South Africa’s Twin Peaks regulation under scrutiny

Commercial Risk Africa attended a consumer-focused discussion on the impact of South Africa’s ‘Twin Peaks’ model of financial regulation on banks, insurers, pension funds and other financial services providers and their customers. The discussion – held under the ‘Sowetan Dialogues’ banner – was facilitated by Tim Modise, who quizzed senior representatives from government, the regulator and the banks on a variety of topics. To answer how the changing financial services regulatory environment will impact consumers the panellists focused on pro-consumer outcomes of the two main Twin Peaks regulations, namely the Financial Sector Regulation (FSR) Bill currently before parliament and the pending Conduct of Financial Institutions (CoFI) Bill. The FSR Bill is explicit about the structure of the future regulatory environment and describes the role of the Reserve Bank (the prudential authority) and the Financial Services Conduct Authority (the future market conduct authority). Another mechanism brought to life by the FSR Bill is the proposed Ombudsman Council, which will have an oversight function over all financial services Ombudsman schemes, including the Ombudsman for Long Term Insurance; the Ombudsman for Short Term Insurance; the Banking Ombudsman; and the FAIS Ombudsman. The Financial Services Board’s (FSB) Caroline Da Silva explained that the CoFI Act would guide behaviour across the financial services sector, whether at banks, collective investment schemes, insurers or pension funds – and would be about more than regulating behaviour only. “The role of the future conduct regulator is to prevent and pre-empt poor consumer outcomes; but it goes beyond that via a legislated transformation and inclusion mandate,” she said. Insurers in the life and general insurance fields have a positive impact on society. But the landscape is often blighted by tragic consumer outcomes on the one hand, and abuses by fraudulent consumers and criminal syndicates on the other. “Fraud is a big problem, but mutual trust between insurer and policyholder will go some way to resolve this,” said Ms Da Silva. The CoFI Act will deter insurers from exploiting vulnerable consumers in that it will require that all financial services firms’ products deliver value through the product life cycle. Among the scenarios considered on the day was whether it was fair for a policyholder to continue contributing monthly premiums towards a funeral policy after the premiums paid significantly exceed the cover offered. South Africa’s future market conduct regulator, the FSB, observed that customers had to understand their needs and circumstances and transact for insurance accordingly – a situation that should hold regardless of whether they deal directly with the bank, insurer or investment house or assisted by an advisor or broker. Another issue raised by an attentive audience was that of pyramid and ponzi schemes. “These schemes keep reappearing – why do consumers defend them so strongly?” asked Mr Modise. According to Ms Da Silva, some consumers knowingly drive illegal ponzi schemes to profit from this activity. Regulators cannot be expected to regulate against fraud and the prosecution of such acts rests with the criminal justice system, she said. The panellists agreed that one of the difficulties with the regulation of financial markets is that undesirable outcomes are often linked to criminal activities that take place ‘out of reach’ of regulatory intervention. “We need to impose strong criminal consequences for illegal ponzi-type schemes,” said Kershia Singh, deputy director at National Treasury.

South Africa’s Twin Peaks regulation under scrutiny

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