On 5 July, the Financial Sector Conduct Authority (FSCA) published its three-year regulation plan (2024 Regulation Plan) for the period 1 April 2024 to 31 March 2027.

The FSCA's strategy is to develop a plan that better aligns South Africa's regulatory framework with international standards while identifying topical and emerging sector-specific risks. 

The 2024 Regulation Plan is not a complete overhaul with many of the priorities highlighted in the 2022 and 2023 Regulation Plans remaining the same, however, there are some revisions to the timelines of certain projects. Some noteworthy additional items are:

New standard for outsourcing

Given the prevalence of the use of third-party service providers by financial institutions, the regulation plan introduces a new regulatory framework project called the Joint Standard – Requirements relating to third-party service provision/outsourcing (Outsourcing Joint Standard).

Work on the Outsourcing Joint Standard is scheduled to take place over the 2024 and 2025 period flowing from the toolkit for Enhancing Third-Party Risk Management and Oversight which was published by the Financial Stability Board (FSB) on 4 December 2023. The toolkit is directed towards financial institutions and authorities with the intention to:

• reduce fragmentation in regulatory and supervisory approaches to financial institutions’ third-party risk management;
• strengthen financial institutions’ ability to manage third-party risks and financial authorities’ ability to monitor and strengthen the resilience of the financial system; and
• facilitate coordination among relevant stakeholders.

The abovementioned objectives will be considered by the FSCA and Prudential Authority while jointly drafting the Outsourcing Joint Standard. The scope of third-party services that the Outsourcing Joint Standard will regulate is not yet defined, however, the standards will likely cover a wide range of services given the broad scope of the FSCA's toolkit.

New rules for capital requirements and risk management

South Africa's last Financial Sector Assessment Program allowed the World Bank Group to review the environment in which Over-the-Counter Derivative Providers (ODPs) operate. The World Bank took the view that the capital requirement and risk management rules for ODPs need to be strengthened.

In light of this recommendation, the 2024 Regulation has introduced a new project titled the Joint Standard – Capital Requirements and Risk Management Rules for ODPs (ODP Capital Standard). The ODP Capital Standard aims to address the World Bank's concerns and the 2024 Regulation Plan revealed that the FSCA and Prudential Authority will consider a variety of factors in drafting the ODP Capital Standard including market risk, counter-party credit risk and credit valuation risk. 

Amendments to the conditions for amalgamations and transfers under the Pension Funds Act

The FSCA has proposed that they be empowered to determine the forms to be completed when executing an amalgamation or transfer under section 14 of the Pension Funds Act. The forms are currently contained in FSRA Conduct Standard 1 of 2019 (Conduct Standard), however, the implementation of the two-pot system will require the amendment of some of these forms.

The effect of the current framework is that any amendment of the forms will, in effect, be an amendment of the Conduct Standard which creates further complexities that the FSCA seeks to avoid. Therefore, the FSCA has proposed that the forms be removed from the Conduct Standard to be left to their determination.

The 2024 Regulation Plan makes moderate additions to the 2022 and 2023 Regulation Plans while introducing some broad ideas about the FSCA's ambitions for the future. The full document may be accessed here.

Written by Gabi Richards-Smith, Partner, Kent Davis, Partner & Laone Setshedi, Candidate Attorney at Webber Wentzel