A raft of legislative changes will be implemented over the next three to five years to modernise the regulatory framework for financial institutions and bring it into line with international norms, according to a report by Bloomberg.
South Africa has been slow to implement new rules and regulations and has fallen out of step with its peers, undermining its attractiveness as an investment destination, said Astrid Ludin, the deputy commissioner of the FSCA.
National Treasury is finalising the Conduct of Financial Institutions (Cofi) Bill to present to Parliament this year. Ludin said the legislation aims to streamline the licensing of financial institutions and enhance disclosure requirements to provide greater visibility into their business practices.
Cofi is intended to consolidate and strengthen market conduct laws in the financial services industry, and once it takes effect, it will replace the FAIS Act and other financial services legislation. It will impact all financial institutions, such as FSPs, banks, insurers, credit providers, and discretionary fund managers.
Cofi will formalise the application of the Treating Customers Fairly principles and encompasses a wide spectrum of criteria, including the development and implementation of products and services, operational expertise, capital requirements, and business culture.
The Financial Markets Act (FMA) is also being reviewed, and changes are expected to be submitted to Parliament by the end of the year. The changes include enhanced controls over short selling and securities financing transactions and additional disclosure requirements of pre- and post-trading data, to improve market surveillance.
The amendments are needed to ensure “that the South African regulatory framework is appropriate for the environment that we are in, that we keep abreast of the changes that have happened internationally,” Ludin said in an interview.
“There is quite a big regulatory agenda over the next three to five years”, and it will have to be carefully managed to “balance the impact on the industry, our global competitiveness as a market, and the impact on our investors”, she said.
The FSCA will spend the next three years improving the digitisation of its systems to enable it to streamline its reporting requirements, remove redundancies and facilitate the sharing of information with other regulators such as the Prudential Authority and the Financial Intelligence Centre, she said.
Market surveillance
The FSCA it wants beef up its market surveillance to help close gaps that have allowed some companies and individuals to get away with market abuse and insider trading, Ludin told News24. Currently, the FSCA is not involved in market surveillance to pick up market abuse and insider trading while they are happening, with its job starting only when exchanges refer cases to it for investigation.
News24 quoted Ludin as saying the regulator does not want to duplicate what exchanges and other trading platforms are doing but sees the need to complement them by picking up areas they are too stretched to touch.
Ludin said that when the FSCA replaced the Financial Services Board in 2018, the plan was to create a cross-market surveillance unit within it to ensure that someone has a bird’s-eye view of all exchanges and trading platforms. The FSCA is starting to resuscitate that idea, as market failures did not end with Steinhoff.
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FSCA investigating 75 cases of possible market abuse
Business Day reported last week that the FSCA is investigating 75 instances of possible contraventions related to market abuse.
The investigations include false and misleading statements involving Steinhoff and Tongaat Hulett securities, as well as a price manipulation and an insider trading matter involving the securities of cement maker PPC. Ayo Technology Solutions is another listed entity whose securities are under investigation by the FSCA, the publication said.
It quoted Alex Pascoe, who heads the FSCA’s market abuse investigation team, as saying the Authority has 75 registered cases, of which 42 were ongoing, while 33 cases were registered but were still to be investigated.
“We’re not investigating the companies; we investigate the securities within these companies. They are listed securities as per the FMA,” Pascoe was quoted as saying.”
All but one of the 75 open cases involve securities listed on the JSE and cover possible insider trading, prohibited trading practices such as price manipulation and providing false or misleading statements. The remaining case involves a security listed on one of South Africa’s two smaller exchanges, A2X or the Cape Town Stock Exchange, although Pascoe declined to say on which of these two market-trading platforms the security is listed.
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Increase in tips about possible insider trading
News24 quoted Pascoe as saying the FSCA has been receiving an increasing number of tips regarding possible insider trading and price manipulation on South African stock exchanges from international regulators.
Over the past five years, the FSCA has received 94 referrals from global counterparts, 32 tips from whistle-blowers and formal complaints, and 66 cases from South African exchanges.
Pascoe said most of the referrals came from the JSE in the past five years, but more recently, foreign regulators have been sending the FSCA many notifications of possible market abuse cases.
The FSCA has helped other regulators to obtain the necessary evidence, and the rest of the cases received by the FSCA were unsolicited information from foreign regulators.
Pascoe said the increased globalisation of inflows of money makes it difficult to trace beneficial owners that instructed the trades, with some traceable and others not. However, even among those that can be traced, they can fall out of South African regulators’ jurisdiction because they live and operate outside of South Africa.
The FSCA has received alerts about 615 suspected financial market abuse cases in the past five years, with most related to insider trading.
