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TWIN PEAKS MODEL OF FINANCIAL REGULATION

By Kirsten Kern Thursday, April 19, 2018
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National Treasury announced on 29 March 2018 that the implementation date for the much-anticipated Twin Peaks model of financial regulation, establishing the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA) in terms of the Financial Sector Regulation Act 9 of 2017 (FSRA), would be 1 April 2018.  The full press release on the implementation of the Twin Peaks model, is available here.

As described in a previous newsflash when the FSRA was signed into law in  August 2017, the PA will have regulatory oversight of prudential matters relating to financial institutions, while the FSCA has replaced the Financial Services Board (FSB) as market conduct supervisor. 

A Transitional Management Committee has been put in place to handle the transition between the FSB and the FSCA, with the FSB having ceased to exist with effect from 1 April 2018.  It is anticipated that the appointment of an FSCA commissioner and deputy commissioners will take up to three months, while Kuben Naidoo has been appointed as CEO of the Prudential Authority. The intention is for both the PA and the FSCA to publish their regulatory strategies within six months of their establishment. 

While the bulk of the provisions of the FSRA commenced on 29 March or 1 April 2018, certain other provisions are to be phased in over time, in order to ensure a “non-disruptive transition to the new model”. 

Section 111(1) of the FSRA deals with licensing, and stipulates that a person may not provide a “financial service” or a “financial product” except (a) in accordance with a licence in terms of a specific financial sector law (for example, the Financial Advisory and Intermediary Services Act/ FAIS) or (b) if no specific financial sector law provides for such a licence, in accordance with a licence in terms of the FSRA.  The terms “financial service” and “financial product” are defined more widely in the FSRA than under FAIS.  The implication of section 111(1)(b) of the FSRA is that the provision of any “financial service” or “financial product” (as defined in the FSRA) that is not currently subject to licensing under a specific (existing) financial sector law will now be caught under section 111(1)(b) of the FSRA, and so will be subject to licensing under the FSRA itself.  Licensing under the FSRA, in terms of section 111(1)(b), will be effective only as of
1 April 2019, presumably to allow the FSCA time to flesh out the ‘catch-all’ licensing requirement, from a practical perspective, through the publication of regulations. 

Chapter 14 of the FSRA, which relates to the formation of an Ombud Council, will commence on 1 October 2018.  The provisions relating to Significant Owners (Chapter 11) will only be effective on 1 January 2019, while those concerning the designation of members of a company group as a Financial Conglomerate by the PA (Chapter 12) are set to take effect on 1 March 2019.  

Chapter 15 of the FSRA establishes the Financial Services Tribunal (Tribunal), tasked with reviewing the decisions of financial sector regulators (such as the FSCA, the PA and the National Credit Regulator).  Chapter 15’s provisions took effect on 1 April 2018 and the current members of the FSB Appeal Board, the Board of Review and the FIC Appeal Board have been appointed to constitute the Tribunal.

The FSRA has also brought about changes to the specific financial sector laws.  The bulk of the changes effected by the FSRA to FAIS are also effective from 1 April 2018, with the rest set to take effect later in 2018 or on 1 April 2019. It is worth noting that the FSRA Commencement Notice is silent on the coming into effect of the change to the definition of “intermediary service” in section 1 of FAIS, as well as of the addition of the term “alternative investment fund” relating to the defined term “financial product” under FAIS.  This leads to the conclusion that these changes are not yet in effect.  The amended definition of “intermediary service” will cause certain principal-to-principal activities between financial product providers and clients/ investors to constitute licensable “intermediary services” under FAIS, which is not currently the position.

The FSCA has also published a new set of application forms for financial services provider (FSP) licence applications.  The new forms will need to be used when effecting "profile changes" or amendments to existing FSP licence profiles (including changes to directors, key individuals or representatives).  Existing FSP licence-holders should take note of the fact that the new forms are more granular in the level of detail they require.  The new forms can be accessed here.

The Government Gazettes setting out the commencement dates in full and transitional provisions are available here and here. 

For further information, please contact Kirsten Kern, partner in our Banking and Financial Services Regulatory Practice.