Banks face a new form of regulation
A NEW form of supervision of financial institutions is planned when the government introduces its twin-peaks model of regulation — the “mystery shopper” technique in which anonymous, independent observers posing as clients test the quality of the institutions’ interactions with customers.
The Financial Services Board (FSB) will undertake this work as the body responsible under the new system for market conduct regulation and supervision.
A document titled Implementing Twin Peaks Regulation in South Africa — drawn up by the Financial Regulatory Reform Steering Committee and released by the Treasury on Friday for public comment — proposes that the FSB’s supervisory tools include obtaining information from third parties, consumer and industry surveys, and more stringent reporting requirements.
The twin-peaks model will involve the institutional rearrangement of responsibilities between the FSB and the Reserve Bank as “systemic regulator”. The Bank will be responsible for the prudential safety and soundness of banks and insurance companies and the maintenance of the financial stability of the system.
The policy for the new model was outlined in a 2011 Treasury document about building a safer financial sector. It was further developed by the Financial Regulatory Reform Steering Committee made up of senior officials of the Reserve Bank, the FSB and the Treasury. The review came after Finance Minister Pravin Gordhan said the 2008 financial crisis had shown that a “light touch” regulation was not appropriate.
Legislation allowing the Reserve Bank and FSB to assume their new responsibilities is expected to be introduced in Parliament this year and there will be a transfer of staff related to the FSB’s prudential regulation functions to the Reserve Bank.
The system will provide for strong co-ordination between the two regulators, which will be given stronger powers. Higher standards of disclosure by institutions are also envisaged. Special provision has been made for the supervision of financial conglomerates, particularly those that conduct business across borders.
The FSB will be funded by industry levies and will adopt an “appropriate, intensive and intrusive” approach to regulation, the document says. It will act proactively rather than simply reacting to consumer complaints, and institutions that do not treat customers fairly will be subjected to greater scrutiny.