SA banks face a massive shake-up on how they treat their customers
New rules detailing how South African banks must conduct themselves with customers will be imposed on all financial institutions in the coming months, making it arguably the single most significant regulatory reform for the sector that the country has ever experienced, according to analysis by KPMG.
The new Financial Sector Regulation Bill, which is currently before parliament, is expected to be enacted during the first quarter of 2017. It plans to dissolve the Financial Services Board (FSB) and replace it with the Financial Sector Conduct Authority (FSCA) which will assume a new market conduct regulatory mandate.
The changes will affect financial institutions’ market conduct – this refers to the prices and other market policies pursued by banks in terms of both their aims and the way in which they coordinate these decisions.
“The FSCA will officially move away from a rules-based, reactive, tick-box compliance approach, to a principle-based, forward looking, pre-emptive, outcomes-focused and risk-based approach,” said associate director of market conduct at KPMG, Finn Elliot.
“It is arguably the single most significant financial sector regulatory reform that South Africa has ever experienced,” he said.
The idea behind the change is to make the local banking system more approachable and open to the average person.
This includes making it easier to understand financial products, improved protection for customers, as well as a more streamlined and approachable ombudsman – allowing South Africans to take their financial services providers to task and to ensure that they get the best value for money.
“The FSCA is going to want to see and understand institutions’ governance structures, risk controls, corporate culture and their business practices – institutions will need to objectively demonstrate to the FSCA how they are ensuring the fair treatment of customers,” Finn said.
“To give perspective, market conduct is not new in South Africa and our regulators have been grappling with how to ensure the fair treatment of customers for years through existing financial sector specific legislation.
“While there has been some progress in this regard, persistent and pervasive market conduct challenges and practices, unfair treatment of customers, and poor customer outcomes in South Africa’s financial sector have highlighted the need for stronger regulatory oversight of how institutions conduct their business and treat their customers,” said Finn.
However, he noted that the new rules would not be enough to change how banks conducted themselves. Instead, he believes that the entirety of the local banking culture will have to change in order to resolve misconduct issues.
“Culture is being seen as a root cause for continued market conduct failings. Improved market conduct requires improved corporate culture. Institutions must be able to reflect that it is being taken seriously and addressed.”
“The FSCA will want to see commitment from institutions to improving their corporate culture and that the fair treatment of customers is central to it.”
New rules
- Institutions are required to perform an assessment of their business model and strategy with the aim of identifying and assess conduct “risks” prevalent in their business.
- Institutions are required to implement the necessary governance structures, policies, processes and procedures to be able to manage, monitor and control conduct risks.
- A market conduct risk framework should be established, within which the governance structures and policies will operate.
- All management and staff must understand and appreciate what market conduct is, the basis or rationale for it, and support the need for its introduction into the business.
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