12 Facts about the FSCA’s Market Integrity and Decision Sciences Division

There is a newly established division at the FSCA whose name often elicits curious “tell me more” stares, particularly from those who have not dealt with the FSCA often, or recently. The name Market Integrity and Decision Sciences (or “MIDS”, as it’s affectionately known within the authority’s corridors) sounds as remarkable as the division’s vital role within the FSCA: to ensure the efficiency and integrity of South Africa’s evolving financial markets.  

Below are 12 need-to-know facts about the MIDS division:

1. The Market Integrity and Decision Sciences (MIDS) came about after merging the Specialist Support and the Market Integrity Supervision divisions. The FSCA took this strategic move to enable the execution of new regulatory functions in response to emerging needs in the financial sector. 

 

2. MIDS is responsible for the supervision of entities regulated in terms of the Financial Markets Act 19 of 2012 (FMA), Financial Markets Act Regulations of 2018 (FMA Regulations), the Credit Rating Services Act 24 of 2012 (CRS Act), related subordinate legislation and applicable provisions of the Financial Sector Regulation Act 9 of 2017 (FSR Act). In addition, the division is responsible for the licensing of Market Infrastructures (MI’s) and Credit Rating Agencies (CRA’s). 

 

3. The Specialist Support aspect of MIDS supports the FSCA’s supervision, licensing, business centre and policy development functions. It enables the FSCA to make data-driven, evidence-based decisions; enhance accessibility and usability of data; and the proactive identification of potential risks.

 

4. The division also provides insights and value-added analysis for supervisory and regulatory decisions; as well as to influence policy debates at local and international for a (thought-leadership).

 

5. Close engagements with industry enables the FSCA to monitor and correct identified undesirable market practices timeously, thus reducing potential investor harm. (Provisions are in place to fully develop the market surveillance function of market integrity supervision within the division.)
    
6. The supervision of Market Infrastructures and Over-the-Counter Derivatives Providers (ODPs) is guided by the objects of the FMA, which entail to:

• Ensure that the South African financial markets are fair, efficient and transparent

• Promote the protection of regulated persons, clients, and investors 

• Reduce systemic risk; and  

• Promote international and domestic competitiveness of the South African financial markets and security services.

 

7. The prudential supervision of Market Infrastructures also takes responsibility for supervision of bank ODPs although no agreement has been reached yet with regards to non-bank ODPs. The FSCA is the lead regulator responsible for the licensing of MIs and ODPs, with concurrence from the PA and in some instances the SARB

 

8. Conduct standards have been issued to outline criteria for the authorisation of ODPs and reporting of transactions in OTC derivatives. The joint standards set out additional requirements and duties of trade repositories (TRs), margin requirements for non-centrally cleared derivatives, as well as the requirements for Central Counterparty (CCP) licence applications. As the regulatory framework continues to evolve, further aspects of the South African Roadmap for central clearing will be progressively implemented until 2025. This entail the development of a licensing framework for external CCPs and TRs; their corresponding equivalence and exemption criteria); the final eligibility criteria for central clearing of specified OTC derivative transactions and to establish a licensed trade repository.

 

9. The supervision and registration of CRAs is in the exclusive domain of the FSCA and is guided by the objects of the CRS Act which are to: 

• Ensure responsible and accountable CRAs; 

• Protect the integrity, transparency and reliability of the credit rating process and credit ratings; 

• Improve investor protection; 

• Improve the fairness, efficiency, and transparency of financial markets; and 

• Reduce systemic risk. 

 

The CRS Act sets out the responsibilities of CRAs in relation to governance, conduct and disclosure requirements. It further provides for the registration and withdrawal of registration; powers to conduct inspections and onsite visits (which have been substituted with section 132 of the FSR Act. To date, no conduct standards have been published in terms of the CRS Act.

 

10. Financial benchmarks will be regulated in terms of regulations and a conduct standard issued under the FSR Act. Draft regulations in this regard were published on 2 September 2021 and provide that the FSCA is the responsible authority for the regulation, supervision, and oversight of the “provision of a benchmark” as a financial service. The regulations also provide for procedural and administrative matters that are necessary to implement the provisions of this Act, and some specific powers and duties assigned to the FSCA.

 

11. The draft Conduct Standard: Requirements relating to the provision of a Benchmark was first published for comment on 28 February 2022. Comments received by 12 April 2022 deadline were considered by the Regulatory Frameworks Department (RFD) and a revised draft Conduct Standard was published for further comments until 6 February 2023.

 

12. The MIDS is capably led by its Divisional Executive Mr Olano Makhubela. For more information, visit our website to see the four departments that fall under this division.