TWIN PEAKS ARRIVES – THE FINANCIAL SECTOR REGULATION ACT, 2017 BECOMES LAW Fiona Rollason

Twin Peaks Arrives Former President signed the Financial Sector Regulation Act into law Introduces the twin peaks regulatory framework to South Africa Different effective dates will apply to different sections

Purpose of the Act The Act establishes a regulatory & supervisory framework that promotes: Financial stability, safety & soundness Fair treatment & protection of customers Efficiency & integrity of the financial system Prevention of financial crime Financial inclusion Transformation of the financial sector This Act applies over other financial sector laws

Who and what is covered by the Act? ‘Financial institutions’ - product and service providers & persons licensed under financial sector law ‘Financial products’ - long-term insurance policy & benefits provided by funds ‘Financial services’ - advice & administration services ‘Financial sector law’ - Pension Funds Act & Long-term Insurance Act

New authorities created under the Act Financial System Council of Regulators – ensure co-operation between Government & regulators Financial Sector Conduct Authority –market conduct regulator. Promotes fair treatment of customers & provides financial education Prudential Authority - juristic entity in SARB. Promotes safety & soundness of institutions

Financial Sector Conduct Authority Regulate funds & administrators in line with the Act and the Pension Funds Act Outcomes focused & risk based approach Commissioner and 2 to 4 deputy Commissioners Three year strategy published to explain the regulatory & supervisory priorities

Regulatory instruments Acts sets out the procedure to be followed in issuing new regulatory instruments. Instruments may deal with: fit and proper requirements governance and duties of key persons (such as trustees) record- keeping, data management & safekeeping of assets financial management operational requirements outsourcing & business continuity conflicts of interest

Regulatory Instruments Prudential standards Issued by the PA & relate to ensuring financial stability Conduct standards Issued by the FSCA & apply to institutions or representatives Deal with the fair treatment of customers, including product design, marketing, complaint resolution & disclosure of information Joint standards

Licensing A person providing financial products & financial services must be licensed to do so The Act deals with licences granted in terms of financial sector laws, including the Pension Funds Act No licence may be issued, varied, suspended or revoked by one regulator without the agreement of the other regulator (the PA and FSCA going forward)

Information gathering, supervisory on-site inspections and investigations The FSCA can request information or documents from funds and administrators On-site inspections may take place, with prior notification to the entity The FSCA may appoint an investigator to carry out an investigation An investigator can enter premises with or without prior consent

Enforcement Guidance notices non binding interpretation on the application of financial sector law Interpretation rulings statements for clarity, consistency & certainty on the law Directives institution or key person must perform the action as per the directive Enforceable undertakings given by a person to the regulator about their future conduct Court proceedings by a regulator to ensure compliance with financial sector law Debarment orders issued for contravening a local or foreign financial sector law or an enforceable undertaking or if they try to persuade someone else to contravene a financial sector law Leniency agreements for a person who co-operates with an investigation

Administrative penalties Penalties imposed by regulator against a person for contravening law or an enforceable undertaking Many factors to be taken into account: seriousness, duration, deterrence, loss suffered, prior offence, benefit of the wrongdoer, deliberate or reckless Cannot indemnify or compensate someone for having to pay a penalty

Ombud Council Customers have access to affordable, effective, independent & fair dispute resolution processes Council will recognize industry ombuds, promote co-operation, resolve jurisdictional overlap, set rules & monitor performance An industry ombud scheme may apply to the Council for recognition Call centre - assist in formulating complaints & relevant ombud scheme If no existing ombud for a specific complaint, Council can instruct an ombud to deal with it

Financial Services Tribunal Reconsider decisions made by a regulator, the Ombud Council, a statutory Ombud or a licensed financial services provider Tribunal members – 2 retired judges & 2 people with financial services experience Can dismiss a case or ask the decision-maker to review their decision or make a new decision The Tribunal’s order can have the same effect as a civil judgment A court can review a Tribunal order

Information sharing and reporting Regulators, ombuds & state bodies may collect, use, share & disclose information, including personal information Regulators must liaise & enter into agreements to co-ordinate reporting & sharing of information An institution’s auditor must report any matter to the PA which may cause the institution to be financially unsound or any contravention of financial sector law If someone reports a contravention, they cannot be held criminally liable, pay compensation or be victimised

Fees and Levies A regulator can charge fees and levies under this Act & financial sector laws, to fund its activities Fees & levies must be published Different fees & levies can apply to different types of entities

Financial Sector Information Register National Treasury will establish a Register to provide reliable electronic access to accurate, authoritative and up to date information on financial sector laws The public will be able to access this Register The Act lists all the documents to be published on the Register

Offences and penalties Examples of penalties include: institution acting without a licence or non compliance with an enforcement order – R15 million or 10 years in prison or both failing to report as required under the Act – R5000 every day the offence continues failing to publish or disclose a licence – penalty of R50 000 not meeting the requirements of an inspection or investigation – fines of R1 to R5 million Possible fines for regulators or for persons working at a regulator Indemnity for regulators for loss suffered by someone because of a decision taken in good faith

Transitional arrangements PA power to ensure financial soundness of funds will be delegated to FSCA for 3 years Transfer of activities from the FSB to the FSCA FSB Appeal Board & Enforcement Committee will cease to exist Licences in force before the Act will remain in force

Changes to the Pension Funds Act New definitions – Authority, Act, standards, Register. Tribunal Delete definitions – FSB, Registrar A new section deals with the relationship between the PFA and the Act The Adjudicator must take into account: equity, contractual relationships & the Act

Draft Regulations Transitional arrangements to allow FSB to perform functions of the FSCA Process to be followed in appointing the Commissioner and Deputy Commissioners of the FSCA

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