FSCA Regulation Plan (1 April 2022 – 31 March 2025)

The FSCA recently published its Regulation Plan (1 April 2022 – 31 March 2025) which provides an update on various regulatory frameworks that will apply across the financial sector. The FSCA Regulation Plan sets out what can be expected in terms of regulatory developments and estimated timelines over the next three years.

The financial sector is in the process of going through two major legislative reforms. One being the Conduct of Financial Institutions (COFI) Bill which will reshape the future conduct regulatory framework by consolidating the conduct financial sector laws into a single overarching piece of conduct legislation. The second is the Financial Markets Act which is currently under review and is expected to broaden the scope and coverage of financial markets legislation and will increase oversight responsibility of South Africa’s regulators of financial markets.

The FSCA’s Regulation Plan explains that ongoing review and development of the regulatory framework is critical to ensure that the regulatory framework is robust, aligned with international standards, fit for purpose and is sufficiently flexible to position the FSCA to meet its legislated objectives and functions, particularly to ensure that financial customers are protected and treated fairly, and that financial markets operate efficiently and with integrity. The Regulation Plan has been developed in support of managing and navigating how the FSCA will carry out ongoing legislative review in line with strategic objectives.

There are three focus areas that the regulation plan has been structured around:

1. Regulatory framework developments focused on conduct
2. Regulatory framework developments focused on financial markets (integrity and efficiency)
3. Regulatory framework developments focused on broad scope of cross-cutting sector developments and themes

Focus area 1: Regulatory framework developments focused on Conduct

The main reasoning behind this development is to ensure a smooth and effective transition into the COFI Bill. The development of this new framework will consist of three phases which will take place concurrently:

• Phase 1 – High level design of the regulatory framework: This phase will consider what the overall design of the regulatory framework under the COFI Bill will be and look like, including the layout, how conduct standards will be approached, positioned, and grouped, naming and numbering conventions for conduct standards, etc.
• Phase 2 – Harmonisation of regulatory frameworks: This will ensure that the regulatory framework is applicable to the financial industry as whole, irrespective of the type of institution or activity rendered.
• Phase 3 – Transition to the COFI Bill framework: This will focus on the transitioning of existing sectoral standards to the COFI Bill framework and will entail a significant redesign of the current framework.

Some of the principles that will be considered when redesigning the regulatory framework include:

• Harmonizing requirements across the financial sector
• Facilitating a greater shift to outcomes- and principles-based requirements and less reliance on detailed rules-based requirements
• Utilizing interpretation instruments like Guidance Notices more frequently, to inform outcomes- and principles-based requirements
• Streamlining and consolidating requirements as far as possible, to avoid multiple pieces of law, thereby creating a much simpler and user-friendly legal landscape

Some of the industry specific developments that the FSCA will focus on include:

Insurers

• Joint Standard relating to Outsourcing by Insurers
• Conduct Standard setting out requirements relating to third party cell captive insurance business

Financial advisors and intermediaries

• Draft amendments to the General Code of Conduct for Authorized Financial Services Providers and their Representatives (previously consulted on)
• Draft amendments to the FAIS Compliance Officer Qualifications Notice (previously consulted on)
• Amendment to the FAIS Ombud Rules
• A final decision relating to the draft Declaration of crypto assets as a financial product under the Financial Advisory and Intermediary Services Act will be taken

Collective investment schemes

• Conduct Standard focused on enhancing the regulation of collective investment schemes, following recommendations made through the Financial Sector Assessment Program
• Review of Board Notice 90 of 2014
• Conduct Standard focusing on suspension and other Liquidity Management Options for collective investment schemes
• Review of the Pro-forma Deed for collective investment schemes
• Development of a collective investment scheme accounting framework

Alternative investment funds

• Development of a fit for purpose regulatory framework for the regulation of alternative investment fund activities

Retirement funds

• Pension Funds Financial Statements and Regulatory Reporting Standard
• Conduct Standard – Payment of Pension Funds Contributions (Section 13A of the Pension Funds Act)
• Conduct Standard – Conditions for investment in derivative instruments
• Conduct Standard – Conditions for living annuities in an annuity strategy
• Conduct Standard – Communication of Benefit Projections to Members of Pension Funds

Focus area 2: Development of the financial markets (integrity and efficiency) regulatory framework

Some of the items that the FSCA will be focusing on regarding financial markets regulatory framework projects:

• Development of a Regulatory Framework for Central Clearing in South Africa
  Implementation of the Joint Roadmap for Development of a Regulatory Framework for Central Clearing in South Africa (“Roadmap”) remains a critical priority for the Authorities in the financial markets context. Implementation in accordance with the Roadmap is progressing well and proposals relating to Phase 2 and 3 of the Roadmap will be consulted on in due course.
• Amendments to Joint Standard 2 of 2020 – Margin Requirements for non-centrally cleared OTC derivative transactions
  The Authorities identified a need to give effect to amendments to the Margin Requirements, amongst other things to make provision for regulatory reporting and enable the imposition of appropriate risk mitigation requirements by providers wanting to make use of non-cash collateral. These draft amendments will be consulted on in due course.
• Regulatory framework for the regulation of provision of benchmarks
  It is expected that the Benchmark Regulations will be finalised soon, and that the FSCA finalizes the Conduct Standard as soon as possible thereafter.
• Conduct Standard for Exchanges
  The FSCA will progress this Conduct Standard and it is envisaged that a revised Conduct Standard will be published for a second round of public consultation.
• Joint Standard Recovery Plans for Market Infrastructures
  The Authorities are in the process of finalizing a draft Joint Standard that aims to prescribe the minimum requirements for recovery plans for market infrastructures. In addition to the draft Joint Standard, a Joint Guidance Notice containing the recommended Recovery Tools for Market Infrastructures is also under development. The Authorities intend to consult on the draft Joint Standard and draft Joint Guidance Notice in due course.

Focus area 3: Cross-cutting/sector regulatory framework developments

The FSCA is initiating and progressing various cross-cutting/sector regulatory framework developments. The crosscutting/sector regulatory framework development indicated below are all viewed as a high priority and will be focused on during the course of the next three years:

• Joint Standard – Culture and Governance
  Authorities are currently in the process of developing a high-level Joint Standard relating to Culture and Governance
• Joint Standard – Information Technology governance and risk management
  The FSCA and PA are busy with final refinements to the Joint Standard, and it is expected that the Joint Standard will be submitted to National Treasury for onforwarding to Parliament by the end of 2022 or beginning of 2023.
• Joint Standard – Cyber security and cyber resilience requirements
  Initially published for public comment in 2021, a second version of the draft Joint Standard will be published for public consultation in due course.
• Other Information Technology Related Standards
  The FSCA and PA are currently busy with technical work focused on other IT related topics such as cloud computing, outsourcing of IT functions and the like.
• Beneficial owners of financial institutions
  The FSCA is considering how best to address the recommendations by the Financial Action Task Force relating to beneficial owners of financial institutions through policy and legislative interventions.
• Conduct Standard relating to Financial Consumer Education Initiatives
  The FSCA will be consulting with the Financial Sector Transformation Counsel on the draft Conduct Standard before it is published for public comment.
• Conduct Standard regarding industry practices and treatment of lost accounts and unclaimed assets
  The policy work, that will inform legislative proposals, will take place during 2022 and 2023 and may entail public consultation on Discussion, Position and/or Policy Papers. Formal draft legislative proposals are only expected to be published during the first quarter of 2024 and finalized during mid-2025.
• Conduct Standard relating to Open Finance
  It is envisaged that further Discussion and/or Position papers will be published, with the goal of proposing legislative interventions through a Conduct Standard. Policy work will therefore continue during 2022 and 2023 and it is likely that a draft Conduct Standard will only be published for public comment during the first half of 2024.
• Development of cross-sector licensing forms
  To ensure a consistent approach to licensing across the sector, and in anticipation of the licensing framework to be given effect to under the COFI Bill (through consequential amendments to the FSR Act), the FSCA will be developing cross-sector licensing forms. The cross-sector licensing forms is expected to be finalized during 2023.

Conclusion

The FSCA Regulation Plan provides an overview of the regulatory framework projects that will be focused on over the course of the next three years by the FSCA. Annexure A includes a broad estimate of expected timelines however these are not fixed and are subject to change. Although the FSCA’s Regulation Plan is a three-year plan, the Plan will be reviewed at least annually to ensure that it is up to date and takes account of changing circumstances, emerging developments and risks.