An article titled Financial Services Sector: get ready to relicense, published in Moneyweb yesterday, will no doubt come as a huge shock to many people in the financial services industry. It appears that licensing will not only apply to new entities falling under the FSB – everybody will be affected, even those who are already licensed.
When the Twin Peaks model of regulation is introduced, the FSB will also take the banking sector under its wings. In essence, there will be two regulators –and the South African Reserve Bank as the prudential regulator (regulating financial institutions’ solvency and liquidity).
When the Financial Services Board becomes the sole market conduct regulator for all financial services providers – including banks – every player in the sector will have to be licensed. “Even those that are licensed now will have to be relicensed,” Advocate Dube Tshidi, CEO of the FSB, told Moneyweb in an interview.
Something that should be of big concern to product providers is the sweeping powers envisaged for the FSB. The market conduct regulator will also have the authority to draw from a wide range of product interventions – whether this is regulatory pre-approval of financial products or compulsory disclosure of key product features afterwards is still a topic of debate. “…the FSB as the market conduct regulator (will) regulate how firms conduct their business, design and price their products and treat their customers.”
Tshidi told Moneyweb that Twin Peaks will definitely be in place by 2014 and that the draft legislation, with a task team already working on this, will probably be taken to parliament late 2013 or early 2014.
Tshidi said that the shift to Twin Peaks is necessary as there has been no one up to this point that looked after the consumer when it comes to market conduct in the banking industry. “We did not worry how the banks behaved when they dealt with consumer – nobody did that. It is (only) now, through Twin Peaks where you will have a true market conduct regulator that will regulate the market conduct of all these financial services providers,” he told Moneyweb.
Concerning its ability to cope with the new workload, the article states:
Tshidi believes the FSB will be able to cope with the demands of the mandate under Twin Peaks – even if this further increases the complexity of the industry that it has to look at. Already the FSB has to work under the scope of 14 different Acts and the new legislation will bring others also into its ambit. In 2008 the FSB had 373 employees. In 2011 they had 480. This is an increase of almost a third in three years, but Tshidi admits that when the Twin Peaks regulations come into effect the FSB would have to increase its capacity even more.
“We will have to increase our capacity, there is no question about that. And a clear example of that is that we will now be regulating the transactional side of banking in terms of conduct. We’ve never done this before; we will need highly skilled resources to deal with that. It is not a small matter,” he said. He added that the FSB would also have to start regulating the credit ratings agencies – an industry with “highly, highly intelligent people”. “The regulator must make sure that it has even better skills than the people involved in that space,” he said.
The article does not indicate whether the current format of financing the FSB via levies on the industry will continue.
Concerning criticism that the FSB was reactive, or did not act speedily enough when dubious schemes imploded, Tsidi responded:
“Up to now we have ‘failed’ in areas where we actually don’t have jurisdiction,” Tshidi states, referencing Sharemax and Herman Pretorius. “But those things are not in the space of the FSB, at least for now. But, when we move into Twin Peaks, those things will be in our space. If we fail then, then we will indeed have failed,” he said.
The issue of re-accreditation with the FSB may not be as bad as it sounds. In 2004, when the current category II licence holders had to be “migrated” from other legislation to FAIS, a transfer was effected which consisted of far less red tape than that required for a brand new licence application.
No doubt, successful completion of the level 1 regulatory exam should also be a factor in transferring to the new regime.
Depending on what the new future looks like, it could of course also affect the envisaged level 2 REs. It does not make sense to launch the level 2 exams, which are based on the current licence categories, only to change midstream when the new requirements are finalised.
Moonstone, as the only remaining “Recognised Body” which assisted the FSB from 2004 onwards with licence applications, will hopefully become involved in the new process. We aim to stay on top of developments, and will keep you informed as new facts come to light.
We also hope to be involved in discussions regarding the development of the new requirements. We trust that there will be calls for industry input, and our practical experience can no doubt contribute to a “peaceful transition”.