ROAD MAP FEBRUARY 2011: - PowerPoint Presentation

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ROAD MAP

FEBRUARY

2011:

NT released ‘

A safer financial sector to serve South Africa better’

commonly known as the “Red Book”, which wide-ranging sets out proposals to reform

the financial regulatory system in SA

FEBRUARY 2013: The Red Book was followed by the policy document, ‘Implementing a Twin Peaks model of Financial Regulation in SA (2013)’ (the roadmap), which provided more detailed proposals on implementing the reform of the financial regulatory system

21 AUGUST 2017:

The Financial Sector Regulation Bill signed into law, which is now the Financial Sector Regulation (FSR) Act 9 of 2017

DECEMBER 2013: FSB TCF Baseline study findings published

DECEMBER 2014: National Treasury releases ‘Treating Customers Fairly in the Financial Sector: A Draft Market Conduct Policy Framework in South Africa’

11 DECEMBER

2018: National Treasury publishes the draft Conduct of Financial Institutions Bill for public comment, together with an explanatory policy paper

APRIL 2010: Treating customers fairly: A discussion paper prepared for the FSB

FINANCIAL SECTOR REGULATIONS ACT (01/04/18)

PRUDENTIAL

MARKET & BUSINESS CONDUCT

Regulatory

instruments

Standards

Guidance Notes

Interpretation Notes

Supervisory tools

Supervisory tools

Inspection

investigationsAdministrative

Action

Directives

Enforceable undertakings

Debarment

PA

Financial Institution Facing

FSCA

Governance

Issue product

Sales & distribution

Advice

DisclosuresPost salesOutsourcing

Claims & complaints

Regulatory Architecture

Regulator Facing

Market Conduct in current Financial Sector Law

Transactional banking

Retail/SMME credit

Insurance

Investments

Pension Funds

Governance

Banks Act

NCA

LTI/STIA

CISCA

PFA

FAIS

Issuing Products

CISCA

PFA

FAIS

LTIA

CISCA

Sales & Distribution

FAIS

LTIA/STIA

FAIS

FAIS

FAIS

Advise

FAIS

NCA

FAIS

FAIS

Disclosure**

FAIS

NCA

LTI/ STIA

CISCA

PFA

FAIS

FAIS

FAIS

Post sale - service

FAIS

LTIA/STIA

CISCA

PFA

FAIS

FAIS

FAIS

Outsourcing and 3

rd

management

Banks Act (limited to general governance controls)

LTI/STIA

CISCA

PFA

FAIS

FAIS

Claims and complaints FAISNCA(Tribunal)LTIA/STIAFAISFAISFSOS(indirect -voluntary scheme)F S O S(indirect - voluntary scheme) F S O S*(collective investment schemes)PFAFAIS

NT T

reating Customers Fairly in the Financial Sector: A Draft Market Conduct Policy Framework in South Africa’ (2014)

FINANCIAL SECTOR REGULATIONS ACT (01/04/18)

PRUDENTIAL

MARKET & BUSINESS CONDUCT

Regulatory

instruments

Standards

Guidance Notes

Interpretation Notes

Supervisory tools

Supervisory tools

Inspection

investigationsAdministrative

Action

Directives

Enforceable undertakings

Debarment

PA

Financial Institution Facing

FSCA

Governance

Issue product

Sales & distribution

Advice

DisclosuresPost salesOutsourcing

Claims & complaints

Regulatory Architecture

Regulator Facing

What is COFI all about?

Represents the

holistic legal framework for market conduct regulation

in South Africa that is consistently applied to all financial institutions. Replaces conduct provisions in financial sector laws

It is

broader than the TCF

outcomes - entrenches principles in law

Primarily regulated entity-facing – setting the requirements that financial institutions under the jurisdiction of the FSCA must meet and the outcomes they are expected to deliver. Gives customers and industry players an indication of what is expected of financial institutions.

Object of Act - promote trust and confidence

in the financial sector Market conduct regulation aims to prevent, and manage when prevention is not successful, the dangers that arise from a financial institution conducting its business in the way that are unfair to customers or undermines the integrity of financial markets and confidence in the financial system.

What is COFI all about?

New legal framework

Streamlines the legal landscape

for conduct regulation in the financial sector and gives legislative effect to the market conduct policy approach.

Will

strengthen customer protection

by putting in place a single comprehensive market conduct law in the financial sector, resulting in the consistent application of consumer protection principles across the sector.Gives more flexibility and better tools to the regulator to support emerging new financial institutions.

Gives legal effect to transformation and inclusion requirements in support of targets agreed through the Financial Sector Transformation Council and specified in the Financial Sector Code.Support competition and innovation

Activity-based

Principles-based

Outcomes focused

Risk based & proportionate

Structure of COFI Bill

When interpreting and applying must

give effect to objectives of COFI

Must read in

conjunction with FSR Act

,

the FSR Act is an overlay on existing financial sector laws, as well NB definitions – Financial Customer, Financial Institution, Financial Product, Financial Service, Governing BodyNo longer ‘tick box’ approach - the FSCA will focus on monitoring the

demonstrable achievement of outcomes in the financial sectorBinding principles which reflect outcomes that must be met. Specific parts contain clauses ‘setting out the purpose of the chapter to provide clarity on intended purpose of the legal provisions’

Chapter 3 Culture and Governance Purpose of Chapter

29. The purpose of this Chapter and any conduct standards prescribed under this Chapter is to set out governance requirements for financial institutions, so that financial customers can be confident that they are dealing with firms and persons where the fair treatment of customers is central to the corporate culture, and in particular, to—

improve confidence in the financial sector by promoting governance that supports the fair treatment of financial customers; promote the supply of financial products and financial services that are appropriate for targeted financial customers; and enhance transparency and improved market conduct in the sector

Structure of COFI Bill

INTERPRETATION, OBJECTS AND APPLICATION

Chapter 1

Objectives include protecting and promoting the

fair treatment

of customers, as well as promoting

transformation,

financial inclusion

and innovation in the sector.

It explains how the Bill will apply to financial groups and conglomerates and pension funds

LICENSING (read with Schedule 2) Chapter 2

New licensing framework

for FIWill replace the numerous different registrations and authorisations in the financial sector with a

single market conduct licence from the FSCA, which can have different authorisation categories, depending on the financial activities carried out by the financial institutionFollow a ‘phased process’ for conversion of existing registrations

Structure of COFI Bill

FINANCIAL PRODUCTS

Chapter 4

Clear processes and procedures regarding the

design

of financial products marketed and sold, including that the

needs of financial customers are identified

and are

targeted accordingly

Senior management

is required to sign off on new productsStandards to be issued eg: charging structures, on-going product monitoring

FINANCIAL SERVICES Chapter 5

Consider the

needs,

circumstances and expectations of targeted financial customers, when providing financial services. Allows for specific conduct standards

to be set on financial services for matters such as investment administration, services provided to another financial institution, payment services, and benchmark determination

Chapter 3

CULTURE AND GOVERNANCE

Appropriate governance frameworks and that

decision-makers are directly and personally

held accountable for weak governance and abusive practices by the FI

Fit and proper

requirements

Operational and governance requirements

Mandatory

policies

DISTRIBUTION, ADVICE AND DISCRETIONARY INVESTMENT

MANAGEMENT

Chapter 7

FI must ensure that their

distribution models are appropriate

to ensure the delivery of appropriate products and services and, where applicable, provide access to suitable advice.

Conduct standards, including on matters such as product aggregation and comparison services, investment platform administration, referrals and lead generators, and remuneration arrangements

POST-SALE BARRIERS AND OBLIGATIONS

Chapter 8

Consistent approaches

and

practices

within FI once a customer has purchased a product or entered into a contract

with a FI – do not face unreasonable post sale barriers when changing, switching, submit claim or complaintIncludes requirements for claims handling processes and complaints management processes, interactions with the relevant financial sector

ombud, and requirements for how the information generated through complaints are used within an organisationStructure of COFI Bill

Chapter 6

PROMOTION, MARKETING AND DISCLOSURE

Clear, complete

and

accurate information

on financial product or service

across its lifecycle

FI required to have documented processes and procures in place for signing off

promotional

and

marketing materials

by a person of appropriate seniority

More

consistent disclosures across the financial sector

Standards specifying details on things like Key Information Documents, white labelling, and plain and simple language requirements, inducements and competitions, endorsements, direct marketing, negative marketing

REPORTING

Chapter 10

Annual

disclosures to the regulator

The regulator the

ability to request

information from a FI

Appointment of

Auditor

to be approved by FSCA Conduct standards on reporting, public disclosures, accounting and auditing

REMEDIAL ACTIONS FOR FINANCIAL CUSTOMERS

Chapter 11

FSR Act sets out the primary supervisory powers and tools available to the FSCAThis chapter provides greater detail on

specific remedial actions - allowing the FSCA to direct a financial institution to provide appropriate redress to financial customers if they have been found to contravene a requirement of the Act or acting without the best interest of the customer in mindStructure of COFI Bill

Chapter 9

SAFEGUARDING ASSETS AND OPERATIONAL

REQUIREMENTS

Deals with institutions that invest, hold, keep in safe custody, control or administer funds of a financial institution, or any trust property – have appropriate safeguards in place

Only applies to financial FI not regulated in terms of another Act, to ensure no overlap with prudential requirements.

FI to have operational capital to perform their required functions

Final Provisions

Chapter 13

Deals with savings of existing provisions in terms of specific laws, and

transitional arrangements

, to ensure the smooth implementation of the COFI Bill once enacted.

The Bill provides for all

regulatory instruments (subordinate legislation

) made under financial sector law to

remain effective

despite the repeal of the primary Act

SchedulesLaws amended (including Acts repealed such as FAIS, LTI Act, STI Act, CISCA, Financial Institutions (Protection of Funds Act)

Categories and subcategories of activities requiring licensing

Institutional FormTransitional arrangements in respect of licensingActivities of representatives

Structure of COFI Bill

Chapter 12

GENERAL PROVISIONS

Sets out the application of COFI in relation to

other laws,

the process for making conduct standards, for recognising equivalence with

foreign jurisdictions

and vice versa, and details the process for

applications and notifications

to the regulator.

Offences and the reporting of contraventions

(person is not licensed R15million or 10years imprisonment or both)

A FI may not in connection with a financial product or a financial service engage in conduct that is, in all the circumstances, unconscionable.

COFI Bill & Retirement Funds

State-owned pension funds / Public sector pension funds

There should be same member protection as those regulated through the PFA

COFI definition of pension fund includes public sector funds

Insert definition ‘public sector pension fund’ in Pension Funds Act, 1956

14

NT Explanatory Policy Paper:

Retirement Fund Benefit Administrators

Currently regulated under the PFA (s13B & BN 24 of 2002)

In future be licensed and authorised under the

COFI only

as a FI with

activity = benefit administration service

in respect of pension benefit15COFI Bill & Retirement Funds

Authorised Activity: Benefit Administration (and Sub activities)

Financial product category

Notes / discussions

Main Product Category

Product Sub-categoriesBenefit Administration service: Pension fund benefit administrationPension benefit

Table 5: Benefit Administration

RETIREMENT FUNDS (PENSION FUNDS)

Pension fund organisation is a

financial institution in terms of FSR Act

Providing a

financial product

is an activity that a FI is required to be

licensed forThis activity includes the activity of a pension fund providing pension benefits to its members‘benefit’ is defined in PFA as in relation to a fund, means any amount payable to a member or beneficiary in terms of the rules of that fund

Accordingly, a retirement fund will be subject to COFI and be required to be licensed in terms COFI:16COFI Bill & Retirement Funds

Authorised activity:

providing a financial product

Main product category:

pension benefitProduct sub-categories:Benefits provided by RA Fund, Pension Preservation Fund, Beneficiary Fund, Commercial Umbrella Fund, occupational fund, etc

Annexure 4: Table 1: providing a Financial Product or Instrument

RETIREMENT FUNDS (PENSION FUNDS)

Licensed under both the PFA and COFI

The registration of a retirement fund will

continue

in terms of the PFA.

COFI will impose high-level, binding principles in respect of retirement funds that will be applicable in addition to the various requirements contained in the PFA. Conduct requirements will be

migrated from the PFA to the COFI Act.Various provisions of the PFA will be retained to provide for the separate legal status of the fund and to set prudential requirements17

NT Explanatory Policy Paper:COFI Bill & Retirement Funds

COFI Bill & Retirement Funds

18

RETIREMENT FUNDS (PENSION FUNDS)

Trustees/board of management

Board of management is the

governing body

referred to in COFI and FSR ActThe COFI Bill introduces as an activity 'professional fiduciary', with ' Professional pension fund trustee service' and Independent pension fund trustee service' as subcategories, who

will be licensed under COFI and subject to fit and proper requirements as part of their wider regulatory obligations. Member elected trustees will not be required to be licensed and the focus will be on continual skills development through training The board/trustees are accountable for compliance with COFI:

Board must have procedures in place to comply with requirements of COFI and identify non compliance

Boards have to inform the FSCA without delay if it has “materially” failed to comply with COFI

COFI Bill & Retirement Funds

Sponsor

Persons who intend establishing funds

(sponsors

e.g. employer, trade union, financial institution) will have to meet

minimum requirements

– to ensure fund compliance with licensing requirements before license is issued to fund. Sponsors not separately licensed.Authority may prescribe conduct standards regulating and imposing requirements on sponsors of pension funds. Chapter 4: Financial Products Part 2 Clause 51(3):19

(3) Standards that may be prescribed in terms of subsection (1) and (2) may include standards aimed at ensuring that, where financial products are provided to pension funds, or similar member-based entities, where appropriate – Protections afforded to financial customers by this Chapter also apply in relation to the members of pension funds (or entities): andObligation imposed by this Chapter on financial institutions that provide products are also imposed on sponsors of pension funds.

COFI Bill & Retirement Funds

Service providers to retirement funds

May be FI or ‘service provider’ or ‘supervised entity’ (not a licensed FI)

financial advice

investment management

asset consulting

actuarial and auditing servicesValuation In future certain service providers currently licensed under PFA will be licensed and authorised under the COFI only

Authorised Activity: Financial adviceFinancial product category

Main Product Category

Product Sub-categories

Financial

Advice Pension benefitRA fund or Preservation fundUmbrella and occupational funds (includes all other types of funds listed under the Issuing a financial product activity in relation to issuing of pension benefits (see table 1)

Annexure 4: Table 3: Financial Advice

Closing thoughts

NT Explanatory Policy Paper

THANK YOU