Last week, the Financial Services Board (FSB) relaunched as the Financial Services Conduct Authority (FSCA) at a time when it was facing heightened scepticism from some quarters.

In its Cover Story last week, the Financial Mail described the regulator as a "toothless watchdog", casting unfortunate aspersions on the reforms of the Twin Peaks regulatory model, which was implemented precisely to fill the gaps in the previous regulatory framework.

First, I should say that Twin Peaks is the result of seven years of unstinting work from SA’s policy makers, who have been preoccupied with the best ways in which to plug those gaps.

We accepted there were areas in the legislation that were not clearly defined, leaving consumers vulnerable to abuse. This is why Twin Peaks — with the new conduct authority and prudential authority — has the power to regulate how companies conduct themselves in relation to their customers. It will help ensure companies are more sustainable, too.

In an ideal world, no regulator should make mistakes. But mistakes do happen — and when they have, we’ve sought to correct them.

But it is disappointing when journalists fail to grasp that our regulatory scope has limits. Take the examples of Steinhoff, VBS Mutual Bank, Fidentia, various pension funds and Oakbay, which are held up as examples of incompetence.

On VBS Mutual Bank, it is important to note that the FSB’s mandate extended only to nonbanking financial institutions. We didn’t regulate VBS’s activities as a bank. Of course, in the new regulatory regime under Twin Peaks, we will have the power to regulate banking conduct. It’s a good example of how Twin Peaks recognises the interconnectedness of financial institutions, the concentration risks in the sector and the need for co-ordination between regulators.

Twin Peaks has the power to regulate how companies conduct themselves in relation to their customers
Abel Sithole

Increased regulatory scope

It is equally unfair to blame the FSB for not detecting fraud at Steinhoff, the furniture conglomerate whose share price has tumbled 91% since December. Steinhoff is not a financial services company, so it was never regulated by the FSB, and it won’t be regulated by the FSCA either. While it is true that we investigated claims of market abuse in trading in Steinhoff, you must remember the detection of any insider trading takes place at the exchange on which those shares are listed. Steinhoff’s primary listing is in Frankfurt, with a secondary listing on the JSE.

The market abuse cases in Steinhoff that we are investigating now were opened in December 2017, so it is unfortunate that we are expected to have finalised our investigation at this stage.

Steinhoff has appointed PwC to conduct a forensic investigation into accounting irregularities, and those findings are expected only by the end of the year. And our investigation into Steinhoff can be finalised only once we have seen the details of Steinhoff’s restated 2015, 2016 and finalised 2017 financials — which will take months.

While it is true that there have been several pension fund scandals in recent years, it is the trustees who have a statutory fiduciary duty towards the members, which requires them to meet a minimum standard of competency.

We realise the challenges on this front, which is why we’re considering incorporating certain of the King 4 corporate governance standards in a directive that all pension funds will have to comply with. We also intend to make the trustee training toolkit compulsory for all retirement funds this year.

We have also increased the maximum penalty from R1,000 to R4,000 per day for noncompliance by pension funds, including for delays in the submission of their financial returns. We also intend requiring funds to file monthly cash-flow statements, which will help identify unusually large movements of cash.

Until this point, the FSB has admittedly been very compliance driven and reactive. To some extent, this was a consequence of the sectoral-based approach that prevented us from regulating the entire ambit of the financial sector.

But Twin Peaks changes that. It not only expands the jurisdiction of the new FSCA, but it also expands our approach. It gives the supervisors additional teeth, and additional resources to fill the gaps we’ve highlighted as creating vulnerabilities in our market.

• Sithole is a commissioner of the FSCA, and a previous board member of the FSB