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Quo vadis, compliance reporting?

The process involved in replacing the old compliance reports, which were last required for the 2017 financial year, reminds me of a joke in a rag magazine, many years ago, about a new book written by the Pope called “The Pill’s grim progress”.

The FAIS Act became effective in September 2004. Over time, it became clear that a tick-box approach to compliance may have led to adherence to the letter of the law, but not the spirit thereof. A one-size-fits-all approach contributed to the need for the publication of numerous exemptions, which made compliance a complicated matter, not only for the financial services industry, but especially for the regulator.

The FSCA, which replaced the FSB in this regard, had a different mandate, and had to reconstruct its approach accordingly.

Background to the development of the Omni-CBR

The rationale for new approach to supervision is contained in the roadmap published in June 2022.

In terms of the Financial Sector Regulation Act, the objectives of the FSCA include:

  • Enhancing and supporting the efficiency and integrity of financial markets; and
  • Protecting financial customers by promoting their fair treatment by financial institutions.

To achieve its objectives, the FSCA is required to monitor the extent to which the financial system is delivering fair outcomes to financial customers, with a focus on the fairness and appropriateness of financial products and financial services and the extent to which they meet the needs and reasonable expectations of financial customers.

The FSCA published its inaugural Regulatory Strategy in 2018. To be able to monitor whether the financial system is delivering fair outcomes to customers, the FSCA needs access to meaningful, reliable, measurable and comparable information on key conduct indicators across financial institutions.

The FSCA has adopted an incremental approach to the implementation of this type of reporting. To date, conduct of business statutory reporting has only been formally implemented in respect of insurers.

Insights gained from these returns assisted the FSCA’s CBR supervisory team in developing a broader Omni-CBR, which intends facilitating sectoral reporting by six different types of financial institutions.

The Omni-CBR forms a key part of the FSCA’s offsite supervisory toolkit and reflects the FSCA’s increasing focus on embedding an evidence-based and data-driven approach to regulation and supervision as highlighted in the FSCA’s new Regulatory Strategy (2021-2025) published on 14 December 2021.

This approach will assist the FSCA to be more proactive and pre-emptive in promoting the embedment of good conduct and fair customer outcomes, and improve responsiveness to potential conduct risks, consistently across the financial sector.

Recent developments

According to the roadmap, the FSCA aims to have the full Omni-CBR in place by June 2026.

As reported by Moonstone earlier, the Omni-CBR will be rolled out in four phases, with the first phase starting this month.

Read: FSCA publishes roadmap for phasing in Conduct of Business Returns

Phase 1 will take place between June 2022 and the first quarter of 2023. It will entail substantial interaction with the industry via webinars and workshops aimed at obtaining input and collating and reviewing the information gathered, followed by the publication of a second draft template.

Phase 2 will involve pilot reporting by the industry, “to assess systems and operational impact”.

Phase 3, which is scheduled to start in 2024, will introduce a two-year transitional period, during which reporting will be phased in based on the readiness of different sectors and entity types.

Phase 4, in 2026, will see “full and final statutory conduct reporting by all sectors” every quarter.

Time is of the essence

There are a number of reasons regulatory compliance reporting is not currently at the level it should be, including the pandemic and constructing the new regulatory authority.

Although it is admirable, and essential, that the Authority engages with the industry on the journey to the extent that it does, it means, in practice, that there is a substantial amount of reliance on the industry to regulate itself.

Although those institutions that are obliged to perform compliance monitoring are tasked with a reporting obligation where transgressions become apparent, it is a far cry from having to perform a statutory duty.

Perhaps the proposed goal posts should be moved backwards to speed up implementation, rather than strive for perfection in an ever-changing environment.

Correction to article

In response to my article titled “Tribunal recommends investigation of pension fund, its administrator and trustees, published by Moonstone on 23 June 2022, Liberty sent the following erratum:

We would like to place on record that the decision by the Pension Funds Adjudicator (PFA) has not been overruled by Financial Services Tribunal (FST), but rather has been set aside and submitted to the PFA for further consideration. We request that you amend this in your article to reflect the correct process followed when PFA determinations are referred for review.

In our right of reply to the PFA, Liberty will respond in respect of the findings and reiterate the full and comprehensive facts relating to this matter. Our intention is to ensure an equitable outcome for all parties.

Our article has been amended and now reads:

The Financial Services Tribunal (FST) has set aside decisions by both Liberty, the pension fund administrator, and the Pension Funds Adjudicator (PFA), and recommended that the FSCA should consider taking regulatory action against the fund, its trustees and the administrator.

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