thor­ity, and the other deputy gover­nors of the Re­serve Bank.

The Mar­ket Con­duct Au­thor­ity will be headed by a com­mis­sioner and be­tween phase of achiev­ing the twin peaks model, ex­ist­ing laws will be amended or re­placed to bring them into align­ment with the new reg­u­la­tory au­thor­i­ties.

It says that, at this stage, laws reg­u­lat­ing mar­ket con­duct will be in­tro­duced to give ef­fect to the Treat­ing Cus­tomers Fairly ini­tia­tive. This will en­sure a “com­pre­hen­sive, con­sis­tent and com­plete ap­proach to gov­ern­ing the con­duct of fi­nan­cial in­sti­tu­tions across the fi­nan­cial sec­tor”.

The mem­o­ran­dum of ob­jects to the draft twin peaks bill says that dur­ing this sec­ond phase all fi­nan­cial in­sti­tu­tions will be brought into the reg­u­la­tory net.

Trea­sury has in­vited com­ment on the bill which is avail­able at www.trea­sury.gov.za. It should be sent to Com­men­tDraftLeg­is­la­tion @trea­sury.gov.za be­fore Fe­bru­ary 7. A pub­lic workshop on the bill will be held in Jan­uary. two and four deputy com­mis­sion­ers.

An ex­ec­u­tive com­mit­tee will be re­spon­si­ble for for­mu­lat­ing the reg­u­la­tory strat­egy of the au­thor­ity and the cur­rent FSB Board will be dis­solved.

Momo­niat says the FSB will be largely ab­sorbed into the Mar­ket Con­duct Au­thor­ity and some staff will move to the Pru­den­tial Au­thor­ity, but se­nior staff are likely to have to ap­ply for lead­er­ship po­si­tions in the Mar­ket Con­duct Au­thor­ity.

Un­der the pro­posed leg­is­la­tion, a fi­nan­cial in­sti­tu­tion will be cat­e­gorised as per- form­ing mono- or dual-reg­u­lated ac­tiv­i­ties – that is, ac­cord­ing to whether its ac­tions in the fi­nan­cial ser­vices mar­ket only need to be reg­u­lated or whether its ac­tions and its safety and sound­ness need to be reg­u­lated.

In­sti­tu­tions per­form­ing dual-reg­u­lated ac­tiv­i­ties, such as banks, long-term in­sur­ers, short- term in­sur­ers, se­cu­ri­ties ex­changes and the na­tional pay­ment sys­tem, will be reg­u­lated by both au­thor­i­ties, while those per­form­ing mono-reg­u­lated ac­tiv­i­ties, such as col­lec­tive in­vest­ment schemes, as­set man­agers, fi­nan­cial ad­vis­ers, credit rat­ings agen­cies and re­tire­ment funds, will be reg­u­lated by the Mar­ket Con­duct Au­thor­ity only.

In­sti­tu­tions sub­ject to dual reg­u­la­tion will need the ap­proval of both au­thor­i­ties to op­er­ate, and the au­thor­i­ties will be re­quired to in­form each other of ac­tions taken against a dual-reg­u­lated in­sti­tu­tion.

In es­tab­lish­ing the Fi­nan­cial Sta­bil­ity Over­sight Com­mit­tee, the twin peaks bill as­signs du­ties re­lated to re­spond­ing to fi­nan­cial crises to the Re­serve Bank, ex­cept where tax­pay­ers’ money is at risk. In this in­stance the Min­is­ter of Fi­nance is ex­pected to man­age any cri­sis.

The Coun­cil of Fi­nan­cial Reg­u­la­tors, the bill says, will be chaired by a Trea­sury rep­re­sen­ta­tive and will meet at least twice a year. Sub-com­mit­tees will be es­tab­lished on en­force­ment, leg­is­la­tion, stan­dard set­ting, out­comes and any other mat­ter that the chair­per­son deems nec­es­sary.

OM­BUDS RE­VIS­ITED

The twin peaks bill also seeks to amend the Fi­nan­cial Ser­vices Om­buds Schemes ( FSOS) Act to re­quire all fi­nan­cial in­sti­tu­tions to be mem­bers of at least one om­bud scheme.

The role of the FSOS coun­cil is also broad­ened to al­low it to ap­prove the ap­point­ment or re­moval of an om­bud and to set stan­dards to en­sure om­bud schemes are in­de­pen­dent.

The in­de­pen­dence of fi­nan­cial om­buds came into ques­tion last year when Brian Martin, who was the Om­bud for Short Term Insurance (Osti) un­til his con­tract was not re­newed late in 2011, com­plained last year to the FSOS coun­cil about in­ter­fer­ence by the board which over­sees the Osti’s of­fice.

In ad­di­tion, the bill pro­poses mea­sures to en­hance pub­lic aware­ness of the om­bud sys­tem.

If the bill is en­acted as pro­posed, the Mar­ket Con­duct Au­thor­ity, in con­junc­tion with other fi­nan­cial reg­u­la­tors, will be re­quired to es­tab­lish a con­sumer ed­u­ca­tion part­ner­ship and to mon­i­tor whether the in­dus­try is meet­ing your needs by pro­vid­ing you, as a fi­nan­cial ser­vices con­sumer, with ap­pro­pri­ate prod­ucts that of­fer value for money and are af­ford­able.

The bill pro­poses a fi­nan­cial ser­vices tri­bunal to hear ap­peals against de­ci­sions taken by ei­ther the Pru­den­tial Au­thor­ity or the Mar­ket Con­duct Au­thor­ity.

The bill was born out re­views of fi­nan­cial sec­tor reg­u­la­tion fol­low­ing the fi­nan­cial cri­sis of 2008 and in par­tic­u­lar com­ments from the in­ter­na­tional Fi­nan­cial Sta­bil­ity Board, un­der the aus­pices of the G20. The board high­lighted the need for im­proved co-or­di­na­tion be­tween reg­u­la­tors in South Africa.

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