BUSINESS NEWS - This year will bring with it market conduct legislation for all South African financial institutions, which is arguably the single most significant regulatory reform for the sector that the country has ever experienced.
The Financial Sector Regulation Bill, which is currently before parliament, is expected to be enacted during the first quarter of 2017. Once enacted, the Bill will establish and give effect to the two new regulatory authorities. As it pertains to market conduct, the Financial Services Board (FSB) will be dissolved and replaced by the Financial Sector Conduct Authority (FSCA) which will assume its new market conduct regulatory mandate.
Need for stronger regulatory oversight
To give perspective, market conduct is not new in South Africa and our regulators have been grappling with how to ensure the fair treatment of customers for years through existing financial sector specific legislation.
While there has been some progress in this regard, persistent and pervasive market conduct challenges and practices, unfair treatment of customers, and poor customer outcomes in South Africa’s financial sector have highlighted the need for stronger regulatory oversight of how institutions conduct their business and treat their customers.
The current legislative framework is considered to be fragmented, inconsistent, and incomplete across the financial sector and too institutionally focused (as opposed to functionally focused), which in turn compromises the effective supervision of market conduct by the regulators.
As such, it was identified that the need for a holistic and coordinated market conduct regulatory framework that applies consistently across the financial sector can best be achieved through structural change to the regulatory framework and through the creation of a dedicated market conduct regulator – the FSCA.
Market conduct will introduce a distinct shift in the manner and approach to the regulation and supervision of the financial services industry by the FSCA, and a change in what institutions will need to do to ensure compliance.
Principle-based approach
The FSCA will move away from a rules based, reactive, tick-box compliance approach, to a principle based, forward looking, pre-emptive, outcomes focused and risk-based approach.
The FSCA is going to want to see and understand institutions’ governance structures, risk controls, corporate culture and their business practices - institutions will need to objectively demonstrate to the FSCA how they are ensuring the fair treatment of customers.
Institutions should, as a first step in their market conduct journey, perform an assessment of their business model and strategy with the aim of identifying and assessing those conduct risks prevalent in their business. To be able to manage, monitor and measure conduct risks, those conduct risks must first be identified and assessed.
