The Financial Sector Conduct Authority (FSCA) envisages a shift from the current sectoral licensing model to a more centralised, activity-based licensing one.
This shift, however, will only take place in the second phase of implementation of the Twin Peaks model. Until then, the licensing of entities will continue to take place under the existing financial sector laws.
Towards an activity-based licensing model
In the second phase of Twin Peaks implementation, the proposed Conduct of Financial Institutions (CoFI) Bill, which is currently being drafted, will provide the framework for licensing based on activities.
According to the current proposals, financial institutions will, in the second phase, be required to apply for a licence from the FSCA to render a financial service in respect of specific, defined activities they perform – as opposed to under different sectoral laws. The CoFI Bill will define all of these activities in a single, overarching law.
All new applicants, irrespective of their size and complexity of business (from small financial advice practices to large financial services groups), will be subjected to a thorough licensing process.
Licensing is a critical component in the regulatory framework and serves a key function in the supervision value chain. It facilitates and provides an entry point for all applicants before they are allowed to conduct any business.
It is important to note that the principle of proportionality will apply, to ensure that there is no “one-size-fits-all” licensing approach. Instead, the approach and requirements will be proportionate to the risks underlying the businesses activities of different entities. This will ensure that the licensing requirements do not pose any unnecessary barriers to entry into the financial services sector.