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Twin Peaks – Taking the cost out of compliance

*This content is supplied by DB & Associates

South Africa has now formally begun implementing the new ‘Twin Peaks’ reforms for the regulation of the financial system. This is one of the most far-reaching since South Africa left the gold-standard in 1932 and DB & Associates, South Africa’s fastest growing management advisory firm, is assisting businesses to understand the immediate impact and prepare for the future. Based on the Australian Twin Peaks regulatory architecture, these reforms will encompass the latest research conducted, and insights gained, from the global financial crisis, on how to prevent financial crises and, critically, provide consumers with adequate protection.

The new Twin Peaks regulatory model has two tranches: (1) implementation of the Financial Sector Regulation Act (FSRA), and (2) the finalisation of the draft, and subsequent enactment, of the Conduct of Financial Institutions Bill (COFI). Together these will provide South Africa with the best regulatory architecture available. It is the only model that addresses, in chief, the conflicting impetuses of financial system stability and consumer protection.

There are those who believe that the FSCA is simply the FSB re-branded. Nothing could be further from the truth. While the FSCA will enforce various pieces of legislation as did its predecessor (e.g. FAIS), this is only a transitional arrangement. Between now and October the Transitional Executive Committee of the FSCA is tasked with devising a new raft of regulations that will apply to every firm that offers a ‘financial service’ or a ‘financial product’. Apart from the fact that the FSCA’s remit is an order of magnitude greater than the FSB’s, their powers will be similar orders of magnitude greater too. They will be empowered to intervene, but not only because a particular section of a particular Act has been contravened. They will be empowered to intervene wherever they deem the outcome to consumers of a product, a service, or the support functions attendant thereto, to be poor; or where outcomes are not yet poor but are predicted to be. This is the essence of ‘principles-based, outcomes-driven’ regulation and will have a far-reaching impact on the industry.

Twin Peaks is a new regulatory paradigm for South Africa, and one which most regulated entities do not yet fully understand. This invariably creates confusion, anxiety, truculence and even anger. But that simply denotes a failure to understand this regulatory paradigm, and shift thinking accordingly, in the way organisations may operate in the future.

DB & Associates’ Senior Advisor, Adv. Dr Andy Schmulow (a global expert in Twin Peaks regulatory environs) believes that with a well formulated transformational approach that focuses on significant cultural change, especially within client-facing functions, this new regulatory system can present opportunities within an already highly competitive environment. For firms that don’t simply profess to do the right thing, but actually put those ideals into practice, this new regulatory regime can allow organisations to create a significant competitive advantage, rather than a significant cost. DB & Associates offers a ‘root and branch’ analysis of products and services to determine whether, by an objective measure, firms are in compliance with the ‘principles’ of good conduct towards consumers. A further drill down into the various support, sales, complaint, remediation and distribution functions will also determine whether each of these components also comports with the ‘principles’ of good conduct and regulatory compliance. The future of non-compliant organisations will be fraught with existential challenges that may undermine the core of their current business models.

By specialising in developing strategies, in activation and implementation, DB & Associates has developed an impressive track-record, particularly for the customer-facing aspects of the firms they have worked with. Put simply, their forte is in regulatory implementation, and it is in the implementation that the devil will be found between the Twin Peaks.

Visit www.dbassociates.consulting/insights for more on Twin Peaks and all the latest news as it develops. Contact them on +27 11 282 0610 or email [email protected].

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