In 2017 the Financial Services Board (FSB) will transition to the Financial Services Conduct Authority (FSCA) under the Twin Peaks model of financial regulation. The FSB website explained: “The Twin Peaks model of financial sector regulation will see the creation of a prudential regulator – the Prudential Authority – housed in the South African Reserve Bank (SARB), while the FSB will be transformed into a dedicated market conduct regulator – the Financial Sector Conduct Authority.”
The FSCA will be responsible for protecting financial customers through supervising market conduct. Advocate Dube Tshidi, executive officer at the FSB noted that this is not merely a switch to a new entity but it is the establishment of a completely new organisation which requires a different mind-set and approach both within and out of the FSB.
According to Tshidi, the transition from the FSB to the FSCA is something that both the financial services sector and consumers should be excited about, as well as non-banking sectors. “We live in a world that is rapidly changing and becoming largely digitised, leading to a clear impact on the culture of service delivery and consumption. This could potentially lead to service and product enhancements or re-design, aggressive promotion, and changes in the nature of interaction between service providers and consumers and more specifically, consumer experience. Structural changes are inevitable, including new operating models that permeate all aspects of the financial services.
The changing digital landscape
Tshidi pointed out that the insurance industry is a prime example of the changes that digitisation can have on an industry. Research and insights provider, Avanade, found that 80% of respondents in insurance organisations noted that they achieved customer experience gains through the upgrading and/or adaption of a marketing technology platform.
“This is a natural progression considering the consistent rise in smart technology usage. South Africa has the largest number of adults owning smartphones on the African continent, and the number of South Africans actively accessing the internet grew by 1.9 million from 24.9 million in January 2015 to 26.8 million in January 2016. These numbers show no indication of slowing down. While this trend brings great opportunities for increasing access to appropriate and affordable financial products and services, it also presents certain challenges in terms of the risks that consumers may encounter when they begin to engage and interact with financial services providers via online or mobile platforms. Cybercrime and online fraud is one such threat, but financial technology innovations can also present challenges around issues like data protection, effective disclosure, clear accountability for customer outcomes and fair risk sharing,” highlighted Tshidi.
There are three foundations upon which the FSCA will operate, which will be introduced in 2017, including:
- To be pre-emptive of industry developments that may put consumers at risk.
- To be proactive in dealing with potential risks associated with such trends in transactions.
- To be forward-looking to enable the FSCA to continuously innovate to positively heighten efficiency in serving consumers and the industry.
Tshidi stated that the FSB’s transition to the FSCA puts consumer protection as the focal point of its implementation, while closely and constantly managing risks. The Treating Customers Fairly (TCF) framework is the main drive of the transition. The TCF framework is designed to ensure that specific and clearly defined fairness outcomes for consumers within the financial services sector are delivered by regulated financial firms.
“Under the current system, consumers have had to resolve very challenging disputes with financial services providers after the fact, while under FSCA, the market should see [fewer] consumer dispute resolution cases. The pre-emptive approach will see identification of probable consumer issues before they manifest, then proactively address them which ensures a smoother functioning of the institution and far greater peace of mind for the consumers,” said Tshidi.