Who does what in SA’s new finance sector rules

South Africa has started implementing a new regulatory regime for the financial sector.

Under Twin Peaks two regulators are established. One is charged with maintaining the financial system’s stability (prudential regulation), the other with market conduct and consumer protection (good conduct).

Before, SA used the sectoral model that regulated banks separately from other financial firms like insurers.

Now, the logic is that by creating two institutions independent of one another, with clear and unambiguous remits and accountability, there’s a much greater chance of avoiding a financial crisis. And consumers will be protected fairly and efficiently.

There’s an added twist to SA’s model: the Reserve Bank (Sarb), which had regulated the banking sector, will still have a role to play and the National Credit Regulator will also be part of the regulators looking after financial services.

Prudential peak:

The prudential peak has been set up as a Sarb subsidiary. Current deputy governor Kuben Naidoo will be the Prudential Authority’s CEO. Naidoo’s agency will have to develop the ability to have sufficient intelligence to anticipate disasters before they happen. He must also perform a delicate balancing act: he’ll need, at times, to be able to stand his ground against Sarb. On the other hand, he’ll have to be flexible to ensure consumer protection isn’t constantly relegated in favour of ensuring financial institutions are sound.

Conduct peak and credit regulator:

The new conduct peak is called the Financial Sector Conduct Authority which absorbed the old Financial Services Board. It’ll have a bigger set of responsibilities and a significant array of new tools, including the ability to seek more weighty penalties.

The law that underpins the authority is principles-based as opposed to rules-based. The regulator won’t have to prove a rule was broken before it can intervene. It’ll only have to show that something has – or is likely to – prejudice consumers, before taking action.

While the conduct authority will be responsible for protecting consumers, the regulation of credit, and protecting customers against lending abuse will stay with the National Credit Regulator.

But the best architecture is no panacea for poor implementation. Twin Peaks is in crisis in Australia, which is reeling after 11 years fraud and dishonesty scandals in its financial industry. SA must avoid this by creating strong, determined, well-resourced and fearless regulators.

Andrew Schmulow is senior lecturer at the Faculty of Law, University of Western Australia

This was published on The Conversation and has been edited