Tag Archive | finance sector

Financial Sector Regulation Bill heralds twin peaks

Twin Peaks underway for financial sector with new Bill……

The Draft Financial Sector Regulation Bill, proposed by national treasury and approved by cabinet in December 2013, has had its public comment period extended to 7 March. This is probably the most important financial legislation to be drafted since the global financial crisis of 2008.

The Bill mandates the South African Reserve Bank (SARB) to promote and maintain financial stability within an agreed policy framework and form a Financial Stability Oversight Committee to assist the SARB to “maintain, protect and enhance financial stability.”

More regulation

The Bill marks the generalised movement towards the recently declared “twin peaks system” of regulating the financial sector which, Treasury says, is founded on the principle of protecting customers more effectively and ensuring that financial institutions are financially sound.

The “twin peaks” system provides for two dedicated regulators: a Prudential Authority to ensure the soundness of financial institutions, and a Market Conduct Authority, to protect customers and ensure financial institutions treat them fairly.

Treasury says that its two recent policy papers responding to lessons learnt in the 2008 global financial crisis – “A Safer Financial Sector to Serve South Africa Better “ released back in and the more recent paper. “A Roadmap for Implementing Twin Peaks Reforms” released in February 2013 – are available on the treasury website.

Financial Stability Oversight Committee

The draft Financial Sector Regulation Bill covers the first phase, which is to establish the two regulatory authorities. The Financial Stability Oversight Committee (FSOC) is to be chaired by the Governor of the Reserve Bank, with appropriate financial stability powers.

Importantly, the Bill provides a legal framework to enhance coordination and cooperation between both regulators and a memorandum of understanding between the two. In particular, the FSOC will ensure a coordinated and immediate response to risks to the stability of the financial system.

In addition, a Council of Financial Regulators (CFR) will coordinate all regulators, standard-setters and other agencies with a mandate over financial institutions on issues like financial stability, market conduct, competition, legislation, and enforcement, even those not reporting to the department of finance.

Global financial threats

Treasury says in its introduction to the draft Bill that the global financial crisis illustrated the importance of having mechanisms in place to deal with disruptions in the financial system that threaten financial stability. Now, where taxpayers’ money is at risk, the Bill provides for crisis management decisions to be taken by the Minister of Finance.

The Bill also establishes a shared enforcement mechanism, the Financial Services Tribunal, which is aimed at encouraging compliance with all aspects of the new regulatory regime. The Bill enhances existing regulatory and enforcement action powers (such as suspension or withdrawal of licences and approvals; orders to take or cease particular actions; and debarments) of the regulators, Also, it says, it “provides for a robust appeal mechanism”.

The Bill also, by changing the Financial Services Ombuds Schemes Act, seeks to strengthen the ombuds system by putting measures in place to enhance public awareness of the ombud system, requiring all financial institutions to be members of an ombud scheme as part of public protection.

Workshops on the “twin peaks” system have been held by National Treasury for all financial institutions and government financial agencies

Earlier articles on this subject:


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