Regulators in South Africa have been grappling with how to ensure the fair treatment of customers through existing financial sector specific legislation, and poor customer outcomes in South Africa’s financial sector have highlighted the need for stronger regulatory oversight of how institutions conduct their business and treat their customers.
2017 will usher in the new Market Conduct regulatory framework, which will bring with it extensive regulatory change for all South African financial institutions. In fact, it is arguably the single most significant financial sector regulatory reform that South Africa has ever experienced. The introduction of a Market Conduct regulatory framework is part of the Government’s decision to shift to a Twin Peaks model of financial regulation.
Essentially, the Twin Peaks model contemplates that the financial services sector will have two primary regulators, being a Prudential authority and a new Market Conduct regulator. The Prudential authority’s primary objective will be to maintain and enhance the safety and soundnessof financial institutions that provide financial products, whereas the Market Conduct regulator will be responsible for the regulation and supervision of the conduct of business of all financial institutions, and the integrity of the financial markets.
The Financial Sector Regulation Bill, which is currently before Parliament, is expected to be enacted during the first quarter of 2017. When enacted, the Bill will establish and give effect to the two new regulatory authorities. As it pertains to Market Conduct, the Financial Services Board (“FSB”) will be dissolved and replaced by the Financial Sector Conduct Authority (“FSCA”) who will assume their new Market Conduct regulatory mandate.
You would be correct if you think that this sounds similar to the FSB’s existing Treating Customer Fairly (“TCF”) programme. Market Conduct is very much an expansion and enhancement of the TCF approach. TCF dovetails-in very neatly with Market Conduct and it is envisaged that the TCF outcomes will be adopted by the FSCA as the blueprint for its regulatory mandate, with the aimto entrench the principles of the fair treatment of financial customers.
Market Conduct is not just about regulatory compliance. It is, in fact, more important to building a sustainable business. Business leadership needs to push the rightcultural mind-set down into the business.
Market Conduct should be seen as one of a financial institution’s top strategic and cultural drivers.
This document outlines why Market Conduct is being introduced into the South African market, and what it means to institutions.