Embracing transformation and innovation while prioritising consumer interests and the stability and integrity of the financial system are the interconnected principles guiding the Financial Sector Conduct Authority’s approach to regulating the financial services landscape. This is evident from the speech delivered by FSCA Commissioner Unathi Kamlana (pictured) when he opened the Authority’s annual Industry Conference on 19 March.
Kamlana said the financial sector is evolving rapidly, driven by innovations such as fintech, digital banking, artificial intelligence (AI), crypto assets, and decentralised finance. These technologies present significant opportunities, including improved efficiency and greater access to financial services, but they also introduce challenges – such as cybersecurity risks, algorithmic biases, unethical AI-driven decisions, fraud, and the potential for financial exclusion – if not properly managed.
The regulators must strike a balance between encouraging responsible innovation and ensuring robust consumer protection to maintain a secure and inclusive financial ecosystem.
Kamlana said the licensing of more than 260 crypto asset service providers (CASPs) is an example of the FSCA’s “responsive and adaptive” model of regulation.
The licensing process has provided the FSCA with valuable insights into market dynamics, emerging risks, and consumer needs.
The FSCA plans to refine its supervisory approach by offering clearer guidance to these newly licensed CASPs and ensuring their compliance with both the FAIS Act and the anti-money laundering/combating the financing of terrorism (AML/CFT) requirements.
Kamlana said the FSCA has strengthened its supervisory capabilities for dealing with AML/CFT risks and taking enforcement action against entities that fail to comply with the AML/CFT regulatory frameworks. This will support South Africa’s broader efforts to exit the Financial Action Task Force (FATF) grey list.
He said “significant progress” has been made in addressing the FATF’s concerns, and the FSCA is confident that “we are closer now than we have ever been” to exiting the grey list.
Financial institutions urged to prepare for COFI
The regulatory framework that governs the financial sector must continue to evolve, to remain step with a rapidly changing sector, Kamlana said.
The focus should be on improving industry practices to ensure “financial institutions consistently deliver fair customer outcomes, regardless of the models or channels used to provide financial products and services”. This requires “embedding good conduct at all levels of an institution and across the entire financial services value chain, from strategy-setting to product design, pricing, customer engagement, and dispute resolution”.
The Conduct of Financial Institutions Bill (COFI) is a key response, aiming to transform the regulatory landscape into one that is more outcome-focused and principles-based, differing from traditional rule-based regulations by prioritising flexibility and accountability, to ensure a focus on customer fairness rather than regulatory compliance alone, Kamlana said.
National Treasury announced the Bill will be submitted to the Cabinet for approval before being tabled in Parliament “soon this year”.
The FSCA is preparing by engaging extensively with stakeholders, developing supervisory frameworks, and building internal capacity, to ensure “a seamless shift” into this new regulatory era.
Kamlana said readiness is not only the responsibility of the FSCA – it is an industry-wide imperative. He urged financial institutions to align their business models, governance structures, and compliance strategies with COFI’s principles and expectations.
Prioritise managing cyber risks
Addressing the subject of technological advances in the financial sector, Kamlana said cybersecurity threats are becoming increasingly sophisticated, posing significant challenges for both financial institutions and consumers.
These threats impact operational continuity, consumer trust, and the overall integrity of the financial system. To counter these risks, financial institutions are urged to invest in cyber resilience, adopt strong risk management practices, and continuously strengthen their security frameworks.
He said the Joint Standard on Cybersecurity and Cyber Resilience, which commences on 1 June, sets clear expectations for institutions to address emerging cyber threats and safeguard sensitive data.
Kamlana emphasised the critical need for proactive management, stating, “Cyber risk is not something that can be ignored or handled reactively – staying ahead of emerging threats must be a priority.”
Two pots: preservation must be locked in
The launch of the two-pot retirement system last year was a response to general economic hardship and the financial vulnerability of retirement fund members in particular. The commissioner commended the retirement industry, saying it was “very responsive to this reality”.
However, the system has a cost in terms of reduced retirement savings, with billions of rands in withdrawals noted as a significant impact. Kamlana emphasised the importance of preserving the system’s integrity, saying, “we must ensure that the compulsory preservation component of the reforms is locked in and not reversed, so that overall, the retirement system is not undermined”.
More emphasis on financial education
Consumer education has a role to play in upholding the integrity of the retirement system, and financial education is central to these efforts and is “a key variable” to the effectiveness of conduct regulation overall. “It is at the heart of how we think about consumer resilience,” Kamlana said.
The FSCA has prioritised this focus by hosting the first Financial Education Summit. The Authority aims to broaden its efforts, with plans to expand financial education programmes and collaborations, using technology and digital platforms to enhance accessibility and reach.
Problem of unclaimed assets
The commissioner addressed the significant issue of unclaimed financial assets – an estimated R88 billion is unclaimed across various financial institutions”.
He emphasised the impact on individuals, noting this problem “has real consequences for people who are often unaware of their entitlements, leaving them unable to access funds that rightfully belong to them”.
The FSCA has taken proactive steps, including publishing a discussion paper in 2022 titled “A Framework for Unclaimed Financial Assets in South Africa”, which led to stakeholder engagement and a subsequent response document outlining the next steps.
Read: Unclaimed assets: FSCA will prioritise monitoring conflicts of interest
Kamlana said the main challenges identified include “inconsistent definitions, where financial institutions apply varying dormancy periods and classifications for unclaimed assets, poor tracing efforts due to inadequate processes for locating asset owners, fragmented management approaches across sectors, and data gaps, since there’s no centralised reporting system outside of retirement funds”.
The FSCA’s ultimate aim is “to ensure that unclaimed assets are properly managed and, where possible, returned to their rightful owners”.
Competitiveness and the cost of regulation
The agenda of the Finance Track under South Africa’s presidency of the G20 prioritises several key areas to address emerging global financial challenges. These include enhancing cross-border payments, the use of AI and exponential technologies, strengthening crypto asset regulation, cybersecurity and resilience, the regulation and oversight of non-bank financial intermediation.
Additionally, the G20 Global Partnership for Financial Inclusion will focus on advancing financial inclusion, with specific emphasis on improving remittances and shifting from merely providing access to encouraging active use of financial services.
Kamlana said South Africa has an opportunity to shape global financial regulation, and the FSCA is committed to supporting National Treasury and the South African Reserve Bank as they lead the country’s engagement in the G20 Finance Track.
The commissioner emphasised the importance of applying global insights locally. He cited the diversity and inclusion agenda, noting the global debate over the cost of regulation versus competitiveness. He warned against “sacrificing inclusion at the altar of so-called competitiveness”, arguing “that brand of growth and progress cannot be sustainable”.
He believes South Africa can transform, grow and be sustainable by recalibrating priorities and resource allocation, saying “we can certainly do more than just one thing at a time”.
Disclosure requirements for sustainable finance
Kamlana identified sustainable finance and climate risk as critical priorities, noting that “sustainability is also a key priority of the South African G20 presidency”.
He said climate-related financial risks are “real and material”, requiring financial institutions to integrate environmental, social, and governance considerations into their decision-making processes.
With sustainability gaining traction, the FSCA is addressing conduct risks such as greenwashing – where institutions misrepresent their sustainability efforts as a focus area.
The FSCA is working on developing “robust disclosure requirements” to ensure greater transparency and accountability through its Sustainable Finance Roadmap, aiming to clarify regulatory expectations, Kamlana said.
Read: FSCA ponders regulatory enhancements for ESG investing
