The Financial Sector Conduct Authority (FSCA) is a financial regulatory body that is responsible for market conduct regulation and supervision in South Africa. The FSCA regulates and monitors financial institutions that provide financial products and services to consumers. The FSCA’s overall mandate is to enhance the efficiency and integrity of financial markets, promote fair customer treatment by financial institutions, provide financial education and financial literacy, as well as to assist clients in maintaining financial stability. In addition to this the FSCA also warrants that those who are actively jeopardising the financial well-being of consumers are held accountable. This is why financial regulation is extremely important, it promotes a stable financial system and economic growth.
History and Establishment
The FSCA was established by the Financial Sector Regulation Act 9 of 2017 (the FSR Act) to become a dedicated market conduct authority replacing the Financial Services Board (FSB), on 1 April 2018. The act introduces the Twin Peaks model of financial sector regulation in South Africa. Under the Twin Peaks model, the financial services industry and related structures will have two regulators: a prudential regulator and a new market conduct regulator.
The prudential regulator will operate within the South African Reserve Bank. The prudential regulator’s objective is to maintain and enhance the safety and efficiency of regulated financial institutions, and is therefore responsible for the prudential regulation and supervision of banks and insurers. Established from the restructured Financial Services Board (FSB), the market conduct regulator’s goal is to protect consumers of financial services and promote confidence in the South African financial system.
The FSR Act was essentially created to achieve a stable financial system that works in the best interests of financial customers and supports sustainable economic growth. It achieves this by establishing a regulatory and supervisory framework that promotes consumer protection, financial stability, transparency and efficiency.
Following the 2008 global economic crisis, the Financial Services Board (FSB) underwent an intensive restructuring period, and officially became the Financial Sector Conduct Authority (FSCA), in April 2018. The 2008 financial crisis revealed that the FSB regulatory system was flawed and not properly tailored for specific corporations.
Roles and Responsibilities
Regulatory Functions
Financial regulation by the FSCA follows an outcomes based approach that ensures the safety and soundness of a financial system and protects consumers. These regulations are essentially a variety of rules and laws that manages and monitors financial market activities.
Licensing is a critical component and serves as a key function that facilitates market supervision and provides an entry point for financial service providers before they are allowed to conduct business as a financial institution. When it comes to licensing the Financial Sector Conduct Authority (FSCA) and the Financial Advisory and Intermediary Services Act (FAIS) requires that every Financial Services Provider (FSP) be registered and licensed with the FSCA before they legally conduct business. When a financial service provider is licensed this means that they meet all necessary requirements and are considered compliant with the FSCA. Licensed FSP’s adhere to the strict regulatory standards, ensuring the protection and fair treatment of clients, transparency, and market integrity.
In addition to regulating the function of financial markets the FSCA also supervises market infrastructures and over-the-counter derivatives to ensure that South African financial markets are fair, efficient, transparent and secure. Supervision by the FSCA also promotes the protection of regulated clients/investors, reduces systemic risk and promotes international and domestic competitiveness of financial markets in South Africa.
Consumer Protection Initiatives
Among other things, the FSCA’s mission is to protect consumers by treating them fairly and providing them with services that are efficient. This is achieved by providing clients with clear communication and accurate information regarding financial products, services and pricing. This not only ensures that clients are safely engaging in financial markets, but it also allows them to be aware of the financial products and services that they are participating in, as well as being cautious about the risks and rewards associated with unstable financial markets. The FSCA also ensures that client funds are always protected and holds financial service providers like trading brokers or banks accountable, in turn resolving disputes between various parties easily.
Enforcement Actions and Compliance Monitoring
In its effort to supervise and regulate financial service providers, the FSCA takes appropriate remedial action when a financial institution has failed to comply with the rules and laws set. These actions include, imposing an administrative penalty fee; apply to a court for an order directing that person to comply with the terms of the enforceable undertaking, and in the case of a licensed financial institution, suspending or withdrawing the FSP licencs. People or organisations affected by the FSCA’s decisions may apply to the Tribunal for a reconsideration of the decision.
The specifics are usually disclosed to the public. They also typically involve several detailed steps, including a contractual commitment by the guilty party to rectify their actions. These detailed steps outline the FSCA’s final decisions and part of the investigation findings.
Impact on Financial Industry
The Financial Sector Conduct Authority is a regulatory agency that monitors and supervises the functioning of all financial service providers. Financial institutions that aren’t licensed as a financial service provider per the FSCA are regarded as non-compliant. When financial institutions are non-compliant, they are essentially operating illegally which can result in penalty fines, disqualification or suspension.
On 16 October 2014 the FSCA announced that they have imposed an administrative penalty on Mr Kabelo Emanuel Mogale for providing signals without a financial services provider licence. Mr Kabelo Emanuel Mogale is to pay an administrative penalty of R1 015 315.87. In addition to this the regulatory body has debarred him for a period of 10 years.
According to a press release, the FSCA conducted an investigation into the conduct of Mogale after it received complaints that Mogale might have been providing unauthorised financial services through Forex Private Jet Injectors (Private Jet). Private Jet was not a juristic person, it was the name that Mogale attached to his scheme. The FSCA found that Mogale provided financial advice to clients when he published forex signals via social media platform, Telegram. It is also said that he made recommendations to clients regarding their trades in forex currency pairs, which are financial products.
The FSCA found that Mogale contravened section 7(1) of the Financial Advisory and
Intermediary Services Act No. 37 of 2002 (FAIS Act) by rendering financial services
without being duly authorised to do so. In addition, Mogale contravened section 139(2) of the Financial Sector Regulation Act No. 9 of 2017 by failing to cooperate with the FSCA during the investigation.
FSCA vs Other Regulatory Bodies
While both the FSCA and South African Reserve Bank (SARB) share the mutual responsibility to effectively collaborate, assist each other and share information, they do have different objectives. As we now know, the FSCA is a regulatory body that monitors and supervises financial markets through licensing, policy change, administrative action and inspection. The South African Reserve bank on the other hand, monitors financial risks, protects the value of the rand, enhances financial stability, provides important economic and financial statistics, manages financial markets and regulates cross-border transactions and the prudential authority. The SARB also focuses on the economics, financial stability, banking and emerging trends in finance. Furthermore, the SARB has the sole right to make, issue and destroy banknotes and coins in South Africa.
The Securities and Exchange Commission (SEC), an American regulatory body oversees the securities exchanges, securities brokers and dealers, investment advisors, and mutual funds. Like the FSCA this entity promotes fair and transparent dealings, the disclosure of important market information, and prevents fraudulent activities. Additionally they protect investors from misconduct, promote fairness & efficiency.
The Financial Conduct Authority (FCA) is a British firm that regulates and monitors financial markets pertaining to the United Kingdom. Their operational objectives are to protect consumers from bad conduct, protect the integrity of the UK financial system and promote effective competition in the interests of consumers.
Challenges and Future Directions
The world of finance is rapidly evolving and with the recent Covid-19 pandemic it’s safe to say a lot has changed. The pandemic has changed every facet of our lives including how we interacted and communicated with each other, as well as adjusting our learning, working and relationship with money. Banking and finances is one of the areas where this shift was most apparent, causing financial service providers like banks and regulatory bodies to adapt to the times by moving to digital financial services. The pandemic forced a variety of businesses including banks to close shop temporarily, and in some cases to permanently close off some of their branches. This encouraged customers to use the digital platforms offered by banks and other businesses and in turn led to an increase in scams targeting vulnerable financial consumers.
As a result, this highlighted the need for regulation to focus on financial inclusion and consumer protection. Moreover this has placed emphasis on challenges like transparency, affordability, accessibility, and digital literacy.
Since then the FSCA has reinforced its mission to promote an inclusive, customer-centric, and competitive financial sector that is innovative, functions fairly and is responsive. The FSCA also continues to provide financial education and promote financial literacy.
Conclusion
As you may have gathered by now regulatory oversight is crucial for the overall functioning of any financial market. It maintains financial stability, client protection, transparency and financial integrity all while promoting economic growth. The future of regulation in South Africa is seemingly headed to the right place. The case of Kabelo Emanuel Mogale is proof of that.
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