1. 1 PRESENTATION TO THE STANDING COMMITTEE ON FINANCE Developments in the regulation of non-banking financial institutions

2. 2 THE FSB TEAM DUBE TSHIDI EXECUTIVE OFFICER JONATHAN DIXON DEPUTY EXECUTIVE OFFICER: INSURANCE JURGEN BOYD DEPUTY EXECUTIVE OFFICER: RETIREMENT FUNDS GERRY ANDERSON DEPUTY EXECUTIVE OFFICER: MARKET CONDUCT AND CONSUMER EDUCATION

3. 3 AGENDA  ROLE OF THE FSB IN THE FINANCIAL SECTOR  LESSONS FROM THE FINANCIAL CRISIS  STATUS AND MAJOR INITIATIVES IN FSB REGULATED SECTORS –INSURANCE –INVESTMENT INSTITUTIONS AND CAPITAL MARKETS –RETIREMENT FUNDS –FINANCIAL ADVISORY AND INTERMEDIARY SERVICES (FAIS)  TREATING CUSTOMERS FAIRLY (TCF)  FINANCIAL INCLUSION –MICROINSURANCE  ENFORCEMENT  CONSUMER EDUCATION - (ACCOMPANYING PRESENTATION)

4. 4 ROLE OF THE FSB  ESTABLISHMENT OF THE FSB: –The FSB was established by the Financial Services Board Act, No. 97 of 1990, to oversee primarily the non-banking financial services industry in South Africa in the public interest  THE MISSION OF THE FSB IS TO PROMOTE: –Fair treatment of consumers of financial services & products; –Financial soundness of financial institutions; –Systemic stability of the financial services industries; –Integrity of financial markets and institutions  THE FSB REGULATES THE FOLLOWING SECTORS: –Insurance, collective investment schemes, capital markets, private retirement funds, financial services providers  THE FSB CONDUCTS ITS WORK THROUGH: –Developing the regulatory framework (with National Treasury) –Off-site reporting –On-site visits –Inspections –Enforcement actions (including curatorships)

5. 5 LESSONS FROM THE FINANCIAL CRISIS G20/Financial Stability Board recommendations:  Proper financial supervision critical to financial and economic stability  System-wide supervision  Include unregulated entities (e.g. hedge funds)  Conglomerate supervision  Macro-prudential regulation  Systemically significant entities  Macro-prudential surveillance and tools  Anti-cyclical capital requirements  Supervisory co-ordination  Supervisory colleges  Peer reviews

6. 6 STATUS OF INSURANCE SECTOR  INDUSTRY ANALYSIS –Limited direct fallout from financial crisis –Recent recovery in asset markets has generally improved financial positions –Results have suffered from economic slowdown – lower sales and increased lapse & surrender rates –Increased number of smaller insurers experiencing financial strain

7. 7 INSURANCE SECTOR: FSB INITIATIVES  SOLVENCY ASSESSMENT AND MANAGEMENT (SAM) –Responding to IMF/World Financial Sector Assessment Program (FSAP) recommendations –A revised, risk-based solvency regime for insurers to meet international standards, but adapted for SA circumstances –Covers technical provisions, regulatory capital requirements, risk management and reporting –Targeted implementation date January 2014 –Inclusive project involving industry and other stakeholders  INSURANCE GROUP SUPERVISION –Legislative provisions –Reporting –Supervisory co-ordination  CONDUCT OF BUSINESS –Binder regulations: oversight over outsourced functions  MICROINSURANCE

8. 8 COLLECTIVE INVESTMENT SCHEMES  INDUSTRY ANALYSIS –Substantial inflows into domestic CIS funds in the past year

9. 9 INVESTMENT INSTITUTIONS AND CAPITAL MARKETS: FSB INITIATIVES  COLLECTIVE INVESTMENT SCHEME ISSUES –Well-regulated sector, considerable inflows –Looking at: “white label” funds, “black box” products and types of investments under Notice 1503  HEDGE FUND REGULATION –Joint NT/FSB working group developing regulatory proposals based on international best practice (IOSCO and FSB/G20 guidance)  OVER THE COUNTER (OTC) DERIVATIVES –Working group established with representation from stakeholders (NT, industry) to investigate the need for regulation of OTC products  CREDIT RATING AGENCIES –Discussion paper and draft Bill on regulation of credit rating agencies submitted to the NT for consideration, informed by international best practice (IOSCO and FSB/G20 guidance)  JSE/BESA MERGER  JSE TRADING FAILURES  IOSCO CONFERENCE 2011

10. 10 MARKET ABUSE  DIRECTORATE OF MARKET ABUSE (DMA)  Committee of the Board of the FSB responsible for combating abuse in capital markets  Looks at issues such as insider trading, market manipulation and publication of false or misleading statements related to listed companies  During financial crisis, number of market manipulation cases linked to single stock futures increased  Post crisis, number of insider trading cases increased Number of cases:

11. 11 RETIREMENT FUNDS  PENSION FUND SURPLUS APPORTIONMENT –As at 31 July 2010: 7,984 surplus apportionment schemes and nil returns in respect of standalone funds have been submitted (out of an estimated 8,000 – 8,500) –7,265 have been approved and noted –In addition, schemes in respect of a number of participating employers of umbrella funds still have to be submitted –Total amount of surplus apportionment approved to date: R18,9 billion 15B SURPLUS APPORTIONMENTS 15B “NIL” RETURNS StatusStandaloneUmbrella Approved 883508 Pended 10748 Not Completed 126 Tribunal 12- Total 1,014562 StatusStandaloneUmbrella Approved 6,29611,747 Rejected 227 Pended 313678 Not Completed 167 Total 6,64912,440

12. 12 RETIREMENT FUNDS: FSB INITIATIVES  TRUSTEE GOVERNANCE –PF130 dealing with good trustee governance being converted to a directive (becomes mandatory)  TRUSTEE TRAINING –Web-based Trustee Training Toolkit being developed –Implementation by mid-2011

13. 13 FINANCIAL ADVISORY AND INTERMEDIARY SERVICES (FAIS)  INTERMEDIARY PROFESSIONALISATION  24 regulatory exams to be rolled out by November 2011  Each will be piloted beforehand  Level 1 regulatory exams piloted in Aug 2010 for roll-out in Oct 2010; Level 2 regulatory exams to be piloted in Oct 2010 (focusing on deposits, short-term insurance, pension fund benefits)  CODE ON CONFLICTS OF INTEREST  Extended code issued April 2010, to be implemented in stages StatusNumber Authorised 12,911 Rejected 1,891 Suspensions 857 Withdrawals 487 Appeals 2 Lapsed 3,842 Lapses in process 262 FSP STATISTICS  20,252 applications processed since FAIS Act requirements commenced in Sept 2004

14. 14 TREATING CUSTOMERS FAIRLY (TCF)  An outcomes-focused approach to ensuring that companies have an embedded culture of treating their customers fairly throughout the product life cycle  Based on UK Financial Services Authority (FSA) approach, adapted to SA circumstances  Behavioral change will be a multi-year project and requires:  Clear regulatory guidance  Self-assessment by financial institutions of their TCF culture  Effective supervisory approach  Visible enforcement  Discussion Paper issued April 2010  Further guidance by end-2010

15. 15 FINANCIAL INCLUSION  MICROINSURANCE  Response to problems of unregistered insurance business and consumer abuse  NT/FSB Policy position paper – September 2010  Dedicated legislative framework aimed at reducing regulatory barriers to broadening access to insurance by low income consumers  Encouraging informal players (e.g. funeral parlours) to formalise  Visible enforcement

16. 16 ENFORCEMENT  ENFORCEMENT COMMITTEE (EC)  Established in terms of the Financial Institutions (Protection of Funds) Act  EC used to deal solely with sanctions arising from the Directorate of Market Abuse, but mandate expanded with effect from November 2008  Registrar may refer contraventions of any FSB law, regulations, directives and codes of conduct to the EC  EC may impose unlimited penalties and make compensation and cost orders  EC determinations are published  EC is a major step forward for FSB enforcement as it allows for speedy administrative sanction  EC has adjudicated on cases against 63 respondents, and imposed a total of approximately R17 million in penalties, since 2006.

17. 17 CONCLUSION WE WOULD BE PLEASED TO ANSWER ANY QUESTIONS THANK YOU