The FSCA has published its latest three-year Regulation Plan, which is for the period 1 April 2024 to 31 March 2027. The plan provides financial institutions with information about the regulatory interventions they can expect in the medium term and when they can expect the relevant regulatory instruments to be implemented.
The first Regulation Plan, published in June 2022, was for the period 1 April 2022 to 31 March 2025. The Authority reviews and revises the rolling three-year plan annually to ensure it remains up to date and effective, aligns to the FSCA’s broader strategic objectives, and considers emerging risks and developments.
The latest 27-page document includes an annexure that provides a timeline for each project, indicating when the FSCA expects to complete the drafting or technical work and engage in public consultation.
The document’s two main sections, three and four, review the progress made with implementing the plan in 2023/24 and outline the FSCA’s priorities for 2024, respectively.
COFI Transition Project
The Authority says it will continue to support National Treasury in developing and finalising the Conduct of Financial Institutions (COFI) Bill for submission to Parliament.
It says the development of a “holistic, cross-sector, robust, and customer-focused regulatory framework” under the COFI Bill remains a top priority.
“The COFI Bill is a critical development that will shape the future conduct framework, and many of the FSCA’s current conduct regulatory framework projects have some dependency on the promulgation of the COFI Bill.”
The annexure does not provide specific timelines for the COFI Bill. It says: “Timelines for completion outside of the control of the FSCA. Support will continue as long as necessary.”
The FSCA’s COFI Bill Transition Project consists of three phases:
- Phase 1: the initial high-level design of the new regulatory framework, which will inform the development of the underlying regulatory frameworks.
- Phase 2: targeted consultation on the themed frameworks.
- Phase 3: transition the regulatory instruments under the existing sectoral laws into COFI.
The Transition Project is occurring in parallel with the COFI legislative process. The timelines for the implementation of Phases 2 and 3 therefore depend on the finalisation of the Bill.
The FSCA says it has established an industry reference group that is intended to assist the Authority with refining the draft themed frameworks and provide guidance and support to the FSCA in progressing the Phase 3 work.
The industry reference group, called the COFI Bill Transition Working Group, will function under the auspices of the FSCA’s Market Conduct Committee (MCC).
The Authority is extending membership of the Working Group to non-MCC members that are associations of sectors that are not currently regulated by the FSCA, but which will be once the COFI Bill is promulgated. The FSCA is in the process of finalising the membership of the Working Group, which will start operating during the second half of 2024.
Regarding the Phase 2 work, the FSCA will prioritise certain themed frameworks over others. For example, the fit and proper themed framework is enjoying top priority because other frameworks, such as a single cross-sector licensing framework, are critically dependent on it. Therefore, there will be a staggered approach to the finalisation of the themed frameworks.
The FSCA will adopt a similar approach in respect of the Phase 3 work, which will continue in 2024. The intention is to start engagements with the Working Group on the transition work next year.
No FAIS- or insurance-specific projects
The Authority has not earmarked any FAIS-specific interventions for completion within the next three years. In the FAIS context, the focus will be on how to transition the existing FAIS framework to the COFI Bill.
The only insurance-related regulatory intervention the FSCA planned to complete this year was the Joint Standard on Outsourcing by Insurers, which was published in May.
Read: New Joint Standard to regulate insurers’ ‘material’ outsourcing activities
No other insurance-specific interventions are earmarked for completion within the next three years. However, the FSCA said last year, various insurance-related matters will be considered as part of the process to transition the regulatory instruments under the existing sectoral laws into COFI.
Cross-sectoral regulatory frameworks
Third-party service provision
The 2024 Regulation Plan includes a new cross-cutting/sector regulatory framework project, a Joint Standard on the requirements relating to third-party service provision (outsourcing).
The FSCA says this project is borne of the need to harmonise and strengthen the requirements pertaining to outsourcing. Financial institutions rely on third-party service providers for a number of services, some of which support critical operations. These dependencies have grown in recent years as part of the digitalisation of the financial sector and can bring multiple benefits to financial institutions. However, if not properly managed, disruption to critical services or service providers could pose risks to financial institutions.
In December 2023, the Financial Stability Board released its Enhancing Third-Party Risk Management and Oversight toolkit for financial institutions. The paper also highlighted important considerations that the FSCA and the Prudential Authority (PA) will be taking into account when developing the Joint Standard.
The technical work relating to the development of the Joint Standard will take place during the 2024/2025 period.
The cross-cutting/sector regulatory framework projects listed in the 2023 Regulation Plan remain relevant. These include:
Joint Standard: Cyber security and cyber resilience requirements
The final Joint Standard was published in May. It is reflected in the 2024 Regulation Plan because it falls within the plan’s period.
Read: Cybersecurity Joint Standard: commencement date confirmed
Joint Standard: Culture and governance requirements for financial institutions
An initial framework has been developed, and the Authorities commenced informal targeted consultation in June.
Draft Conduct Standard: Requirements for financial institutions providing financial education initiatives
Revisions were made to the draft Conduct Standard, and the FSCA intends to submit the final draft Conduct Standard to National Treasury, for forwarding to Parliament, during the second half of 2024/25.
Conduct Standard regarding industry practices and treatment of lost accounts and unclaimed assets
Policy work continued following the publication in September 2022 of the FSCA’s discussion paper relating to industry practices and the treatment of lost accounts and unclaimed assets. It is expected that regulatory interventions will be developed flowing from the consultation process.
Read: FSCA proposes a central fund to tackle R88bn in unclaimed assets
Read: Unclaimed assets: FSCA will prioritise monitoring conflicts of interest
The FSCA envisages that formal regulatory framework interventions, in the form of a Conduct Standard, will be published for public consultation during the 2025/26 period.
Joint Standard: Requirements relating to beneficial owners
The 2023 Regulation Plan highlighted that the FSCA is considering the development of a Joint Standard flowing from the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act, which introduced a chapter in the Financial Sector Regulation Act pertaining to beneficial owners. The new chapter empowers the FSCA and PA to set standards relating to beneficial ownership.
The FSCA has developed formal proposals relating to beneficial ownership to be included in a Standard and is in the process of engaging the PA on the draft proposals.
It is envisaged that a draft Joint Standard will be published for public comment at the end of the 2024/25 period.
Cross-sector licensing requirements
The development of cross-sector licensing requirements in anticipation of the COFI Bill is continuing. The timelines surrounding public consultation on these draft requirements is at this stage uncertain.
