Revised bill on 'twin peaks' control model

THE Treasury has published a revised bill on the "twin peaks" model of financial regulation‚ which is intended to protect consumers and make the financial system safer.

The second draft of the Financial Sector Regulation Bill includes recommendations to improve its legal enforcement and clarifies the role of regulators. Under the twin peaks model‚ regulation of the financial sector will be split into prudential and market conduct.

Prudential regulation‚ which monitors the risks affecting the soundness of financial institutions and the whole financial system‚ will be the responsibility of the SA Reserve Bank.

Market conduct – including reckless lending practices‚ excessive fees and unfair product terms – will fall under a new financial sector conduct authority that replaces the Financial Services Board.

Treasury deputy director-general Ismail Momoniat said on Tuesday that an overhaul of financial regulation was necessary to incorporate lessons learnt from the 2008 global financial crisis.

South Africa could not be complacent in dealing with regulatory gaps and weaknesses as regulatory bodies could only be considered to have been partially successful given the failure of African Bank‚ high household indebtedness and the proliferation of payday lenders‚ he said.

Market conduct regulation required higher standards than general consumer protection laws, as consumers often did not understand complicated financial products and the fees charged‚ he said.

The Treasury has also released a draft market conduct policy framework discussion document open to comment until April 8.

The revised twin peaks bill – open to comment until March 2 – includes changes to improve its legal enforceability and to give authorities the powers they need to enforce laws.

It introduces the legal framework to allow regulators to supervise not just financial institutions‚ but also financial groups to which they belong. - Gillian Jones