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The FSCA regulatory landscape – Understanding its jurisdictional challenges

The FSCA has just released its Perimeter Report of 2020, a report that identifies activities that are testing the FSCA’s regulatory perimeter, that boundary that separates regulated and unregulated activities.

This has been a problem for many years, where jurisdictional boundaries overlap between the FSCA and other regulatory bodies, e.g. the Medical Schemes Council and the Credit Regulator. Very often, financial advisers found themselves in the cross hairs of more than one regulatory body, having to please both Paul and Peter, in a manner of speaking.

What is the regulator’s mandate?

The FSCA’s mandate is set out in the Financial Sector Regulation Act of 2017 (FSR Act), which also defines the scope of its jurisdiction.

The FSCA’s mandate is basically to protect financial customers by striving to ensure that they are treated fairly by the financial institutions they deal with and by providing free financial education and promoting financial literacy. This enables customers to make informed and sound financial decisions and be part of a safer financial environment. Part of the FSCA’s mandate is also to enhance the efficiency and integrity of financial markets and to assist in maintaining financial stability.

Furthermore, Section 58 (f) of the FSR Act specifically describes the “regularly review of the perimeter and scope of financial sector regulation, and to take steps to mitigate risks identified to the achievement of its objectives or the effective performance of its functions”.

The FSCA currently regulates and supervises all financial institutions that provide a financial product and/or a financial service.

Issues testing the FSCA’s perimeter

The FSCA is concerned about poor customer outcomes in the banking sector. These relate to opaque and complex bank charges, unauthorised debit orders, misleading advertising, internet fraud and the potential impact of the closure of bank branches on customers. As a result of various actions and interventions, the FSCA has published and consulted on a draft conduct standard for banking.
Although the National Credit Regulator (NCR) regulates the market conduct of credit providers, many of them are financial institutions providing other financial services and products for which they are also regulated by the FSCA. As a result, the FSCA and NCR have entered a memorandum of understanding that aims to clarify each regulator’s roles and responsibilities.
Medical schemes fall under the jurisdiction of the Council for Medical Schemes (CMS). However, as with credit providers, many institutions that offer medical aid are also financial institutions providing other financial products and services. The FSCA, Prudential Authority and CMS are engaging with the National Treasury, to better understand the roles and responsibilities of each regulator and the ways in which the FSR Act can be used to improve and harmonise market conduct and prudential oversight in this sector.

There are also perimeter issues where the FSCA’s jurisdiction is unclear. These include Ponzi Schemes, Stokvels, Cryptoassets, Crowdfunding, Binary options, regulation of financial benchmarks and Securities Financing Transactions.

The FSCA intends to continue monitoring issues that test its regulatory perimeter and undertake specific actions to mitigate the risk of not being able to fulfil its mandate of protecting financial services clients. To this end it will work with the National Treasury and other stakeholders to promote a sound regulatory framework, remove jurisdictional uncertainties and clarify legislative ambiguities.

It is ironic that law and order has virtually ground to a halt in the country, while accusations of over-regulation in the financial services sector are rife. Coupled with extremely complex regulations, it becomes a huge challenge for both regulators and the industry to comply, as evidenced by the numerous findings of the Financial Sector Tribunal.

Click here to download the report.

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