The Financial Sector Regulation Bill was signed into law by President Zuma on 21 August 2017. The commencement dates for the new Financial Sector Regulation Act (FSR Act) are not yet known.
The act provides the architecture for the new ‘twin peaks’ method of regulation to be adopted across the South African financial services industry, and is the first step toward the commencement of a complete regulatory overhaul of the South African financial services sector.
Currently all South African banks are regulated by the Banking Supervision Department of the South African Reserve Bank (SARB) and all non-bank financial institutions (financial service providers, insurers, pension funds, collective investment schemes and market infrastructures) are regulated by the Financial Services Board (FSB), with each institution complying with its own industry-specific pieces of legislation. The FSR Act creates two brand new regulators – the Prudential Authority and the Financial Sector Conduct Authority.
The Prudential Authority will be responsible for regulating the prudential aspects of banks and all non-bank financial institutions and the Financial Sector Conduct Authority will be responsible for regulating market conduct and fair treatment of financial consumers.
Practically, this new set-up will see the Banking Supervision Department of the SARB becoming the Prudential Authority and the FSB transforming into the Financial Sector Conduct Authority. The Reserve Bank will sit above these two new regulators to provide overall financial oversight.
While the commencement of the FSR Act is unlikely to drastically change the existing regulatory framework with immediate effect i.e. the current ambit of financial services legislation and licenses will remain in force, it will soon herald changes in respect of regulatory supervision with each type of financial institution being allocated to either the Prudential Authority or the Financial Sector Conduct Authority.
Banks and insurers (who will have a new Insurance Act) will be allocated to the Prudential Authority while all other financial institutions will be allocated to the Financial Sector Conduct Authority.
Going forward however, the FSR Act empowers the Prudential Authority and the Financial Sector Conduct Authority to publish prudential and conduct standards which will need to be complied with in addition to existing subordinate legislation published under industry-specific Acts, and the eventual phase-out of industry-specific pieces of legislation (although this is unlikely to happen in the near future).