Understanding the FSR Act

The President of South Africa recently signed the Financial Sector Regulation (FSR) Act into law. This Act is largely seen as being the backbone to the Twin Peaks regulatory system.

The objective of the Act is to split the regulating authorities of the financial services sector into two centres. The first centre will be a Prudential Authority (PA), which will fall within the Reserve Bank and will supervise the safety and soundness of financial institutions. It will be headed by the Governor of the Reserve Bank, and overseen by a committee that includes the Governor.

The second centre will be the Financial Sector Conduct Authority (FSCA), which will replace the FSB, and will supervise the manner in which financial institutions conduct business and treat their customers. The FSCA will be a standalone institution, managed by an executive committee that includes a commissioner and deputy commissioners, with independent governance committees for issues such as remuneration, audit and risk.

The Banking Association of South Africa (BASA) is pleased that the Act will align South African financial sector legislation with gl obal best practice.

“This sophisticated piece of legislation brings South Africa in line with — and in some instances beyond — prudential and market conduct reforms around the world. The new law will add to South Africa’s already sound financial market and banking regulatory framework,” the BASA said.

Law firm Cliffe Dekker Hofmeyr said in a statement that the new regulatory framework aims to address the fragmented nature of the current regulatory framework. It will ultimately contribute to broader economic strategies for increased job creation and inclusive growth through maintaining stability, protecting from the substantial costs associated with systemic risk, improving access to good quality financial products and services, whilst supporting the efficient channelling of savings into investment, in order to attain a stable environment for doing business in South Africa.

Rosemary Lightbody, Senior Policy Advisor at the Association for Savings and Investment South Africa (ASISA), says ASISA and its members fully support the strengthening of the financial sector through the introduction of appropriate structures for more efficient regulation, supervision and oversight.

Compli-Serve SA managing director Richard Rattue says the whole point of the Twin Peaks model is to create a more robust financial system and strengthen oversight of market conduct. “It is a more direct approach to consumer protection and market conduct across financial services,” he said.