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Implementing the Twin Peaks Model

The original policy document, A safer financial sector to serve South Africa better, published in February 2011, announced a wide-ranging set of reforms to improve the institutional structures to support financial regulation. The reforms aim to separate the oversight of market conduct regulation (regulating how firms conduct their business, design and price their products, and treat their customers) from prudential regulation (regulating financial institutions’ solvency and liquidity).

An updated version was published on 1 February 2013 and will act, together with the 2011 document, as the basis for discussion with stakeholders. Please see article above requesting input from stakeholders.

Most of our readers will be more affected by the market conduct regulation reforms, and this is what we will focus on here.

Market conduct regulation and supervision

The FSB will be transformed to create the new market conduct regulator, which will be responsible for regulating and supervising the financial services sector’s market conduct, including banks, insurers, financial advisers, financial intermediaries, investment institutions and the broader financial markets.

The market conduct regulator will be mandated to:

  • Promote the fair treatment of financial services customers
  • Promote financial awareness and financial literacy amongst South Africans
  • Protect and enhance the efficiency and integrity of South Africa’s financial markets
  • Contribute to the financial sector’s policy objectives of financial stability, financial inclusion and combating financial crime.

Market Conduct Regulator Mandates

We briefly outline, below, some of the mandates which apply more directly to you.

  • The six outcomes of the Treating Customers Fairly (TCF) initiative will form the foundation of the new approach. The TCF approach will require regulated financial institutions to consider how they treat customers at all times, from product design and marketing to the advice, point-of-sale and after- sale stages. In particular, financial institutions will need to adopt a TCF culture and governance framework, embedding TCF principles and controls in their leadership, strategy, decision making, performance management and reward processes.
  • Enhanced effectiveness of the Ombud system is key to the Regulator taking a more proactive stance when it comes to preventing major mishaps. Given their dealings with customer complaints, ombuds are ideally positioned to give the market conduct regulator insight into emerging negative conduct trends and specific unfair business practices. They can also indicate how the market conduct regulatory framework is unfolding, and help to identify gaps in it. Whatever its eventual structure, the revised ombud system will play an important role in helping the market conduct regulator take pre-emptive action on financial market misconduct.
  • Promotion of customer financial awareness and literacy: The market conduct regulator’s mandate therefore includes promoting and, together with other role players, developing and implementing a national financial literacy strategy.
  • Contribute to financial inclusion: ensuring that all South Africans have adequate access to financial services to enable them to, among other functions, manage their money, save for the future and insure themselves against unforeseen events.

On Monday, we will look more closely at the supervisory tools, including “mystery shoppers”, to be used to achieve these objectives. As this will impact directly on your business, we suggest you watch this space.

Oh, and for Manie, who thought that the twin peaks model was a new version of the Wonderbra: “Jammer, ou Grote.

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