The FSCA recently published its final Strategy for Promoting Financial Sector Transformation, outlining its approach within the existing policy framework, including the Financial Sector Regulation Act (FSR Act) and under the future Conduct of Financial Institutions Act (COFI Act) framework. The FSCA initially published the draft strategy in 2022 and called for public comment to the document. The comments received broadly support the FSCA’s objective of improving the transformation of the financial sector. In most instances, the concerns and questions raised related to providing clarity on how the FSCA’s intended approach would be implemented. Some suggestions for improvements to the strategy were also made. We thought it would be worthwhile to take you through some of the comments received from stakeholders, as well as provide the FSCA’s response particularly to the set approach under Phase 1: Promoting transformation under the existing policy and legislative framework.
Engaging with financial institutions on existing transformation plans and the extent to which targets identified in the plan are achieved
| Stakeholder feedback: It was noted that engaging with financial institutions and industry bodies on existing transformation plans and levels of compliance would be beneficial to both the FSCA and the regulated entity. The FSCA was called upon to expand its universe of stakeholders to be engaged to include specifically the organisations representing Black Professionals, Entrepreneurs, Black Industrialists and Labour with a view to get first-hand information and to gain deeper insights from the perspective of those affected the most by the success or failure of transformation in the financial sector. |
| The FSCA’s response: The FSCA supports the sentiments expressed in this regard. The successful implementation of the FSCA strategy is dependent on regulated entities’ commitment to contribute towards the transformation of the financial sector. The FSCA will continue to engage with the sector and other stakeholders on its transformation approach to ensure that it achieves the intended outcome of encouraging financial institutions to meaningfully contribute to transformation. |
Improving the availability and quality of transformation data, especially in relation to ownership
| Stakeholder feedback: Commentators agree that reliable data is required for effective policymaking and supervision. It is the key to understanding the current situation in the industry and formulating appropriate regulatory responses. Complex ownership structures should be carefully considered to ensure that the data collected supports a broad-based view of transformation. The FSCA’s commitment to avoid the duplication of data submission, as it creates inefficiencies and creates an unnecessary burden, was welcomed. It was argued that this will require careful planning to avoid reporting the same or similar information to four different bodies (FSTC, B-BBEE Commission, DoEL and the FSCA). |
| The FSCA’s response: The comments are welcomed. The first step in improving the availability and quality of transformation data is to identify data already collected by other stakeholders and leverage on this data where possible. This includes understanding the ownership patterns in the financial sector. Should additional data be required to achieve a specific objective, such information will be requested from regulated entities in accordance with the prescripts of the law. Similarly, the data sharing among regulators and stakeholders will happen within the prescripts of the law including the POPI Act. |
Coordinate supervisory transformation initiatives with the PA
| Stakeholder feedback: The coordination between the PA and the FSCA was widely welcomed. It was noted that this will support consistent approaches and lead to improved certainty for industry and potential strategies which could reduce duplication of efforts and any undue administrative reporting burdens on financial institutions. Furthermore, given that the PA is already enabled through the Insurance Act to set transformation requirements for insurance companies; and that it can also consider transformation at licensing stage for insurance companies, it was argued that it may be prudent to consider lessons from the PA in that regard. Going forward, these lessons may provide the FSCA with insights that will better inform its approach at either Phase (1 or 2) and beyond. |
| The FSCA’s response: The FSCA agrees with the sentiment expressed. As part of the twin peaks model the FSCA and the PA engage on a regular basis through several different platforms and cooperate and coordinate on their respective regulatory and supervisory approaches, including approaches to transformation. This will continue as the role of the FSCA on this subject is strengthened. |
Support small businesses in the financial sector
| Stakeholder feedback: Commentators argued that the support provided by the FSCA to small businesses in the financial sector needs to be better understood and for the success thereof to be quantifiable/ measurable. It was therefore suggested that the FSCA should expressly define the form and kind of support that will be offered to small businesses in this sector. |
| The FSCA’s response: The challenges that South African small businesses face include (but are not limited to) regulatory burden. For small businesses in the financial sector, the FSCA is well-placed to reduce regulatory burdens whereever it is possible to do so. It is also able to assist small businesses in understanding and navigating regulatory requirements set by the FSCA. Our assistance is therefore focused on compliance issues, licencing readiness, and support for regulatory examinations. This is already being provided. We recognise that small businesses in the financial sector may also require financial and operational support to expand and compete with other providers. Other government entities with mandates to support small businesses in this regard include the Small Enterprise Finance Agency for access to funding and the Small Enterprise Development Agency for non-financial assistance. |
Developing regulatory frameworks that promote the transformation of the financial sector
| Stakeholder feedback: The strategy notes that the FSCA can promote transformation by minimising regulatory barriers to entry for small black-owned entities in the financial sector and supporting small black businesses with suitably enabling regulatory compliance requirements. Commentators support a proportional approach to regulation and where possible, would welcome the removal of barriers to entry and elements of regulation that threaten the ongoing sustainability of all small entities. It was argued that regulatory barriers to entry should be reduced for all small financial institutions and not only small black-owned entities. Further, minimising regulatory barriers should be consistent and aligned with principles-based regulation and the application of the concept of proportionality. |
| The FSCA’s response: The FSCA will minimise barriers to entry by ensuring that regulatory requirements are proportionate to the risks, nature, and scale of financial institutions. It can also allow for the progressive realisation of requirements, including consideration of implementing tiered licensing requirements. For example, the Financial Advisory and Intermediary Services Act No. 37 of 2002 exemption framework allows for the progressive realisation of legislative compliance. Where current regulations are a barrier to entry for small entities, stakeholders are encouraged to engage with the FSCA and submit motivations demonstrating how certain requirements are a barrier to entry. The removal of these barriers is aimed at facilitating the registration and operation of small businesses. In the South African context, many of these small businesses are Black-owned as a result of the demographics of the country. Further, where direct support is provided by the FSCA, consideration will be given to supporting Black-owned businesses in particular; for example through engagements that take place in different regions of the country to reach those outside of the major metropolitan areas. |
The full Strategy for Promoting Financial Sector Transformation and additional feedback from stakeholders can be accessed by clicking on the link below:
https://www.fsca.co.za/Regulatory%20Frameworks/Temp/FSCA%20Transformation%20Strategy.zip |
