Publication Date: 09/11/2015

The Banking Association Summits are held annually with each summit based on a current theme of importance to the banking and/or financial industry. According to the 2015/2016 World Economic Competitive Report the South African financial industry is rated 8th for Financial Market Development.

Global developments in the financial industry have informed a more robust regulatory approach to the industry and the South African National Treasury has adopted the Twin Peaks regulatory framework to regulate the industry. Hence the 2015 theme Twin Peaks: Implementation. We trust the Minister of Finance, panellists and delegates will engage in a robust interaction on the implementation of this new regulatory framework.

The financial sector is a critical enabler of economic growth and is thus central to economies and socio-economic development. Any regulatory framework for the sector must balance stability, robustness, consumer protection, profitability and sustainability, so that we have a financial sector that is profitable, responsible and sustainable. The Twin Peaks framework aims to achieve this balance. This is particularly important for the industry and the country as economies and the industry are coming out of the impact of the 2008 financial crisis precipitated by developments in the USA and parts of Europe.

The Twin Peaks framework is comprised of two primary financial regulators (peaks). The Financial Sector Regulation Bill (FSRB) outlines the legislative basis for the coming Twin Peaks system of regulating the financial sector. The Twin Peaks system is designed to make the financial sector safer, and to better protect financial customers in South Africa.

The Twin Peaks approach to financial regulation, as proposed in the FSR Bill, is designed to underpin a comprehensive regulatory system with two main aims:

  • To strengthen the financial safety and soundness of financial institutions by creating a dedicated Prudential Authority (PA)
  • To better protect financial customers and ensure that they are treated fairly by financial institutions by creating a dedicated market conduct authority – the Financial Sector Conduct Authority (FSCA)

Under this model, the Reserve Bank will oversee financial stability, within a policy framework agreed with the Minister of Finance. The FSCA will be a new regulatory regime, replacing the current Financial Service Board (FSB). Another important component of the new market conduct regulatory regime is the successful implementation of the “Treating Customers Fairly” or “TCF” principles.

The Twin Peaks reform process is to be implemented in a two phased approach:

Phase 1:

The FSCA and PA will be created. The FSCA will be a stand-alone market conduct authority, while the PA will be an authority established within the Reserve Bank. The FSB and the Bank Supervision Department will cease to exist.

Phase 2:

The second phase of the reform process is necessarily more far-reaching. In this phase, the legal frameworks for prudential and market conduct regulation will be developed, harmonised and strengthened, including through in some instances repealing industry-specific legislation (especially for market conduct) and introducing new legislation and licensing procedures where necessary.

The South African Reserve Bank (SARB) will be responsible for assisting with the prevention of systemic events by effectively and promptly containing the consequences thereof to ensure an orderly manner for the protection of financial stability.