The Financial Sector Conduct Authority (FSCA) has published a draft version of its transformation strategy for the financial services sector, which outlines pending legislation changes that could see the regulator granted powers to impose administrative penalties on companies that fail to meet transformation targets.
The regulator released its draft transformation strategy document on Monday and is inviting public comments from all interested stakeholders by April 29. The strategy document outlines a broad framework for financial sector transformation that will see the FSCA supervise transformation at a financial institution level as per the Financial Sector Regulation (FSR) Act as well as the proposed Conduct of Financial Institutions Act (COFI), which is still a draft bill.
The Broad-based BEE (BBBEE) Commission will continue to supervise adherence to the BBBEE Act, while the Financial Sector Transformation Council (FSTC) will monitor adherence to the financial sector code of good practice issued by the trade, industry & competition minister.
Whereas the BBBEE Commission and the FSTC are not mandated to take action against financial institutions that fail to meet transformation targets, the pending COFI Act along with amendments to the FSR Act will enable the FSCA to not only set transformation requirements for all financial institutions but to enforce them as well.
One proposal is that all financial institutions with annual revenue of more than R10m should either have a BBBEE level 4 score or have a transformation plan detailing how they will achieve that level within five years. If financial institutions do not meet the targets outlined in their transformation plans the FSCA will be allowed to consider supervisory actions.
"When considering taking action for such failures, the FSCA must balance proposed actions with its mandate, namely the fair treatment of customers, the efficiency and integrity of financial markets and financial stability," the FSCA’s transformation strategy document says.
Supervisory actions that can be considered where financial institutions fail to meet the targets identified in their transformation plans can include FSCA meetings with the company boards; requesting remedial plans; and issuing a directive for noncompliance with an enforceable undertaking.
The FSCA will also be empowered to issue administrative penalties for noncompliance with COFI Act transformation requirements.
"In line with the FSCA’s proportionate approach to regulation, the action taken will depend on the nature and severity of the transgression," the FSCA’s transformation strategy says.
"It is important to note that the FSCA mandate would be limited to enforcing financial sector laws only and not the BBBEE Act or the [financial sector] code, which are the responsibility of the BBBEE Commission and FSTC, respectively," it says.
Deputy finance minister David Masondo has been warning since at least December 2020 that regulators are looking at ways they could use additional legislative powers to monitor and enforce transformation in the financial services sector. Masondo has also repeatedly bemoaned the slow pace of transformation in SA’s financial services industry despite it having prospered in the almost three decades that followed the end of apartheid.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.