The Financial Sector Conduct Authority (FSCA) has announced its intention to crack down on non-transforming companies, but has not provided any specific details on how it plans to do so. The regulator wants to scrutinize banks, insurers, and other financial institutions more closely in terms of their transformation progress, and it is calling for these companies to provide more detailed data on their ownership. In addition, the FSCA is preparing its investigators and law enforcers to take action against companies that do not adhere to their transformation plans.
The FSCA’s final Strategy for Promoting Financial Sector Transformation, released on Thursday, outlines the regulator’s plans to more strictly verify financial firms’ B-BBEE certificates. However, there is still a lack of clarity on what powers the regulator will have and what sanctions it could levy.
The FSCA is seeking more detailed data on who owns big financial institutions, as their complex structures often conceal the true beneficial owners. The regulator acknowledges that ownership data is highly contested and assessing it is complicated by complex structures of holding companies, subsidiaries, trusts, foreigners, and institutional investors. The council already collects this information, but the FSCA plans to “enhance” it by undertaking a data collection and “clean-up” exercise specifically regarding ownership of banks, insurers, investment firms, and other licensed financial institutions.
The FSCA will also work more closely with the Prudential Authority, which has the power to consider transformation at the licensing stage of insurance companies. The regulator has given assurance that its interventions will not create barriers to entry for small financial firms, particularly those owned by previously disadvantaged people.
The FSCA’s transformation strategy has two phases. The first phase focuses on collecting ownership data and developing regulatory and supervisory frameworks and instruments that allow for proportional application of requirements. The second phase will focus on the FSCA’s role once the Conduct of Financial Institutions (COFI) Bill becomes law. The COFI Bill is expected to strengthen the FSCA’s powers in driving and policing transformation by giving it the power to sanction non-transforming firms.
To prepare for the second phase, the FSCA plans to train and upskill more of its staff on transformation requirements when financial firms apply for licenses. Its investigations and enforcement unit will also be ready to crack down on offending financial firms once it has the power to sanction them. However, neither the FSCA’s strategy nor the COFI Bill specifies what those sanctions could be.
The transformation of South Africa’s financial sector has been the subject of heated debates for many years. Parliament held hearings on the matter in 2017, and the proposed law to turn up the heat is yet to be finalized. The FSCA’s transformation strategy is a step in the right direction, but its lack of specifics and the delayed implementation of the COFI Bill may hinder its effectiveness.
