/
Regulatory reform of the financial Regulatory reform of the financial

Regulatory reform of the financial - PowerPoint Presentation

widengillette
widengillette . @widengillette
Follow
342 views
Uploaded On 2020-09-22

Regulatory reform of the financial - PPT Presentation

markets trends and challenges Natalie L abuschagne JSE Head Public Policy 13 May 2015 Outline The Global Financial Crisis GFC and regulatory themes An international shift to Twin Peaks ID: 811988

twin financial regulatory peaks financial twin peaks regulatory act regulation global international requirements regulators jse crisis draft fma otc

Share:

Link:

Embed:

Download Presentation from below link

Download The PPT/PDF document "Regulatory reform of the financial" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.


Presentation Transcript

Slide1

Regulatory reform of the financial markets – trends and challenges

Natalie

L

abuschagne, JSE, Head: Public Policy

13 May 2015

Slide2

OutlineThe Global Financial Crisis (GFC) and regulatory themes

An international shift to Twin Peaks

International trends

Twin Peaks in South Africa

International harmonisation of regulation

OTC derivative reform – what can we expect?

Slide3

Key regulatory themes post-crisis

How to design appropriate regulatory

arrangements

?

Twin Peaks jurisdictions appeared to fair better during and post the GFC?

Blurring of lines across banking, insurance and securities sectorsFinancial innovation and complexity of productsRegulatory harmonisation vs. national discretionRegulator independence vs. regulator accountability

Reference: K. Davis

Regulatory Reform Post the Global Financial Crisis: An Overview,

a

report prepared for the Melbourne APEC Finance Centre

Slide4

Key regulatory themes post-crisis continued…

2) How

to design appropriate regulatory

interventions

“Light touch” regulation replaced by more intrusive, onerous

regulationb) Assessing regulatory impact difficultBreadth and depth of regulatory reformExtra-territoriality

c)

Greater emphasis on consumer protection

Reference: K. Davis

Regulatory Reform Post the Global Financial Crisis: An Overview,

a

report prepared for the Melbourne APEC Finance Centre

Slide5

An international shift to Twin Peaks….

Reference:

The

S

tructure

of Financial Supervision: Approaches and Challenges in a Global Marketplace, Financial Regulatory Systems Working Group, Group of 30, 2008, www.group30.org

Slide6

4 Models of Supervision Internationally

Approaches

Defined

Institutional

China, Hong Kong,

and Mexico

Firm’s

legal status

determines which regulator.

Regulator supervises both from microprudential and a business conduct perspective.

Functional

Brazil, France, Italy, and Spain,

South Africa

Business being transacted

determines regulator, without regard to its legal status.

Each type of business may have its own functional regulator.

Integrated

Singapore, and

Switzerland

A

single universal regulator

.

Twin

Peaks

Netherlands, and Australia

Regulation by objective

Separation of regulatory functions between 2 regulators: one macro/microprudential and the other that focuses on conduct-of-business regulation.

Unique

USA

Functional

and institutional

mixture

Federal Reserve Board, SEC, CFTC, OCC, FDIC, OTS, NCUA, FHLBB, FINRA, FFIEC

AND

state regulators

Slide7

Global trends post-crisis – consolidation of regulation

Country

Before current

crisis

Moving towards

consolidation of supervisionUSAFunctional/Institutional

Twin Peaks/

Integrated mix

- new FSOC and BCFP

UK

Integrated tripartite (including HMT)

Twin Peaks

Holland

Twin Peaks

No

change

Italy

Functional

Twin Peaks

Spain

Functional

Twin

Peak

France

Functional

Twin Peaks

Canada

Integrated/Twin

Peaks

No change

Singapore

Integrated

No change

Slide8

Why the move to Twin Peaks?

Health of financial/economic system (macroprudential)

Health of individual firms (microprudential)

Focus on prevention

With rehabilitation

Establishment of credible deterrentFocus on enforcement

SUPERVISION OF CONDUCT

PRUDENTIAL SUPERVISION

Slide9

Twin Peaks in South Africa

Slide10

Twin Peaks SA: a long road….

FEBRUARY 2011

:

Policy document

A safer

financial sector to serve South Africa better JULY 2011: Cabinet approved 4 policy objectives in July 2011Need to improve market conductNeed to combat financial

crime

Need

to strengthen

financial stability

Need

to widen

access to financial

services

BUDGET 2013:

Roadmap

-

Implementing

a twin peaks model of financial regulation in

SA

DECEMBER 2013 :

1

st

draft of the

Financial Sector Regulation Bill (FSRB)

published

Additional objectives stated

Enhancing

coordination and cooperation

between regulators

Balancing operational independence and

accountability

of regulators

Establishing a crisis management and

resolution

framework

S

trengthening

enforcement

and the

ombuds

schemes

DECEMBER 2014 :

2

nd

draft

of the

Financial Sector Regulation Bill (FSRB)

published

1

st

draft of policy

paper

Treating

Customers Fairly in the Financial Sector: A Market Conduct Policy Framework for South

Africa

H1 2015

: Public consultation on 2

nd

draft of FSRB

DECEMBER 2015

: Final FSRB and Twin Peaks expected to go-live 2016.

2016:

Draft

CoFI

Act for public comment

Slide11

Phase 1: FSR Bill

Twin Peaks Phase 1: Overlay of powers

Phase 2:

Long-term

Insurance

Act

Short-term

Insurance

Act

Pension Funds

Act

Banks

Act

FAIS

Ombuds

Schemes

Act

Friendly Societies

Act

NPS

Act

CRS

Act

CISCA

FMA

SARB

(Financial Stability)

Prudential

Authority

FSCA

Overarching

Prudential

Law

Conduct

of FI (

CoFI

)

Act

FMA

???

11

NCA

NCA

Mutual Banks

Act

Cooperative Banks

Act

NCR

Slide12

Phase 1: two new regulators

Phase 1 of implementation

The FSB and the Bank Supervision Department cease to exist and are replaced by the FSCA and PA

SARB

Systemic stability

Objectives to protect financial customers:

All financial institutions treat financial customers fairly

Responsible for integrity of financial system

Financial education programs

Objectives:

Safety and soundness of all financial institutions; excluding financial service providers

Assist in maintaining financial stability

Licensing

Licensing

Council of Financial Regulators

Comprising:

DGs of NT, DTI, Health

CEO of PA

Commissioner of FSCA

CEO of NCR

CEO of CMS

Fin Stability Dep.

Gov

MOUs

Financial Sector Inter-Ministerial Council

Comprising Ministers of:

Finance

DTI

Health

Economic Development

Financial Stability Oversight Committee (FSOC)

(refer next slide)

Financial Sector Contingency Forum(FSCF)

(refer next slide)

Slide13

Some concerns with current FSRB drafting….

Overlay of standards

– may lead to duplication of requirements and many regulators for the same activity

Costs

of implementing and running a Twin peaks regulatory system

Capacity/skills constraints – regulators and industry competing for the same skills (indirect costs)Consequential amendments to FMA – draft wording around recognition suggests that external market infrastructures can operate without requiring a licenseDesignation of SIFIs – no right of appeal

Slide14

International harmonisation of regulation“do as we say, not as we do….”

Slide15

Rise of the global standard-setters

We are committed to take action at the national and international level

to raise standards

, and ensure that our

national authorities implement global standards developed to date, consistently, in a way that ensures a level playing field, a race to the top and avoids fragmentation of markets, protectionism and regulatory arbitrage.” - G20 Seoul Summit Declaration, 2010.Rise of the global standard setters to achieve harmonisation:Financial Stability Board

International Organisation of Securities Commissions

International Association of Insurance Supervisors

Bank for International Settlements

Committee

on Payments and Market

Infrastructures (CPMI - old CPSS)

Basel Committee on Banking Supervision (BCBS)

Slide16

Rise of large jurisdiction regulators

European Commission (EC): EMIR, CMU

European Securities and Markets Authority (ESMA)

Commodity Futures Trading Commission (CFTC)

Securities and Exchange Commission

Slide17

Is harmonisation appropriate?Finding one global standard that is right for everyone is impossible

Impact assessments difficult

harmonising with large jurisdictions may not be appropriate

May be forced to harmonise – equivalence/extra-territoriality

Many processes going on that are not transparent and represent only a few

Unintended consequencesMarket fragmentation due to differing interpretations of requirementsConcentration risk e.g. global CCPs

Slide18

Extra-territoriality Example 1:EC approach to recognition of 3rd countries

JSE Clear had to apply for 3

rd

country recognition with ESMA

This was simply to carry on with “business as usual”, not to expand service offering to EU nationals

Process not transparent – Asian CCPs already granted equivalence, US notThe EC and ESMA did acknowledge the appropriateness of our CCP design and risk management processes in terms of the functioning of the market it is meant to serve.

Slide19

Extra-territoriality Example 2:EC

Regulation of

indices used as benchmarks in financial

contracts

Administrators (JSE) of benchmarks established

in “3rd countries” required toobtain a decision from the EC recognising that their legal framework and supervisory practices are equivalent to that of the EU regulation,Implement, using legislation, the IOSCO Principles for Benchmarks

JSE Fixed Income Index

Series;

FTSE/JSE Africa Index Series and Custom equity

Indices;

JSE Money Market

Index;

JSE Commodity Index

An informal group comprising the JSE and SA banks engaged with the EC to highlight the negative impact such regulation could have

Recent regulatory proposals have been somewhat relaxed still require annual audits which are expensive.

19

Slide20

G20 Reform of OTC derivatives marketsStuck between a rock and a hard place

G20

Leaders Statement: The Pittsburgh

Summit (2009)

All

standardized OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate,All standardized OTC derivative contracts should be cleared through central counterparties (CCPs) by end-2012 at the latest.OTC derivative contracts should be reported to trade repositories (TRs).Derivatives not cleared through a CCP should

be subject to higher capital requirements

.

Higher margin/collateral requirements were added later.

20

Slide21

FMA regulations – meeting G20 requirements on regulating OTC derivatives markets

1

st

draft of FMA

regs

released July 2014– focused on FMIsIntroduced new category of clearing house – CCPOnerous capital requirements for CCPsRecovery and resolution of CCPs 2nd draft of FMA regs expected soon FMA regs are expected to also be released with FSB Notices covering:

Requirements to be authorised as OTC Derivative Provider (ODP)

Central reporting requirements to a trade repository (TR)

Margin requirements for non-cleared derivative trades

Not expecting central clearing requirements (through a CCP).

Slide22

Thank you