By African Unity Life
In an effort to improve consumer protection and promote stability in the South African financial system, President Zuma recently signed into law the Financial Sector Regulation Act 2017. This legislation, which is widely referred to as the “Twin Peaks” Bill, will ensure that the conduct of the financial sector is now overseen by two independent regulatory bodies.
The financial sector and, more specifically, the insurance industry will be heavily impacted by this Act. The current Financial Services Board (FSB) will be replaced by the Financial Services Conduct Authority (FSCA), which will monitor all financial services companies and their interactions with consumers to ensure that customers receive fair treatment.
Within the South African Reserve Bank, the Prudential Authority (PA) will be established.
The purpose of the PA is to supervise financial institutions to ensure their practices are solid and safe. Following the 2008 global financial crisis, the importance of ensuring that big financial institutions are financially stable has been greatly emphasised.
This Act is the first piece of legislation in a phased approach, says Johan Ferreira, African Unity Life’s Chief Legal Advisor. He goes on to explain that a series of items of new legislation will be put into effect, such as the Insurance Bill, which will result in formalised microinsurance in this country. Microinsurance is essentially there to protect low-income earning customers from unnecessary risk and unethical providers and practices.
Financial services providers will now have to apply for a microinsurance licence, which means they will have to meet specific criteria, for example, a minimum capital adequacy requirement.
Ferreira believes this is a very exciting development in South Africa, as it will hopefully result in more providers being regulated, offering protection to low-income earners and aiding them in managing their own risk.
Financial literacy, another vital consumer protection mechanism, is also addressed by the Twin Peaks Bill. In addition to ensuring the fair treatment of financial customers and upholding the integrity of the financial system, the FSCA is charged with promoting financial capability and literacy, which includes offering financial education programmes. This means that customers will be armed with the information and understanding they need to look after their financial security by selecting the right financial and insurance products and managing their own risk.
Although the benefits to the consumer are obvious, the Act has still received criticism, with many saying that the Act is unnecessary and may end up costing customers more.
However, Ferreira believes, even though there is a possibility of customers paying more, a large amount of people will feel that the positives outweigh the negatives. He feels the Act will evolve the regulatory sphere in the industry, thereby bettering the financial stability of South Africa and its consumers.