The Financial Services Laws General Amendment Bill will see substantial changes and updates in respect of 11 different laws affecting the financial services industry.
According to Business Day, the national treasury will attempt to “…close legal loopholes, address legislative weaknesses highlighted by the global financial crisis, and begin to lay the foundations for a new architecture of regulation that will be phased in over the next few years. Treasury deputy DG for tax and financial sector policy, Ismail Momoniat, notes this year would see the introduction of the ‘twin peaks’ model of regulation of the financial services sector, in which the regulation of market conduct is institutionally separated from prudential regulation, which will, among other things, concern itself with the systemic soundness of the sector as a whole – a gap in the existing system. The draft legislation will touch on about 11 financial sector laws but only in relation to which aspects of the law will fall under which regulator, rather than introducing fundamental amendments. One of the likely elements of the ‘twin peaks’ proposals will be the introduction of a single entry point for the licensing and registration of service providers. This would prevent cracks developing between the regulators, prevent regulatory arbitrage, and ensure that business leaders had the integrity, honesty and qualifications to run their enterprises.”
A document entitled the “Financial Services Laws General Amendment Bill, 2012, Clause By Clause Motivation Of Amendments”, appears on our website and gives some insight into the thinking behind these changes. If one considers that this document consists of 29 pages, mostly made up by two line summaries, you get some idea of how wide the scope of these changes are.
I selected a few of these “clause summaries” to provide readers with some insight into what to expect.
- To establish the FSB as the lead regulator where the FSB and another regulator has jurisdiction in respect of the same entities. (We have seen in the past that enquiries addressed to the FSB were referred to the banking ombud, for instance. The buck will probably now stop at the FSB.)
- To oblige other regulators to consult with the FSB when taking decisions or undertaking activities in respect of sectors regulated by the FSB.
- To effectively address the application of financial sector specific legislation in relation to other non-financial sector legislation in the event of a conflict between these laws.
- To exempt any financial service, product or institution, regulated by the FSB, from the scope of the Consumer Protection Act, as higher standards of consumer protection are being implemented in terms of financial sector legislation.
- To replace reference to “in the Gazette” with “on the official web site” to clarify that notification of official acts may be done via the web site of the Financial Services Board. (This could speed up the implementation of changes substantially, and applies to a number of divisions of the FSB. The jury is still out about the constitutionality of this change, however, and we will share an article on this in Thursday’s Moonstone Monitor.)
- To remove the power of the registrar to declare a practice or business undesirable. (This only applies to the Short- and Long-Term insurance Acts. The “FAIS registrar” retains this right, although we are not aware of it ever having been used.)
- To allow for the recovery of inspection costs from private individuals (currently costs may only be recovered from financial institutions).
Some of the proposed changes related specifically to the FAIS Act are:
- To insert a definition of “continuous professional development” to facilitate the introduction of a new section on fit and proper requirements;
- To insert a definition of “fit and proper requirements” to facilitate the introduction of a new section on fit and proper requirements;
- To substitute the definition of “product supplier” to make the definition more general by removing the requirement that products issued must be authorised under a law; (We trust that this will empower the registrar to take action if it comes across products which are cleverly disguised as something else, as recently seen.)
A major concern for smaller financial advisors is keeping up with all these changes affecting their businesses directly. Moonstone’s Compliance division has a number of specialists, dedicated to this function particularly, in order to ensure that our clients are kept in the loop.
I am afraid that, for many, it will just be another round of Russian Roulette. The only problem is that, as time passes, more and more rounds are being placed in the cylinder, and it is only a matter of time before the inevitable happens.
Or, according to Pink Floyd: All in all it’s just another brick in the wall.