The Financial Sector Conduct Authority (FSCA) released its recently updated three-year Regulation Plan (2024 Regulation Plan). This plan outlines the FSCA’s primary area of focus over the medium to long term as well as approximate timelines for the implementation of pertinent regulatory instruments for the period April 2024 to March 2027.
The FSCA analyses and updates the rolling three-year plan to make sure it is still relevant in terms of updates on completed projects, their overall strategic goals, to amend timelines and to consider new risks and developments in the regulatory environment in order to add new projects or focus areas.
The 2024 Regulation Plan indicates that the majority of projects are on track and added 4 new projects in the plan. These new projects are:
- Joint Standard – Third party service provision/outsourcing: this was identified by the FSCA as an area that needs to be brought in line with requirements put in place for third party outsourcing.
- Joint Standard – Capital requirements and risk management rules for ODPs: in conjunction with the Prudential Authority, the FSCA intends strengthening risk management rules for ODPs based on the World Bank’s recommendations.
- Prudential Standard – Quarterly Regulation 28 reporting: The FSCA would like to implement an extra layer is required for quarterly reporting in relation to Pension Funds.
- Amendments to FSRA Conduct Standard No. 1 of 2019 (PFA) – Conditions for amalgamations and transfers in terms of section 14 of the Pension Funds Act.
New strategic focuses that have been added to the 2024 Regulation Plan include:
- Sustainable Finance – The ‘Statement on Sustainable Finance and Work Programme’ and, the publication of its ‘Sustainable Finance Consumer Risk Report and Roadmap 2024’ means that there will be regularity frameworks and the FSCA will need to implement a workplan to incorporate this.
- Open Finance – Open Finance has been shifted to a strategic focus area as opposed to a specific regulatory framework intervention deliverable.
- Artificial intelligence and Machine Learning – this is an unexplored territory and there needs to be governing relating to the use of AI for FSPs. The FSCA needs to explore and implement policies and procedures, as well as recommendations.
- Operational risk and resilience and cloud computing – in line with international bodies stressing the importance these factors, the FSCA and Prudential Authority is undertaking assessments to ensure the regulatory frameworks are strengthened. The assessment may lead to legislative interventions in the form of Joint Standards.
- Transitional arrangements pertaining to the prudential regulation of retirement funds, collective investment schemes, friendly societies and medical schemes – in conjunction with the Prudential Authority, the FSCA has established a working group to develop roadmaps on the transition of the frameworks from the FSCA to the Prudential Authority.
- Guidance Notices and Interpretation Rulings – The 2024 plan describes the FSCA’s approach in planning for Guidance Notices and Interpretation Rulings.
The FSCA’s Strategic Objectives and planned outcomes are:
- Alignment of the regulatory frameworks with international standards – In terms of international standards, South Africa has fallen behind in respect of financial services legislation. Attention needs to be given to these standards in order to remedy defects and align standards accordingly.
- Actively pursuing harmonisation and consolidation of laws governing cross cutting themes and transforming the legislative landscape to one that is more outcomes – and principles-based – To accomplish this and enhance the legal system’s ability to address new risks linked to innovative technologies and corporate strategies, it is imperative that financial sector legislation adopts a more outcomes- and principles-based methodology. The Regulation Plan was developed with this input resulting in the Conduct of Financial Institutions Bill (COFI Bill) Transition Project.
- Topical and emerging risks – Various new risks (AI, Fintech, crypto currency etc) have exposed consumers to new types of financial attacks, the regulatory plans aim is to take these into consideration to assist vulnerable consumers.
- Identified sector specific risks – The FSCA closely monitors industry-specific risks and develops legislation to mitigate these risks.
No FAIS specific project was contained in the 2023 Regulation Plan, according to the plan, the focus will be on how to transition the existing FAIS framework to the COFI Bill. The regulation plan provided an update on the COFI Bill reaffirming that this remains a top priority. The FSCA has established an industry support group known as the “COFI Bill Transition Working Group”. This group will commence during the second half of 2024 to assist with the draft frameworks of Phase 2 i.e. the themed frameworks. Phase 3 will continue throughout 2024 with the intention of starting engagements with the COFI Bill Transition Working Group on this work during 2025.