From CompliNEWS | Financial Service Intelligence Watch
Latest regulatory developments on market conduct including COFI, the Regulation Plan, and other news
By James George, Compli-Serve SA
One of the key deliverables in terms of the FSCA’s 3-year Regulation Plan, published on 30 June 2022, is the development of a new conduct regulatory framework in anticipation of the COFI Bill.
The focus areas forming part of the Regulation Plan can be summarised along three broad categories:
1. Regulatory framework developments focused on conduct – the development of a holistic, cross-sector, robust and customer-based regulatory framework, which will be given effect by the Conduct of Financial Institutions Bill (COFI Bill).
The aim of this approach is to ensure a smooth and effective transition to the COFI Bill without delay. Various principles were considered in designing this framework, which include harmonizing requirements across the financial sector; less reliance on rule-based requirements; and increased use of interpretation instruments such as Guidance Notices. This process will be used to advance existing draft legislation.
Regulatory framework developments focused on the financial markets (integrity and efficiency) – an increased focus on regulatory framework projects for high priority financial markets.
A critical priority for the FSCA is to implement the Joint Roadmap for Development of a Regulatory Framework for Central Clearing in South Africa (published in Februaryâ€ ̄2022). The FSCA has indicated that it intends to finalise various documents to finetune its focus, which will include a holistic framework to regulate –
- the provision of benchmarks;
- the reporting and disclosure framework relating to short term sales;
- the Conduct Standard for Exchanges to adequately address the consequences of market fragmentation resulting from competition between exchanges;
- a Joint Standard focusing on recovery plans for market infrastructures.
3. Regulatory framework developments focused on a broad scope of cross-cutting-sector developments and themes.
A key component of the current regulatory drive is the FSCA’s Harmonisation Project. This project is said to be progressing well and the drafting of the frameworks, supported by the scoping work that has been completed, has commenced. Industry reference groups will be established in due course to support the drafting and refinement of the harmonisation frameworks. Work focussed on how to transition existing requirements in financial sector laws to the COFI Bill has also commenced, although noting that this process is at an early stage of development.
It might be noted that because the COFI Bill constitutes primary legislation, promulgation of the COFI Bill is subject to parliamentary adoption. Although the new framework is being development in anticipation of the promulgation of the COFI Bill, the FSCA has noted that the new framework under development, and in particular the harmonisation frameworks, is not necessarily dependent on the promulgation of the COFI Bill as there are already existing mechanisms in current laws (for example the Financial Sector Regulation Act). Accordingly, the FSCA intends to give effect to the new framework, and in particular the harmonisation frameworks, even if the COFI Bill is not adopted by Parliament. Notwithstanding, the FSCA is in strong support of the COFI Bill, as it aligns the licensing framework to the evolving regulatory framework, and is optimistic that the Parliamentary process will run smoothly.
Some of the cross-cutting measures that are well underway include:
- Development of Joint Standard – Corporate governance and culture (A first draft is expected by the end of 2022.)
- Financial Consumer Education Conduct Standard (A first draft is to be initially shared with the Financial Sector Transformation Council (FSTC) in 2022.)
- Joint Standard on IT Risk Management Framework for financial institutions (The draft Joint Standard was published together with all the relevant documentation on 9 June 2021. Comments received were considered by the Authorities and the Standard refined. The finalisation of this Standard is enjoying high priority and the next step will be to submit the Standard to Parliament during the course of 2022.)
- Joint Standard on Cybersecurity and Cyber Resilience requirements (On 15 December 2021, the draft Joint Standard on Cybersecurity and Cyber Resilience Requirements was published. Standard is in the process of revision.)
- Conduct Standard – Requirements relating to third part cell captive insurance business (Tabled in Parliament in May 2022. Imminent.)
- Joint Standard – Outsourcing by insurers (The draft Joint Standard was published for public consultation and comments were due by 26 October 2021. To be submitted to Parliament later in 2022.)
- Further amendments to the PPRs and Regulations under the Long-term- and Short-term Insurance Acts (Pending; will be incorporated into the transition to the COFI Bill process.)
- Draft Declaration of Crypto Assets as a financial product under the FAIS Act (On 20 November 2020, the FSCA published a Draft Declaration for public comment proposing to declare crypto assets as a financial product under the FAIS Act.) Further announcements expected in the near future.
- Amendment to FAIS Ombud Rules
- Conduct Standard – Requirements related to the payment of pension fund contributions (Said to be imminent.)
- Conduct Standard – Conditions for living annuities in annuity strategy (More details soon.)
- Conduct Standard – Communication of Benefit Projections to members of pension funds (Will be sent to Parliament later.)
- Conduct Standard – Conditions for investment in derivative instruments for pension funds (Submission of the draft Conduct Standard to Parliament is
- Conduct Standard – Conditions for securities lending for pension funds
- CIS Conduct Standard – Advertising, marketing and disclosure (Replacement of BN 92. As per the Regulation Plan, this work has been pended and
options are being considered as to the way forward.)
- CIS Accounting Standard
- Conduct Standard – Governance, Fit and Proper and Other Requirements for CIS Managers (Review of BN 910 and 911 (CISCA).)
- CIS investment limits and conditions (BN 90; review to be undertaken by the FSCA and the PA.)
- Requirements relating to external central counterparty or external trade repository licence applications / equivalence framework for external trade repositories,
external central counterparties and external central securities depositories / Joint Standard – Exemption criteria for external central counterparties (More news expected in the coming months.)
- Conduct Standard for Exchanges
- Joint Standard – Financial Market Infrastructures Recovery Plans
- Position Paper on Shortselling
- Designation of Financial Benchmarks
- Designation of Securities Financing Transactions (SFTs)
- Joint Standard 2 of 2020 – Margin requirements for non-centrally cleared over the counter derivative transactions.