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FSCA Regulatory Strategy and Planned Activities for 2019

This article highlights the objectives and regulatory strategies of the Financial Sector Conduct Authority (FSCA) and outlines its planned activities for 2019. It discusses the challenges faced by the regulator and its focus areas for the next three years.

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FSCA Regulatory Strategy and Planned Activities for 2019

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  1. 2019 Pension Lawyers AssociationFSCA Regulatory StrategyEnforceable UndertakingsRFSD Planned ActivitiesChallenges for the Regulator 4 March 2019 Naheem Essop

  2. Financial Sector Conduct Authority – Objectives Section 57 of the Financial Sector Regulation Act: The objective of the Financial Sector Conduct Authority is to— (a) enhance and support the efficiency and integrity of financial markets; and (b) protect financial customers by— (i) promoting fair treatment of financial customers by financial institutions; and (ii) providing financial customers and potential financial customers with financial education programs, and otherwise promoting financial literacy and the ability of financial customers and potential financial customers to make sound financial decisions; and (c) assist in maintaining financial stability.

  3. Financial Sector Conduct Authority – Regulatory Strategy Section 70 of the Financial Sector Regulation Act: (1) The Executive Committee must, within six months after the date on which this Chapter takes effect, adopt a regulatory strategy for the Financial Sector Conduct Authority to give general guidance in the achievement of its objective and the performance of its regulatory and supervisory functions. (2) A regulatory strategy must— (a) state— (i) the regulatory and supervisory priorities for the Financial Sector Conduct Authority for the next three years; and (ii) the intended key outcomes of the strategy;

  4. Financial Sector Conduct Authority – Regulatory Strategy Section 70(2) of the Financial Sector Regulation Act: A regulatory strategy must - (a) … (b) set guiding principles for the Financial Sector Conduct Authority on— (i) how it should perform its regulatory and supervisory functions; (ii) the matters which it should have regard to in performing those functions; (iii) its approach to administrative actions; and (iv) how it should give effect to the requirements applicable to it with respect to— (aa) transparency; (bb) openness to consultation; and (cc) accountability; and (c) be aimed at giving effect to section 58.

  5. FSCA’s Strategic Priorities Our six priority focus areas for the next three years: (i) Building a new organisation; (ii) An inclusive and transformed financial sector; (iii) A robust regulatory framework that promotes fair customer treatment; (iv) Informed financial customers; (v) Strengthening the efficiency and integrity of our financial markets; and (vi) Understanding new ways of doing business and disruptive technologies.

  6. Strategic Priorities: Building a new organisation Transitional Management Committee

  7. Strategic Priorities: Building a new organisation New functions of the FSCA: (i) Banking products and services; (ii) Payment services; (iii) Services in relation to credit, including debt collection; (iv) Services related to the buying and selling of foreign exchange; (v) Medical schemes; and (vi) Supervising financial groups, conglomerates and significant owners.

  8. Strategic Priorities: Building a new organisation

  9. Strategic Priorities: Building a new organisation

  10. Strategic Priorities: An inclusive and transformed financial sector Section 7 of Financial Sector Regulation Act: Object of Act.—The object of this Act is to achieve a stable financial system that works in the interests of financial customers and that supports balanced and sustainable economic growth in the Republic, by establishing, in conjunction with the specific financial sector laws, a regulatory and supervisory framework that promotes— • … (g) transformation of the financial sector;

  11. Strategic Priorities: An inclusive and transformed financial sector Definitions: Financial Sector Regulation Act: “transformation of the financial sector” means transformation as envisaged by the Financial Sector Code for Broad-Based Black Economic Empowerment issued in terms of section 9 (1) of the Broad-Based Black Economic Empowerment Act, 2003 (Act No. 53 of 2003);

  12. Strategic Priorities: An inclusive and transformed financial sector Financial Sector Code for BBBEE: Transformation as envisaged in the B-BBEE Act relates to the viable empowerment of black people by, among other things: (i) increasing the number of black people who manage, own and control enterprises and productive assets; (ii) facilitating ownership and management of enterprises and productive assets by communities, workers, cooperatives and other enterprises; (iii) promoting human resource and skills development; (iv) achieving equitable representation in all occupational categories and levels in the workforce; and (v) preferential procurement and investment in enterprises that are owned or managed by black people.

  13. Strategic Priorities: An inclusive and transformed financial sector Conduct of Financial Institutions Bill: Transformation Policy 38. If a financial institution is subject to requirements of the Broad-Based Black Economic Empowerment Act, 2003 (Act No. 53 of 2003) and the Financial Sector Code for Broad-Based Black Economic Empowerment issued in terms of section 9(1) of that Act, it must have a policy and plan in place to meet its stated commitments in terms of promoting transformation of the financial sector in line with those requirements.

  14. Strategic Priorities: An inclusive and transformed financial sector Pension Funds Act: Regulation 28(2) (c) A fund and its board must at all times apply the following principles (i) … (iii) in contracting services to the fund or its board, consider the need to promote the broad-based black economic empowerment of those providing services.

  15. Strategic Priorities: An inclusive and transformed financial sector Retirement Funds Supervision Division: • Prioritise the appointment of persons from previously disadvantaged backgrounds in the appointment of section 26(2) trustees, statutory managers and curators. • Promoting skills transfer to persons from previously disadvantaged backgrounds, by joint appointments with seasoned professionals. • Educational programmes will be designed to promote transformation and a transformed retirement funds sector.

  16. Strategic Priorities: A robust regulatory framework that promotes fair customer treatment TCF Outcomes: Outcome 1: Customers are confident that they are dealing with financial institutions in which the fair treatment of customers is central to their culture. Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly. Outcome 3: Customers are given clear information and are kept appropriately informed before, during and after the time of contracting.

  17. Strategic Priorities: A robust regulatory framework that promotes fair customer treatment TCF Outcomes: Outcome 4: Where customers receive advice, the advice is suitable and takes account of their circumstances. Outcome 5: Customers are provided with products that perform as financial institutions have led them to expect, and the associated service is both of an acceptable standard and what they have been led to expect. Outcome 6: Customers do not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint.

  18. Strategic Priorities: Informed financial customers Taking Regulation to the People: • An initiative of the FSB. • Staff volunteer (often during personal time) to go out into rural areas to educate the public on unclaimed benefits. • In the first TRP campaign in 2015, held in Soweto, over 3000 persons were individually assisted.

  19. Strategic Priorities: Informed financial customers • Various radio station interviews in different languages to make members of the public aware of unclaimed benefits and how to enquire: Emalahleni FM JoziFM MotswedingFM MotswedingFM702 Power FM uMhloboWenene Die Groot FM Phalaphala FM LigwalagwalaFM Kasi FM SA FM - The FSCA will continue the FSB’s initiative of hosting TRP events in all nine provinces.

  20. Strategic Priorities: Informed financial customers • Workshops to be hosted by and held at the FSCA: FSR Act, the changes to the Pension Funds Act, the default regulations, the COFI Bill and other regulatory instruments • Conference: 12 September 2019 at CSIR (Pretoria) • free of charge

  21. FSCA Strategy: Our Guiding Principles • Pre-emptive and proactive • Risk-based and proportional • Intensive and intrusive • Transparent and consultative • Outcomes-based • Comprehensive and consistent • A credible deterrent • Aligned with applicable international standards

  22. FSCA Guiding Principles: Pre-emptive and proactive • Pre-empt risks before they happen and proactively take actions to mitigate risks. • The RFSD will use information gathering tools (Chapter 9 of FSR Act) to identify emerging risks. • The RFSD will also monitor PFA determinations, court judgements and media articles. • Market conduct Returns and Governance Returns. • Mystery shopping.

  23. FSCA Guiding Principles: Pre-emptive and proactive • In order to be proactive in mitigating risks, the RFSD will make use of Regulatory Instruments (Chapter 7 of FSR Act) and Enforcement Actions (Chapter of FSR Act). • For fund-specific risks, we will consider issuing directives • For cross-cutting industry risk, we will consider issuing guidance notices, interpretation rulings or conduct standards.

  24. FSCA Guiding Principles: Risk-based and proportional • Identify key risks to the achievement of the FSCA objectives and prioritise the use of our resources according to the significance of these risks. • The response to risks identified must be appropriate and proportional. • A “one-size fits all” approach will not be followed. Different types of risks are present in different types of funds. • Appropriate responses to risks in different types of funds may be different.

  25. FSCA Guiding Principles: Risk-based and proportional Section 7(1)(e) of the COFI Bill: - consider the granting of exemptions as contemplated in section 8, in a manner that— (i) promotes the object of the Act and supports the achievement of the objective of the Authority as contemplated in section 57 of the Financial Sector Regulation Act; and • takes into account, and is proportionate to— (aa) the nature, size, scale and complexity of the risks associated with a type of activity; (bb) the nature, size, scale and complexity of financial institutions; (cc) achieving the purpose of the requirement; and (dd) the significance of risks to the achievement of the object of the Act and the Authority’s objectives.

  26. FSCA Guiding Principles: Intensive and intrusive • judgement-based style of supervision. • interrogate and, where necessary, challenge the strategic decisions and business practices of retirement funds. • Intensive questioning of strategic decisions of trustees via our information gathering tools.

  27. FSCA Strategy: Intensive and intrusive • Intrusive regulatory interventions such as directives aimed at inter alia: - fair outcomes for members - providing proper financial education for members - removal of service providers - not to pay a specified bonus or performance payment

  28. FSCA Strategy: Outcomes-based • Move away from a rules-based style of regulation. • Focused on the fairness and appropriateness of retirement products and retirement services and the extent to which they meet the needs and reasonable expectations of retirement fund members. • TCF outcomes will be embedded in our approach. • Substance over form.

  29. Enforceable Undertakings Section 151 of the FSR Act: (1) A person may give a written undertaking to the responsible authority concerning that person’s future conduct in relation to a matter regulated by a financial sector law, and that undertaking, upon its acceptance by the responsible authority, becomes enforceable by the responsible authority as contemplated in this Act.

  30. Enforceable Undertakings • Enforceable Undertakings may be entered into with any person. • The person undertakes to implement specific actions within a specific period. • Normally as a result of a contravention, but doesn’t have to be. • Softer approach to regulation which is appropriate where there is a high level of cooperation present. • An indication of a person’s willingness to comply with the law. • A means of avoiding unnecessary legal costs.

  31. RFSD Planned Activities Retirement Funds Supervision Division plans to: • Host workshops and a conference • Prescribe matters that require prescribing in terms of the relevant legislation • Issue a conduct standard on good governance • Formal Retirement Fund Trustee Qualification • Code of Conduct and training for section 26(2) trustees • Review of all previously issued Notices, Directives and Circulars

  32. Challenges faced by the RFSD Default Regulations: Exemption Applications • deadline for compliance: 1 March 2019 (18 months’ grace period) • 1 September 2017 – 31 January 2019: 90 applications received 1 February 2019 – 28 February 2019: 451 21 February 2019 – 28 February 2019: 318 28 February 2019: 154 - 28 February 2019: online system crashed

  33. Challenges faced by RFSD Costs incurred by retirement funds: • need to realise the benefits that economies of scale provide and the bargaining power of retirement funds • seek out higher quality services at lower prices • legal advisers charging well in excess of the High Court tariff (300% - 400%) • the challenge is for retirement fund trustees to negotiate better fees with all service providers

  34. Challenges faced by RFSD Directive PF No. 8: • various instances where trustees, principal officers and service providers are breaching Directive PF No. 8 • RFSD will be tightening enforcement around Directive PF No. 8 • Trustees and principal officers who also happen to be attorneys, if your law firm is providing legal services to the funds where you serve, then you are in breach of Directive PF No. 8 • Retirement fund trustees who are aware of Directive PF No. 8 breaches and allowing it to continue will be held equally liable

  35. Conclusion • FSCA regulatory strategy is an important document • Various aspects that have not been touched on. • Everyone is encouraged to read the regulatory strategy document which is available on our website: www.fsca.co.za

  36. THANK YOU

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