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The Financial Sector Conduct Authority (FSCA) of South Africa

Updated On : September 2020

Amidst the chaos that COVID-19 caused, the Financial Sector Conduct Authority (FSCA), in its financial advising capacity, has been making significant efforts to reduce the impact of the pandemic on financial customers, regulated entities and the South African economy. It has outlined its main expectations regarding the approach and main responsibilities of financial institutions in these challenging times. The Authority has been regularly releasing various communication to guide customers and Financial Services Providers during this time.

The FSCA came in being by replacing the Financial Services Board (FSB) on 1 April 2018, to become a dedicated market conduit authority in the South African financial services sector.

South Africa is known globally as a country with an efficiently run, well-regulated and stable financial services industry. This robust sector was being regulated successfully by the Financial Services Board (FSB), However, despite the successful regulating by FSB, South Africa needed a dedicated regulator for supervising financial firms on how they conduct their business and interact with customers, and another one focusing on the financial soundness of financial entities. It was important to change the regulatory landscape in this way to make financial services safer, reduce potential threats to financial stability and ensure that the sector is working in the interest of all South Africans.

Thus, on 1 April 2018, South Africa's financial regulatory system essentially changed, with two new regulators coming into operation - the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA). This brought into operation the new Twin Peaks model of financial sector regulation in South Africa.

Twin Peaks was initiated in Australia in 1998 and has since been adopted by several countries like the Netherlands, Belgium, New Zealand, the United Kingdom and South Africa.

The Twin Peaks of regulation in South Africa takes care of

  • Market conduct regulation, including investment funds and investment managers, which is the domain of the FSCA
  • Regulation of financial institutions, including banks, which is the domain of the Prudential Authority (PRA), housed in the South African Reserve Bank.

The shift from the earlier sectoral licensing model to a more centralised, activity-based licensing model follows the implementation of a new licensing regime, which focuses on defined activities that a prospective licensee wishes to perform rather than on particular sectors of the market. The Conduct of Financial Institutions (COFI) Act defines all of these activities in a single, overarching law and replaces the Financial Advisory and Intermediary Services Act (FAIS). Financial institutions, including entities currently regulated as financial services providers, need to hold a licence from the FSCA to render a financial service in respect of specific, defined activities they perform. National treasury set up a panel to develop the COFI Bill.

What is FSCA

The FSCA is the market conduct regulator of financial institutions which offer financial products and financial services. It is also the market conduct regulator of licenced financial institutions (in terms of a financial sector law) which includes banks, insurers, retirement funds and administrators, and market infrastructures.

The FSCA began with six priority strategic focus areas

  • Building a new organisation;
  • An inclusive and transformed financial sector;
  • A robust regulatory framework that promotes fair customer treatment;
  • Informed financial customers;
  • Strengthening the efficiency and integrity of our financial markets;
  • Understanding new ways of doing business and disruptive technologies.

The role of FSCA

The FSCA, has recently launched its Perimeter Report to help clarify what activities it regulates. The FSCA is responsible for market conduct regulation and supervision. The core mandate of the FSCA is to

  • Enhance the efficiency and integrity of an efficient and stable financial market
  • Protect financial customers by assuring their fair treatment by financial institutions
  • Provide financial customers with financial education and information
  • Assist in maintaining financial stability in South Africa
  • Hold accountable anyone who jeopardizes the financial well-being of consumers

The FSR Act of 2017 added to the jurisdiction of the FSCA and included oversight of financial products and services not previously overseen by the FSB banking; including banking, life and non-life insurers, collective investment schemes (CIS), services related to credit, retirement funds, investment managers, financial advisers, credit rating agencies and the buying and selling of foreign exchange.. Due to the added responsibilities, the FSCA needed a shift in approach from the FSB's traditional compliance driven model to a proactive, pre-emptive, risk-based and outcomes focused one. Crucially, the new model included financial inclusion and transformation of the financial sector in its overall objectives.

The FSCA's end goal is to remove the barriers that exclude people from participating in the financial sector and get them to use services that will help improve their lives. It is working seriously towards this end, developing best practice for monitoring and evaluating the impact of consumer education initiatives in the sector. Therefore, it is focussing on driving better coordinated industry initiatives to maximise the impact of the sector's spend on financial education, to ensure long-term changes in the financial behaviour of South Africans. A major part of the population has been struggling with their relationship with money, leading to a low savings rate and growing debt levels in the country.

FSCA's consumer education initiatives include Taking Regulation to the People, an initiative that makes the regulator more accessible to both financial customers and regulated entities. It has also partnered with the Department of Public Works to provide financial literacy to participants of the Expanded Public Works Programme (EPWP), and is coordinating and implementing national financial education projects such as Money Smart Week and the Financial Literacy Schools Speech Competition.

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