Twin Peaks Bill awaits final parliamentary debate

…… article dated 10 October 2020…..

COFI Bill puts new financial regime in place…. 

Final comment is now awaited on the Conduct for Financial Institutions (COFI) Bill before its tabling in Parliament.  National Treasury gave until 30 October for final public input. The Bill’s passage into law will have a significant effect upon all financial entities in South Africa, the Bill representing the establishment of a reformative regulatory regime known locally as “Twin Peaks”. The new platform in general appears to be welcomed.

South Africa is the eighth country in the last twenty years to establish such a system which establishes a balanced system of controls on financial conduct in the industry, the one ‘peak’ represented by the already established prudential authority, as a subsidiary of the Reserve Bank, the second ‘peak’ being a regulatory market control body.

Two new authorities are created, namely the Prudential Authority (PA)as already created, and the Financial Sector Conduct Authority (FSCA)  The legislation for the second entity has naturally taken far longer to draft. The FSCA will be a stand-alone body.

Remember Northern Rock?

Twin Peaks is a comprehensive and complete system for regulating the financial sector.    It aims to ensure better outcomes for financial customers and the wider economy, by ensuring that customers are treated fairly and that their funds are protected against the risk of institutions failing thereby reducing the risk on the use of taxpayer funds to protect the economy from systemic failures.

Said Treasury in their initial briefing on the Bill to Parliament,  “In summation Twin Peaks as a process places equal focus on prudential and market conduct supervision by creating two dedicated authorities responsible for each of these objectives. It also places a separate focus on financial stability.”

Remember AIG?

Prudential oversight is focused on ensuring that financial institutions are in a financial position to be able to deliver on the financial ‘promises’ they make to customers. Insurance companies are also included in the grouping of financial entities included.

The PA office has apparently been established just in name with an office. But the COFI Bill, now out for final comment, turns its attention in the main to the far greater undertaking of providing an outline of what South African industry players and customers may expect from financial institutions in terms of market conduct.   This is all part of an international move to focus on “treating customers fairly”, the FSCA  providing this necessary oversight in the South African context.

The detail

The new legislation will also involve defining what customers may expect to receive from services relating to the marketing, the delivery of services and trading of financial products.     Such realms need oversight it is deemed  to ensure that product characteristics are appropriate and properly disclosed, and that the products and services are delivered in a way that is fair and efficient, said a Treasury official giving the briefing.

He said that the FSCA will replace the Financial Services Board headed by a Commissioner appointed by the Minister of Finance.  The PA and FSCA have the power to create regulatory standards, and alongside them sit four other authorities which are collectively responsible for South Africa’s financial regulation.

 At the top

As a result, the financial world will be looking to South African Reserve Bank  (Refer past articles on this website) at the apex of the financial oversight pyramid and below this the two independent bodies, the PA and FSCA as its tools of control with its mandates for monetary policy, payment system oversight and foreign exchange transactions oversight.

To maintain the integrity of the independence between the SARB and the PA and FSCA, there exists the Financial Stability Oversight Committee (FSOC) which facilitates cooperation between SARB and the prudential and market regulators.

Part of the team

Riding alongside and part of the machinery of oversight, it could be seen from the  Treasury presentation slides, are the National Credit Regulator (overseeing the conduct of credit providers and the Financial Intelligence Centre (FIC) in the fight against money laundering and other financial criminal aspects, in its role to protect the integrity of the financial system; and the Ombuds which the treasury official hinted might amalgamate into one single office handling resolution systems for financial disputes.

Also as part of the overall system the presentation showed the councils of reference, namely the Financial System Council of Regulators (FSCR) – who facilitate cooperation between the Director Generals, CEOs and Commissioners of the various financial regulatory bodies and the Financial Sector Inter-ministerial Council (FSIC) – promoting cooperation between cabinet ministers responsible for financial sector regulation, namely the Minister of Finance, the Cabinet member responsible for consumer credit matters and the Minister of Economic Development.

 Duplication only issue

It is in this last area that any caveats against the Twin Peaks system have been given, the Banking Association of South Africa for example giving a warm welcome to the proposals but warning of interference and duplication through the FSCR and FSIC.

Financial Sector Regulation Bill back to Presidency – ParlyReportSA    (2017)

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