On 1 February 2013, the Financial Regulatory Reform Steering Committee published “Implementing a twin peaks model of financial regulation in South Africa” for public comment. This document sets out the proposed reforms to South Africa’s system of financial regulation. It proposes dividing the regulation of the financial sector into two bodies, the Prudential Authority, located in the South African Reserve Bank (the higher peak) and the Market Conduct Authority, which role will be assumed by the Financial Services Board. National Treasury has published the draft Financial Sector Regulation Bill for comment. The Bill proposes a two phase implementation process.
Phase one: few changes to regulations
In the first phase of the reform, the two regulators will be established and appropriate powers assigned to them. In phase one very few changes will be made to existing sector legislation (for example the Banks Act and Long-term and Short-term Insurance Acts) other than re-assigning responsibility for implementation of legislation to the two regulators. For example, the formal responsibility for the Banks Act is shifted from the Banking Supervision Department to the Prudential Authority. National Treasury believes that this will minimise disruption during the transition phase.
Mono- and dual-regulated institutions
The Bill also creates the concepts of “mono-regulated” and “dual-regulated” institutions. Mono-regulated entities are those that undertake activities that only give rise to market conduct regulation (for example advisory and intermediary services). Dual-regulated entities are those that undertake activities that give rise to both prudential and market conduct regulation (for example banking and insurance).
Phase two: legislative reform
In the second phase, the existing financial sector legislation will be gradually amended or replaced with laws that align more appropriately with the Twin Peaks framework.
Twin Peaks will enhance coordination and cooperation between regulators
One example proposed is that a comprehensive market conduct framework will be legislated, which will give legal effect to the Treating Customers Fairly initiative currently underway, and will ensure a comprehensive, consistent and complete approach to governing the conduct of financial institutions across the financial sector.
Other stated objectives of the Bill include enhancing coordination and cooperation between regulators, balancing operational independence and accountability of regulators, establishing a crisis management and resolution framework, creating a Financial Services Tribunal and strengthening Ombud Schemes.