Analysis: An overview of the first draft of the Conduct of Financial Institutions Bill and the potential impact on the national payment system in South Africa

• Jurisdiction: South Africa
• Citation: (2020) 32 SA Merc LJ 129
• Published date: 19 January 2021
• Date: 19 January 2021
• Author: Visagie-Swart, L.
• Pages: 129-155

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AN OVERVIEW OF THE FIRST DRAFT OF

THE CONDUCT OF FINANCIAL

INSTITUTIONS BILL AND THE POTENTIAL

IMPACT ON THE NATIONAL PAYMENT

SYSTEM IN SOUTH AFRICA

LYNETTE VISAGIE-SWART

Legal researcher, University of the Western Cape

VIVIENNE LAWACK

Deputy Vice-Chancellor: Academic, University of the Western Cape

I INTRODUCTION

Over the last decade National Treasury (‘Treasury’) has been rigorously

acting on its commitment to promote a stable and safe f‌inancial sector

for South Africa. The means by which Treasury elected to do so was the

decision to move to a twin-peaks model of f‌inancial sector regulation in

South Africa (‘the Twin Peaks’).

Through the introduction of various carefully drafted legislative and

regulatory instruments, South Africa, on 1 April 2018, welcomed the

introduction of the Twin Peaks model of f‌inancial sector regulation

through the commencement of the Financial Sector Regulation Act 9 of

2017 (‘FSR Act’). On this very same day, we saw the establishment of the

two main Twin Peaks regulators: the Prudential Authority (‘PA’) and

the Financial Sector Conduct Authority (‘FSCA’).

Since the commencement of the FSR Act, f‌irst drafts of two regulatory

instruments have been published for public comment under the relevant

empowering provisions of the FSR Act. These are the Conduct of

Financial Institutions Bill [B-2018] as published in GN R808 GG 42114

of 14 December 2018 (‘the CoFI Bill’) and the Conduct Standard for

Banks (‘the CSB’) (FSCA: Financial Sector Conduct Authority, ‘State-

ment supporting the draft conduct standard for banks’ available at

https://www.fsca.co.za/Regulatory%20Frameworks/Pages/Banks.aspx,

accessed on 15 May 2019). The purpose of the CoFI Bill is to regulate

market conduct in the f‌inancial sector which is aimed at, and impacts,

f‌inancial customers, and to assist the South African Reserve Bank (‘the

SARB’) in maintaining ‘f‌inancial stability’. The purpose of the CSB is to

introduce and impose upon ‘banks’ (as def‌ined in the CSB) require-

ments that promote the fair treatment of their customers.

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In this analysis we provide an overview of the f‌irst draft CoFI Bill and

provide our comments in relation to the potential impact of this

regulatory instrument on the national payment system (‘NPS’) in South

Africa. We begin our analysis by giving a brief overview of the FSCA,

specif‌ically its powers to make ‘regulatory instruments’ under the FSR

Act. We then deal with the CoFI Bill in some detail, including its stated

purpose and its purposed layout, scope, requirements, application, and

exemptions as well as the amendment and repeal by the CoFI Bill of

certain other f‌inancial sector laws. We then give a very short, high-level

introduction to the NPS in South Africa (a detailed discussion falls

outside the scope of this analysis). Next, we provide our comments on

the potential impact of the CoFI Bill on the NPS in South Africa,

specif‌ically including a discussion on the application of CoFI Bill to the

provision of ‘payment services’, as contemplated under the CoFI Bill.

Finally, we look at certain amendments which are proposed to be made

to the FSR Act by the CoFI Bill which relate to the NPS and we provide

our preliminary views thereon. We conclude this analysis with our

thoughts on the CoFI Bill and some f‌inal remarks.

II THE FINANCIAL SECTOR CONDUCT AUTHORITY

The Financial Sector Conduct Authority (FSCA) (previously known as

the Financial Services Board) was established on 1 April 2018. In terms

of section 56(2) of the FSR Act, the FSCA is a juristic person and a

national public entity in terms of the PFM Act. The FSCA is responsible

for the regulation of conduct in the South African f‌inancial services

sector and is a f‌inancial sector regulator under the FSR Act.

Section 113(1) of the FSR Act gives the FSCA the power to grant, on

application, licences for those persons in respect of whom it is the

responsible authority. The FSCA may not issue, vary, suspend, or revoke

a licence, or grant an exemption from a specif‌ied provision of a f‌inancial

sector law (‘regulatory actions’) without the concurrence of the PA.

Concurrence from the SARB is required if a regulatory action relates to a

SIFI (s 126 of the FSR Act read with s 282). However, concurrence from

the PA is not required if the FSCA and the PA have agreed, under a

memorandum of understanding concluded between them, that concur-

rence is not necessary. The same applies to concurrence from the SARB

under the provisions of a memorandum of understanding between the

FSCA and the SARB (see s 282(2) and (3) of the FSR Act).

The FSR Act gives the FSCA the power to make ‘regulatory instru-

ments’ under the FSR Act and sets out the processes which must be

followed when making them. Of particular importance is the power

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