TWIN PEAKS ARRIVES THE FINANCIAL SECTOR REGULATION ACT

TWIN PEAKS ARRIVES – THE FINANCIAL SECTOR REGULATION ACT, 2017 BECOMES LAW Fiona Rollason

Twin Peaks Arrives • Former President signed the Financial Sector Regulation Act into law • Introduces the twin peaks regulatory framework to South Africa • Different effective dates will apply to different sections

Purpose of the Act The Act establishes a regulatory & supervisory framework that promotes: • Financial stability, safety & soundness • Fair treatment & protection of customers • Efficiency & integrity of the financial system • Prevention of financial crime • Financial inclusion • Transformation of the financial sector This Act applies over other financial sector laws

Who and what is covered by the Act? ‘Financial institutions’ - product and service providers & persons licensed under financial sector law ‘Financial products’ - long-term insurance policy & benefits provided by funds ‘Financial services’ - advice & administration services ‘Financial sector law’ - Pension Funds Act & Long-term Insurance Act

New authorities created under the Act Financial System Council of Regulators – ensure co-operation between Government & regulators Financial Sector Conduct Authority –market conduct regulator. Promotes fair treatment of customers & provides financial education Prudential Authority - juristic entity in SARB. Promotes safety & soundness of institutions

Financial Sector Conduct Authority • Regulate funds & administrators in line with the Act and the Pension Funds Act • Outcomes focused & risk based approach • Commissioner and 2 to 4 deputy Commissioners • Three year strategy published to explain the regulatory & supervisory priorities

Regulatory instruments Acts sets out the procedure to be followed in issuing new regulatory instruments. Instruments may deal with: • fit and proper requirements • governance and duties of key persons (such as trustees) • record- keeping, data management & safekeeping of assets • financial management • operational requirements • outsourcing & business continuity • conflicts of interest

Regulatory Instruments Prudential standards Issued by the PA & relate to ensuring financial stability Conduct standards • Issued by the FSCA & apply to institutions or representatives • Deal with the fair treatment of customers, including product design, marketing, complaint resolution & disclosure of information Joint standards

Licensing • A person providing financial products & financial services must be licensed to do so • The Act deals with licences granted in terms of financial sector laws, including the Pension Funds Act • No licence may be issued, varied, suspended or revoked by one regulator without the agreement of the other regulator (the PA and FSCA going forward)

Information gathering, supervisory on-site inspections and investigations • The FSCA can request information or documents from funds and administrators • On-site inspections may take place, with prior notification to the entity • The FSCA may appoint an investigator to carry out an investigation • An investigator can enter premises with or without prior consent

Enforcement Guidance notices non binding interpretation on the application of financial sector law Interpretation rulings statements for clarity, consistency & certainty on the law Directives institution or key person must perform the action as per the directive Enforceable undertakings given by a person to the regulator about their future conduct Court proceedings by a regulator to ensure compliance with financial sector law Debarment orders issued for contravening a local or foreign financial sector law or an enforceable undertaking or if they try to persuade someone else to contravene a financial sector law Leniency agreements for a person who co-operates with an investigation

Administrative penalties • Penalties imposed by regulator against a person for contravening law or an enforceable undertaking • Many factors to be taken into account: seriousness, duration, deterrence, loss suffered, prior offence, benefit of the wrongdoer, deliberate or reckless • Cannot indemnify or compensate someone for having to pay a penalty

Ombud Council • Customers have access to affordable, effective, independent & fair dispute resolution processes • Council will recognize industry ombuds, promote co-operation, resolve jurisdictional overlap, set rules & monitor performance • An industry ombud scheme may apply to the Council for recognition • Call centre - assist in formulating complaints & relevant ombud scheme • If no existing ombud for a specific complaint, Council can instruct an ombud to deal with it

Financial Services Tribunal • Reconsider decisions made by a regulator, the Ombud Council, a statutory Ombud or a licensed financial services provider • Tribunal members – 2 retired judges & 2 people with financial services experience • Can dismiss a case or ask the decision-maker to review their decision or make a new decision • The Tribunal’s order can have the same effect as a civil judgment • A court can review a Tribunal order

Information sharing and reporting • Regulators, ombuds & state bodies may collect, use, share & disclose information, including personal information • Regulators must liaise & enter into agreements to co-ordinate reporting & sharing of information • An institution’s auditor must report any matter to the PA which may cause the institution to be financially unsound or any contravention of financial sector law • If someone reports a contravention, they cannot be held criminally liable, pay compensation or be victimised

Fees and Levies • A regulator can charge fees and levies under this Act & financial sector laws, to fund its activities • Fees & levies must be published • Different fees & levies can apply to different types of entities

Financial Sector Information Register • National Treasury will establish a Register to provide reliable electronic access to accurate, authoritative and up to date information on financial sector laws • The public will be able to access this Register • The Act lists all the documents to be published on the Register

Offences and penalties Examples of penalties include: • institution acting without a licence or non compliance with an enforcement order – R 15 million or 10 years in prison or both • failing to report as required under the Act – R 5000 every day the offence continues • failing to publish or disclose a licence – penalty of R 50 000 • not meeting the requirements of an inspection or investigation – fines of R 1 to R 5 million Possible fines for regulators or for persons working at a regulator Indemnity for regulators for loss suffered by someone because of a decision taken in good faith

Transitional arrangements • PA power to ensure financial soundness of funds will be delegated to FSCA for 3 years • Transfer of activities from the FSB to the FSCA • FSB Appeal Board & Enforcement Committee will cease to exist • Licences in force before the Act will remain in force

Changes to the Pension Funds Act • New definitions – Authority, Act, standards, Register. Tribunal • Delete definitions – FSB, Registrar • A new section deals with the relationship between the PFA and the Act • The Adjudicator must take into account: equity, contractual relationships & the Act

Draft Regulations • Transitional arrangements to allow FSB to perform functions of the FSCA • Process to be followed in appointing the Commissioner and Deputy Commissioners of the FSCA

THANK YOU