From CompliNEWS | Financial Service Intelligence Watch
A look at the FSCA’s Licensing and Business Centre Division and its approach under the COFI Bill
The Financial Sector Conduct Authority (FSCA)
The Licensing and Business Centre Division is a vital part of the FSCA’s operations, managing the licensing and authorisation financial institutions and serving as a point of entry for external stakeholders.
It is in this division that all FSCA licence applications are processed to the point of recommending their approval or rejection to our executive committee, where queries and complaints, statutory submissions, and responses to regulatory information requests are attended to.
The licensing function needs to be particularly highlighted as it takes centre stage in the Conduct of Financial Institutions (COFI) Bill, which represents the next step of legislation aimed at reforming the financial sector. The Bill is focused on the conduct of financial institutions and is aimed at addressing the multiple standards of legislation through consolidation under a single framework. It represents a move away from the traditional compliance tick-box approach to a more outcome-focused approach that will be supported by principles-based legislation, regulation and supervision.
How licensing will be approached under the new conduct framework represents a significant shift from the current system. South African financial institutions are currently granted licences on an institutional basis. This institutional approach has been found lacking in the regulation of business conduct and is susceptible to gaps.
The new licensing framework entrenches the activity-based approach of the FSCA, implying that any financial institution that carries out one or more identified activity will be required to be authorised for each activity. An institution that carries out multiple activities – as many financial institutions currently do – will therefore obtain a single FSCA licence but with multiple activity authorisations.
‘The establishment of our new centralised Licensing Division prepares us for this future model,’ says Felicity Mabaso, Divisional Executive: Licensing and Business Centre. ‘Licensing is important and must be rigorous in order to ensure that only good, sustainable applications that will not pose unnecessary risk to the customer are accepted.’
The licensing approach is three-tier in nature, comprising a financial institution that is authorised to carry out an activity linked to a specific financial product/s and which is then linked to the customers that the activity applies to. Licences will be issued in terms of the primary law and will specify the activities that a licensed institution is authorised to perform. The conditions accompanying that licence will specify the products and customers to which authorised activities will apply. This means that should a financial institution want to add or remove any of the activities that it is authorised to perform, it will require a change to its primary licence. However, should there be amendments to the products or customers that an activity relates to, it would require only a change to licensing conditions. Mabaso also adds that the FSCA is mindful that the activity-based licensing model must ensure that licensing requirements do not become an unnecessary barrier to entry into the financial services sector.
Moving to an activity-based licensing model will also form a critical component of the supervisory role that the FSCA is required to play. To this end, we will work towards ensuring that the licensing model is brought in line with the approach of the FSR Act and is built around the specific regulated activities carried out by financial institutions.
Treatment of existing licences under a new licensing regime
Once the COFI Bill is enacted, to ensure certainty and expediency, a financial institution that is licensed under existing financial sector laws will have its licence converted into the new regime following a mapping process of its activities to the new framework, over a staggered period. This is similar to the approach taken in implementing the 2017 Insurance Act. The mapping process, led by FSCA, will involve ongoing engagement to assist financial institutions understand what they must be authorised for, and what obligations are imposed as a result. To minimise disruption, a transitional period will be granted to comply with the requirements of the COFI Bill. New entrants requiring a licence after the COFI Bill is enacted will be subject to the new regime, and provision is made to developmentally support these entities where necessary, including in support of transformation.
Main categories of authorised activities
The COFI Bill sets out the categories of financial activities requiring a licence. The schedule includes sub-categories as well as descriptions of each of the activities, including:
- Providing a financial product or financial instrument
- Distributing financial products
- Financial advice
- Managing and administering investments
- Benefit administration
- Professional fiduciary or custodian service
- Payment service
- Financial markets activities
- Providing benchmarks and related services
- 10. Service related to buying or selling of foreign
- 11. Credit rating service
- 12. Debt collection service