THE FINANCIAL Sector Conduct Authority (FSCA) yesterday released for public comment a draft strategy document for the promotion of transformation of the financial sector, in which the majority of South Africans still do not participate meaningfully.
Public submissions to Parliament on transformation of the financial sector have emphasised concerns about the heavy concentration of the sector, high barriers to entry and the need for stronger support of black industrialists and small to medium enterprises, as well as poor market conduct practices, and financial exclusion practices.
“State departments such as the National Treasury and financial sector regulators must play a more active role in driving transformation of the financial sector,” the draft document said.
The Financial Sector Regulation (FSR) Act, defines “transformation of the financial sector” as transformation envisaged by the Financial Sector Code for the B-BBEE Act.
The Insurance Act requires that at licensing stage, insurers must demonstrate a plan to meet commitments in terms of transformation of the insurance sector, including meeting the targets envisaged by the Financial Sector Code.
However, “it has been indicated by the National Treasury that this is an interim measure. The proposed Conduct of Financial Institutions Act (COFI Act), currently a draft Bill, will provide for transformation requirements for all financial institutions to be supervised by the FSCA,” the FSCA’s draft strategy document said.
It outlined the FSCA’s approach to promoting financial sector transformation within the existing policy framework, Phase One. It also outlined an approach for the FSCA to promote transformation under the future COFI Act framework or Phase Two.
The financial sector’s empowerment aspirations currently reside in the goals of the Financial Sector Code (FS Code), the formation of which was an outcome of negotiations between financial sector trade associations, organised labour, community and government, gazetted in 2012 and revised and gazetted in 2017.
The Financial Sector Transformation Council (FSTC) is supposed to enforce the FS Code, but has no mandate to take action against financial institutions in relation to the lack of achievement of targets of the FS Code, or failure to report on compliance.
The FSCA’s Phase One of its strategy included engaging with financial institutions on transformation plans and compliance, improving availability and quality of transformation data and building strong co-operative relationships with the FSTC and the B-BBEE Commission to improve coordination efforts.
It also planned a more collaborative approach to transformation of the financial sector with the Prudential Authority to support initiatives of the National Economic Development and Labour Council (Nedlac) and FSTC related to financial sector transformation in order to support small businesses in the financial sector, and develop licensing, regulatory and supervisory frameworks that promote transformation of the sector.
In addition, training in the Conduct of Business Supervision division would aim to equip supervisors to better evaluate financial institutions on an on-going basis regarding their transformation plans.
The COFI Bill required entities to promote transformation aligned to goals of the FS Code; and the revised draft also allowed for the FSCA to issue directives in relation to transformation plans. It says the FSCA may use its supervisory and enforcement powers to ensure that a financial institution’s governance frameworks – including in relation to transformation – were adequate and adhered to.
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