The Financial Sector Conduct Authority (FSCA) recently released its Regulatory Strategy applicable for the period from 14 December 2021 to 31 March 2025. The Regulatory Strategy document outlines the FSCA’s key priorities for the next three years and provides clarification on the FSCA’s approach to policy development, regulation and supervision for the purpose of obtaining fair customer and market outcomes.
The document outlines the following:
- The make-up and operations of the FSCA;
- The FSCA’s five strategic objectives for the period December 2021 to March 2025;
- Progress made in achieving the objectives set out in the FSCA’s first strategy (for the period October 2018 to September 2021); and
- The guiding principles that inform the approach to the FSCA’s work.
Some of the information included in the regulatory strategy include:
- The FSCA’s Mandate
The FSCA’s mandate includes all financial institutions that provide a financial product and/or a financial service as defined in the FSR Act. The FSCA’s regulatory jurisdiction is still under development for specific financial services such as payment services, debt collection services, and services related to the provision of credit. The extent of the FSCA’s regulatory oversight in these areas, and the specific services to which it applies, will be provided in due course.
- The 5 strategic objectives and intended outcomes for the period December 2021 – March 2025
2.1. To improve industry practices and achieve fair outcomes for financial customers
The FSCA intends to ensure good conduct and Treating Customers Fairly (TCF) principles are embedded consistently across the financial sector. The FSCA would also like to reduce conduct risks. The FSCA, in collaboration with the Prudential Authority, is developing a cross-cutting regulatory framework for culture and governance with the goal of establishing baseline requirements for FSPs to follow. An active component of the FSCA’s regulatory and supervisory strategy is to ensure that current frameworks are harmonised and evolved in such a way that they are more outcomes and principles-based, whenever practicable. [1]
2.2. Act against misconduct to support confidence and integrity in the financial sector
The FSCA’s goal is to preserve trust in the financial sector by taking decisive and visible action against financial sector malpractice in South Africa. Scams, fraudulent behaviour, the illegal conduct of unlicensed enterprises, and other unwanted acts that potentially cause considerable consumer harm are examples of this.
2.3. Promote the development of an innovative, inclusive and sustainable financial system
The FSCA intends to ensure that transformation in the financial sector is supported, financial inclusion of low-income households and small businesses are deepened, and that greater competition and contestability in the financial system is enabled. The FSCA also wishes to promote sustainable finance and investment in the financial sector.
2.4. Empower households and small businesses to be financially resilient
The FSCA intends that financial customers be able to make better and more informed financial decisions. The FSCA is aware of many South African households’ poor financial resilience, low saving rate, indebtedness, and financial illiteracy. Covid-19 has worsened this issue, and the FSCA intends to educate and raise consumer awareness through targeted marketing and information on their website. In addition, the FSCA intends to create a system for monitoring consumer resilience and vulnerability.
2.5. Accelerate the transformation of the FSCA into a socially responsible, efficient, and responsive organisation
The FSCA aims for operational excellence and that it also becomes a recognised and trusted body by all financial institutions, financial customers, financial Ombuds and financial regulators in South Africa. The FSCA intends to improve service delivery through increasing digitisation and optimised business procedures.
- The FSCA’s approach to supervision
There is an overriding objective of harmonising the supervisory approaches across sectors. Also, a risk-based supervisory approach has been adopted in line with our guiding principles. The risk-based strategy is used throughout the life cycle of a financial institution, beginning with the granting of a license and ending with its termination. It provides a systematic strategy for identifying areas of risk inside a financial institution that require supervisory attention and remedy. The risk-based supervisory process also aims to encourage financial institutions to take responsibility for their own risk management. The FSCA’s primary market conduct supervision process is divided into four stages: market monitoring, risk analysis, prioritisation, and intervention. In fact, these phases are carried out largely in simultaneously, with no clear demarcation between them.
- The FSCA’s approach to administrative actions and enforcement
New proactive techniques are being used, such as monitoring social media platforms to gain earlier warnings of unregistered and illicit enterprises, and applying intelligence to financial data to identify unusual transactions in financial markets that may indicate market manipulation.
The Regulatory strategy is important because it gives insight to the direction and approach that is pertinent to the FSCA. It is critical for FSPs to understand the FSCA Regulatory Strategy since it will have an impact on the future development and direction of the financial services landscape.
[1] The FSCA Regulatory Strategy 2021-2025, 23.