Regulations all asset managers need to be aware of

All asset managers, big and small, adhere to the same set of regulations – regulations which have materially evolved over the last decade. South Africa, like many other countries globally, have gone through a process of financial sector reform following the global financial crisis of 2007 and in 2017, passed the Financial Sector Regulation Act adopting the Twin Peaks framework of financial sector regulation. This gave birth to the establishment of two new regulatory bodies for the financial services sector: the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA). The PA, as ‘Peak One’, is responsible for creating and enforcing regulations, aimed at ensuring the soundness of our financial institutions. The FSCA, as ‘Peak Two’, is responsible for preventing financial misconduct and protecting consumers of financial products and services.

The reformed regulatory oversight of licensed financial services providers in South Africa is rapidly taking shape. Here, we summarise the most significant elements of the regulatory framework asset managers need to be aware of.

RegulationDescriptionStatus
Financial Institutions (COFI) BillThe COFI Bill outlines what customers and industry players can expect of financial institutions and aims to streamline the legal framework for the regulation of the conduct of financial institutions and to give legislative effect to improving market conduct and customer protection.
 
COFI will also require financial institutions to have policies in place to comply with the Financial Sector Code. The supervision of institutions’ implementation of policies will be undertaken by the FSCA. The expectation is that the FSCA will be empowered by COFI to issue penalties, with financial and/or license impact, to institutions that breach transformation principles and requirements.		The revised Bill has been submitted to Cabinet. The next iteration of the COFI Bill is expected to be published for public comment during the third or fourth quarter of 2020.
Prudential Authority’s transformation mandateThe PA has a clear mandate to advance financial inclusion, competition and transformation under the provisions of the Insurance Act.Insurance Act has been signed into law. Prudential supervision of the asset management sector will be further expanded in the near to medium term.
Third party risk managementThe FSCA and the PA are in the process of developing a Joint Standard relating to outsourcing. The Standard is largely based on the current prudential outsourcing standard with respect to the outsourcing of material, management and control functions, but has been amended to incorporate various conduct specific requirementsJoint standard effective date unknown. The PA has considered the draft standard and discussions are on-going between the FSCA and PA on the way forward. 
Retail Distribution Review (RDR)In December 2019, the FSCA published an update and it is clear from this paper that there has been a lot of progress made even though there are still a number of proposals that have not been finalised.Update is expected in 2020 regarding the proposals for ‘Advisor Categorisation’ and ‘Investment-related matters’.
ASISA Retirement Fund Standard, Effective Annual Cost (EAC) for Individual Fund MembersStandardised retirement savings cost disclosure methodology.Standard was approved in May 2019 and comes into effect 1 October 2020.
Protection of Personal Information Act (POPIA)The Protection of Personal Information Act 4 of 2013 gives effect to section 14 of the Constitution which provides that everyone has the right to privacy. The Act promotes the protection of personal information processed by public and private bodies and seeks to balance the right to privacy against other rights, such as access to information.All institutions that process personal information are required to be POPIA compliant by 1 July 2021.
Financial Consumer Education InitiativesThe FSR Act extended the jurisdiction of the FSCA to protect financial customers by providing them with financial education programmes, and to promote financial literacy and sound financial decision making.Discussion document published in June 2020.
Environmental, Social and Governance (ESG)The FSCA has affirmed its commitment to refining the regulatory framework relating to issues of sustainability in consultation with industry players.The expectation is that the final set of requirements, in relation to ESG, will be incorporated into prudential and/or conduct standards in future.