At a recent presentation, Seshree Govender, an associate in the financial regulatory practice at Webber Wentzel, commented on how fintech companies may be affected by regulatory changes in the financial services industry.
Based on the services they provide, Govender explained that some firms do not have a clear understanding of which laws are applicable to them.
“A lot of companies, not just fintech companies, say:
‘I’m providing a financial service and the Consumer Protection Act (CPA) expressly excludes financial services, therefore I’m excluded from the CPA, the CPA is not applicable to me so I don’t have to open the CPA book’.
That’s right. [But] while the financial service is excluded, the [mobile] app that you are providing is not. The app is a consumer product and that is not excluded,” she said.
As the nature of fintech offerings are not necessarily confined to specific sectors, there is also said to be growing cooperation among different regulators to manage overlapping interests.
“Until we get the Financial Sector Regulation (FSR) Bill here, we don’t know which regulator is doing what and the extent to which they collaborate with each other. This lacuna or uncertain space is inversely the best time for fintech companies to engage with the regulator,” she said.
According to her, no fintech companies commented on the draft fit and proper requirements for Financial Advisory and Intermediary Services (FAIS), part of which relates to automated advice.
“All the comments that have come in on robo-advice have come in from the traditional financial companies [such as] insurance and banks, fintech companies don’t comment. So what you have is regulatory instruments that are going out into the environment and that are impacting the fintech industry but not receiving comment as to how,” she said.
Fit and Proper Proposals
The proposed changes to the fit and proper regulations referred to above include the following:
‘Automated advice’ is defined as the furnishing of advice through an electronic medium that uses algorithms and technology without the direct involvement of a natural person;
An FSP that provides automated advice must have at least one key individual who
- meets the competence requirements applicable to a key individual of a Category I FSP; and
- has technological knowledge, skills and experience to
- understand the technology and algorithms used to provide the automated advice;
- understand the methodological approaches and assumptions embedded in the algorithms and the rules underpinning the algorithms;
- identify the risks to customers arising from the automated advice; and
- monitor and review the automated advice generated by algorithms to ensure quality and suitability of the advice and compliance with the Act.
Unless providers of automated advice join the discussion, they could find themselves with great products, and no-one willing to be subjected to draconian competence requirements.