Greater fintech regulation ‘on the horizon for SA’
Growth of mobile money has seen regulators introducing controls or taxes on these platforms
Law firm Webber Wentzel says local financial technology (fintech) businesses should gear up for increasing regulation in SA.
Financial services is already one of the most regulated industries in SA, given the sensitive nature of looking after the wealth of ordinary people. For new entrants, however, regulators still need to catch up to the rapid pace of innovation. But slowly, this has already started happening.
SA is home to companies such as Naked Insurance, Ozow, Jumo, Payflex and Yoco which have done much to shake up the sector.
In telecoms, the likes of Vodacom and MTN are seeing fresh regulations continue to put pressure on their new but lucrative source of income financial services in a number of markets.
Such companies have staked a large part of their growth on areas beyond the declining voice business, led by financial services. But the growth of mobile money has seen regulators starting to introduce controls or taxes on these platforms.
MTN said earlier this year it is dealing with mobile money taxes being implemented in Benin and Cameroon, while Vodacom is feeling the effects of such moves in Tanzania.
In SA, similar changes appear to be coming.
“Under planned changes to the National Payments Act, regulations will become stricter not, as generally reported, more relaxed,” said Webber Wentzel lawyers Christoff Pienaar, Safiyya Patel and Dawid de Villiers.
The lawyers said that “in the past few years, SA regulators have moved away from monitoring from the sidelines to becoming more involved”.
“They are also adopting a more collaborative approach with other regulators, which is evident in the Intergovernmental Fintech Working Group, which is generating more regulations. The approach is to use existing regulations and frameworks, although the looming
CoFI [Conduct of Financial Institutions] Bill opens up the possibility of an entirely new form of regulation.”
According to the Treasury, the CoFI Bill aims to streamline the legal landscape for regulation in the financial sector and to give legislative effect to the market conduct policy approach.
With innovative fintech operators having disrupted many parts of the traditional financial services sector in payments, remittances, mobile money and other services, regulation of such companies could be seen as a good thing for more established companies that have been slower to innovate, particularly banks.
Radebe Sipamla, an analyst at Mergence Investment Managers, disagrees.
“For the most part, they [fintech companies] are regulated but not as much as the banks because of the types of services that they offer.
“As much as the fintech guys are disruptive to the [financial services] sector, a lot of the banks are viewing them as partners more than adversaries. Banks and other bigger players in financial services have sought to partner with fintechs.”
Sipamla points to Old Mutual’s investment in digital insurer Pineapple, as well as Standard Bank’s backing of Founders Factory, which funds many startups in Africa. The bank then has first preference to take up or leverage the most promising products and technologies from these businesses.
“There is rivalry but banks realise that the fintechs are more nimble than them on the tech side.
“Regulation is positive. I don’t think it’s a bad thing. We need to make sure that people are not left to their own devices or allow unscrupulous actors to operate in the financial system.”
One area of fintech that has seen swift action from policymakers in SA and around the world is the seemingly murky world of cryptocurrencies and other decentralised forms of money. These have largely been met with restrictions and outright bans in some instances, but it does appear the tide is shifting somewhat.
Amendments to the Financial Advisory and Intermediary Services (FAIS) Act now embrace the providers of crypto assets, who will be subject to the same requirements as other providers of financial products.
While greater regulation appears inevitable, the extent to which it will affect the bottom lines of new entrants into the market is yet to become evident.
UNDER PLANNED CHANGES TO THE NATIONAL PAYMENTS ACT, REGULATIONS WILL BE STRICTER