South Africa is undertaking one of its most significant regulatory reforms of the financial sector, and has proposed implementing Australia’s model.
The Financial Sector Regulation Bill proposes the introduction of two regulators for South Africa’s financial sector.
The first is a Prudential Authority, which “will supervise the safety and soundness of banks, insurance companies and other financial institutions”.
The second is a Financial Sector Conduct Authority, which “will supervise how financial services firms conduct their business and treat customers”.
This model of financial regulation is known as the ‘twin peaks approach’ and was first adopted in Australia following conclusion of the Wallis Commission of Inquiry in 1997.
The South African Financial Services Board (FSB) has also proposed the introduction of a formal distinction between ‘independent’, ‘tied’ and ‘multi-tied’ financial advisers,
The FSB recommended “prohibiting product providers from paying any form of remuneration” that might influence the advice given, with the exception of commissions on investment products deemed suitable for the “low income market”.
However, according to a new survey of 400 South African advisers – published on CoreData’s 'Burning Pants’ website – 43 per cent of respondents believe the FSB is too incompetent to carry out the reforms successfully.
The survey also showed that 63 per cent of respondents were “concerned by the prospect” of a commissions ban, while 65 per cent expressed concern about their clients’ willingness to pay a fee for service.
“South Africa is now in the midst of this regulatory overhaul, which aims to build trust between consumers and the financial advice industry by introducing greater clarity about the services being provided by advisers to their clients,” the CoreData post said.
“Should the regulator choose to take a [stricter] stance on commission payments – banning them completely – then four fifths of advisers in South Africa face an uphill climb.”