Incremental implementation towards a Market Conduct framework

Incremental implementation - Market Conduct framework

Six years after the decision was taken to move to a Twin Peaks model of regulation, the Financial Sector Regulation Bill was passed by the National Assembly on 22 June 2017, and sent to President Zuma for assent. The Bill, once signed into law, will put a Twin Peaks model of financial sector regulation in place in South Africa.

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Six years after the decision was taken to move to a Twin Peaks model of regulation, the Financial Sector Regulation Bill was passed by the National Assembly on 22 June 2017, and sent to President Zuma for assent. The Bill, once signed into law, will put a Twin Peaks model of financial sector regulation in place in South Africa.

The shift to a Twin Peaks model of regulation requires the establishment of two primary regulators, being a Prudential Authority (located within the SARB) and a new Market Conduct regulator – the Financial Sector Conduct Authority (FSCA) will replace the current FSB. The Prudential Authority’s primary objective will be to maintain and enhance the safety and soundness of financial institutions that provide financial products, whereas the FSCA will be responsible for the regulation and supervision of the conduct of business for all financial institutions, and the integrity of the financial markets.

The establishment of a dedicated market conduct regulator is a first for South African financial services institutions. It is clear that the Regulator’s approach and supervision will be very different to that which institutions have previously experienced. Principles based and forward looking are two key values that underpin the supervisory approach that will be adopted by the FSCA. The FSCA will place significant emphasis on the concept of “show us, don’t tell us”.

The FSCA will seek to develop a clear understanding of those institutions’ structures, operations, and product and service lines, within its supervisory ambit.

Effective management of conduct risk will be central to the FSCA supervisory mandate. To this end, institutions should manage their conduct risk within an established risk control framework that is imbedded in the operations.

A market conduct framework (“framework”) should be developed to provide the institution with an efficient and effective risk management process to identify, manage and respond to its conduct risks. The framework sets the approach to managing conduct risk and should be robust and proportionate to the conduct risks faced by that entity.

The FSCA expects that institutions implement market conduct in a manner that is most appropriate for that institution, having regard to its strategy and business model. There is no single correct approach to the implementation of market conduct. Establishing a framework serves as a guide to the institution on conduct risk.

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© 2017 KPMG Services (Pty) Limited, a South Africa private company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

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