Promulgating this act ignited the implementation of the so-called Twin Peaks regulatory structure, a carefully crafted piece of legislation that intends to bring fairness to the financial services industry, protection for everyone engaging with it, and equal access through structures ensuring that consumers have access to the financial services products most suited to their needs.
Twin Peaks, inspired by legislation adopted in Australia and the UK, was originally proposed in response to the 2008/2009 global financial crisis with the ideal of protecting South Africa’s financial services and customers from the fallout of such an event in the future.
However, it responds directly to some of the most pressing needs in the South African economy, not least of which is protecting consumers from unfair financial services and practices. Treasury’s goal in proposing the legislation has been and remains to create a financial services industry that is sustainable, inclusive, transparent and fair, that combats crime in financial services, and that serves government’s broader economic agendas.
Although the market was concerned about the length of time taken for the FSR Act to be signed, it’s worth noting that when it happened, the signature itself took many by surprise. However, it’s important to remember that the legislation is part of a broader roadmap, built out of collaboration between regulatory authorities and the financial services industry that seeks to establish a clear vision and structure for the future, and that more legislation in a similar vein will follow.
What does this mean for financial institutions and other businesses that may find themselves governed by a class of legislation that didn’t affect them before?
The lack of preamble and fanfare ahead of the FSR Act means that the same could happen with the subordinate legislation with specific reference to the Insurance Bill and the CoFI (Conduct of Financial Institutions) Bill – and businesses that have not invested in benchmarking their operations against the Bills’ provisions could find themselves falling foul of the law, and scrambling to implement changes to achieve compliance.
While those finding negatives in the legislation have cited the costs of time, resources, energy and investment as unnecessary expenses for businesses affected by the financial services family of legislation, it’s clear that businesses can no longer ‘wait and see what happens’ if they are to achieve compliance.
Like it or not, achieving compliance with the legislation will be non-negotiable once the remaining Acts are promulgated.
Until this legislation was signed into law, compliance to regulatory outcomes was a process primarily guided by quantitative methods. It was straightforward and often just a tick-box process.
Organisations that have historically just ticked boxes without considering what really needs to be done will find themselves in unfamiliar territory with outcomes-based (principle based) legislation. The challenge in bridging the gap between business, customer and regulatory outcomes lies in combining internal management information (that is primarily quantitative) with the requirement of objective, external customer experience measurement and benchmarking.
This will require a combination of quantitative and qualitative methodologies and, most importantly, alignment with internal business measurement to ultimately create the narrative of customer fairness that will be evaluated and tracked by the FSCA.
The FSCA will require that financial services businesses provide a portfolio of evidence to show that they have prioritised the fair treatment of their customers, and that this has been considered, measured and tracked. They will also need to show that ongoing enhancements underpinned by customer insights, are continuously developed.
