What is the Twin Peaks Act and why does the FSB regard a paced transition of the Act as Important?

With the recent passing of the Financial Sector Regulation Act into law, setting the stage for the FSB’s transition to the Financial Sector Conduct Authority, Dube Tshidi, the FSB’s Executive Officer shares his views on the transition and the imminent winding down of the FSB. He outlines current and future priorities and the steps being undertaken to ensure a smooth transition.

 The passing of the Financial Sector Regulation Act (FSRA), which introduces the Twin Peaks regulatory system, is a major milestone for the FSB, but also for the country and specifically the financial services sector and its consumers. It is a particularly progressive move for consumers of financial services and products in a sense that the Financial Sector Conduct Authority’s (FSCA) mandate focuses on conduct issues of all financial sector institutions. This broadens our scope and means consumers of certain financial products or services that previously fell outside of the FSB’s mandate, such as retail banking services, will now be protected by the new authority.

Naysayers have said in that in essence, the FSCA will still be the FSB, just with a different title and renamed portfolios but the reality is that the mandate of the new entity will be much wider than that of the FSB.  Whilst in some cases there may, on the face of it, not be a significant difference, the scope is significantly broader with a much wider reach.  It is not just the jurisdiction of the FSCA that changes: the FSR Act also dictates a shift in approach, requiring the conduct Regulator to be more pro-active and pre-emptive. In order to do this the Regulator will need to be highly data-enabled with strong research capabilities, requiring the recruitment of a different skill set to ensure that we move forward and shift our approach to meet these objectives. Internally, the organisation is being restructured to be more functionally-focused as opposed to its current sectoral approach.  This will enable a much greater degree of consistency across industries.  As we will have virtually no prudential responsibilities, we will sharpen our focus on market conduct issues to a much greater extent than was previously possible.

While the Act has been subject to criticism, as there always will be when major change is introduced, it cannot be forgotten that Parliament went through an extensive consultative process and considered many views in processing the Bill. Issues around regulatory costs and the necessity of the dual regulatory system were raised and addressed by the National Treasury through a cost-benefit study. It should also not be overlooked, and is important to state again, that the negative impact on the financial system, economy and consumers associated with the failure of financial institutions, as recently experienced as a result of the 2008 global financial crisis, necessitates regulatory reforms to close gaps and ensure that entities are comprehensively regulated. While this will lead to some increase in regulatory cost, it is deemed necessary, and we will closely monitor these to ensure they are in line with industry norms.

Leading on from this, the Act will be implemented in phases to ensure a combination of minimal disruption to the industry and maximum understanding and consensus. Through our existing Twin Peaks forums, we are engaging with the industry to ensure that they are kept current with the implementation process, and we have been hosting multi-stakeholder dialogue sessions through various media platforms to ensure that all stakeholders are kept abreast. The next step will be to officially launch our strategy and the new brand in 2018.

But this cannot be a quick process for the sake of speed alone. We have identified immediate priorities to transition the FSB to the Financial Sector Conduct Authority (FSCA). With regards to the process following the enactment of the Bill, it is estimated that a period of at least six to eight months will be required before it can be fully implemented. The Minister is empowered to provide for different dates of effectiveness for provisions of the Act. For the Financial Sector Conduct Authority to be established, the Act states the Minister must follow a process of appointing a Commissioner and Deputy Commissioners. To that end, draft regulations setting out the process will be published for public comment. Internally, we will continue with our regular and repeated engagement with all staff members to ensure a seamless transition and to finalise internal reorganisation.

This process also ensures smooth transition to  the FSCA for cases or investigations that are currently before the FSB.  The FSR Act specifically provides for the possibility that supervisory issues or legal proceedings may not be finalised, and deals with the process of how such pending cases should be dealt with. The Act also specifies that all rights and obligations of the FSB will pass to the FSCA.

We will monitor the impact of the new legislation as it is implemented to ensure that the new system works effectively and efficiently with an unwavering focus to promote and maintain a sound financial investment environment with consumer interests at its heart.