The Financial Sector Conduct Authority (FSCA) has published its first Annual Report for 2018/2019 which provides information on the performance of the regulator and its various divisions, as it transitioned operations of the Financial Services Board (FSB) to the FSCA.
During the period 1991 to 2018 the FSB was mandated to supervise and enforce compliance with specific laws regulating financial institutions. The global financial crisis highlighted the need to strengthen the financial regulatory environment resulting in the emergence of the Twin Peaks model of financial regulation. With the commencement of the Financial Sector Regulation Act on 1 April 2018, the FSB ceased to exist and the Prudential Authority (PA) housed in the South African Reserve Bank and South Africa’s first ever conduct regulator, the Financial Sector Conduct Authority (FSCA), were formed.
The FSCA is organised into 10 divisions each headed by a divisional executive, and the 2018/2019 Annual Report provides insight into the focus and activities of each division. We have provided detail on some of these divisions below.
- Licencing & Business Centre
This division is responsible for performing a centralised licensing and authorisation function for all financial institutions required to be licenced by the FSCA such as banks, payment services, credit providers, financial advisors, insurers etc.
- Regulatory Policy
The Regulatory Policy division deals with the ongoing development of regulatory frameworks over which the FSCA has oversight which includes ongoing reviews of legislation and its effectiveness in supporting customer protection and market integrity, research relating to financial sector trends, emerging conduct risks and inclusion, as well as research of technological trends and innovations to understand their impact on financial sector business models.
- Conduct of Business Supervision
This division supervises how financial institutions in the financial sector conduct themselves, throughout the relevant product lifecycle, including product design, customer targeting and all stages of pre- and post-sale services with an emphasis on promoting fair treatment of financial customers.
During the reporting period, the Conduct of Business Supervision Division supervised 11,068 authorised Financial Services Providers (FSPs) which includes desk-based and on-site supervision as well as supervisory visits at the premises of the FSPs. This division received 123 reports on material irregularities with a total of 78 FSPs being referred for regulatory action, based on various contraventions relating to the FAIS Act.
- Retirement Fund Supervision
The mission of this division is to promote a safe and stable environment for members of retirement funds and has been primarily mandated by the Pension Funds Act to license and supervise retirements funds and beneficiary funds.
There are over 5,000 registered retirement funds (with only around 25% of retirement funds regularly receiving contributions and/or paying benefits) with a combined value of assets over R4 trillion. A more active approach to assessing the conduct of trustees and administrators is being taken by the FSCA.
- Investigations and Enforcement
The Investigations and Enforcement division was created by combining the ‘old’ FAIS Compliance Department, Inspectorate and Market Abuse Investigations Departments. This division is accountable for carrying out investigations related to market abuse matters and other potential contraventions of financial sector laws.
During the period under review this division suspended 461 FSP licences and withdrew 6. It also placed 1,300 representatives on the central register of debarred representatives and debarred a further 142 persons. There were 18 cases under investigation which were finalised, with some being in respect of material misconduct which was uncovered. These investigations in some cases led to administrative penalties being issued, amounting to a total of R31,440,000.
With the two regulators in place, the next step involves passing the Conduct of Financial Institutions Bill (COFI) which is currently going through the necessary consultation process. Once passed, this regulation will provide the FSCA with regulatory flexibility to respond to changes within the sector and to improve the conduct of financial institutions and fair outcomes for consumers.