Securities Regulation in South Africa

Legal and Institutional Framework for Securities Regulation in SA

• Key questions to consider are the yardsticks used to assess the credibility and effectiveness of institutional aspects of securities regulation, and the fairness of SA's regime against these yardsticks.
• Important to examine the powers and responsibilities of institutional actors in SA's securities regulation and whether they are appropriate and adequate.
• A critical analysis of the roles of various institutional players in delivering securities regulation within SA is needed.
• The key features and elements of South Africa’s Twin-Peaks regulatory model of financial sector regulation should be discussed, along with the factors and policy concerns that led to its 2017 adoption.

Legal Sources: Statutory Acts

• The Financial Sector Regulation Act No 9 of 2017 (FSRA) is Twin-Peaks legislation.
• The Financial Markets Act No 19 of 2012 (FMA) governs financial markets.
• The Collective Investment Schemes Control Act 2002 (CISCA) regulates collective investment schemes.
• The Financial Services Board Act 1990 existed previously.
• The Financial Advisory and Intermediary Services Act 2002 (FAIS Act) covers financial advisors.
• The Financial Services Ombud Schemes Act No 37 of 2004 creates ombud schemes for financial services.
• The Competition Act No 89 of 1998 addresses competition.
• The Companies Act No 71 of 2008, along with the Companies Regulations 2011, applies to companies.
• The Financial Intelligence Centre Act 2001 (FICA) aims to combat financial crimes.

Legal Sources: Non-Statutory Regulations and Rules

• The Johannesburg Securities Exchange (JSE) Rules and Regulations, including Listing Rules, are non-statutory.
• STRATE's rules and regulations oversee share transactions electronically.
• Rules and regulations of the Association of Collective Investment Schemes (ACIS) exist.
• The SA Institute of Stockbrokers has its own set of rules.
• The King Code on Corporate Governance - King IV provides governance guidelines.

Institutional Actors in Securities Regulation

• The Financial Sector Conduct Authority (FSCA), formerly the Financial Services Board (FSB), is a key actor.
• The Prudential Authority (PA) operates within the South African Reserve Bank (SARB).
• Registrars of Securities Services operate under the FMA, FAISA, and CISCA within the FSCA.
• Financial Services Tribunal (FST) is an actor.
• The Johannesburg Securities Exchange (JSE) also plays a role.
• The Companies and Intellectual Property Commission (CIPC) is involved.
• STRATE (CSD) is another component.
• The Ombuds Council is one of the actors.
• The Ombud for Financial Services Providers, previously Ms. Noluntu Bam, participates.
• The Association of Collective Investments (ACI) is an institution.
• The SA Institute of Stockbrokers partakes in securities regulation.
• The Takeover Regulation Panel (TRP) is relevant.
• The Competition Commission is another entity.

IOSCO Principles and the Regulator

• Relevant IOSCO principles state regulators should be operationally independent but accountable.
• Regulations should have adequate powers, resources, and capacity to perform their function.
• Regulator responsibilities should be clear and objectively stated.
• The regulator should contribute to systemic risk process of monitoring, mitigating and managing.

IOSCO Principles

• The regulator should have complete inspection, investigation, and scrutiny powers.
• A fair regulatory system ensures the use of inspection, investigation, invigilation, and enforcement by the Regulator while achieving regulated individual's and entities' compliance.
• Regulators should establish international information-sharing mechanisms.
• National regulations should have the authority to share details with their international peers.
• The regulatory system allows for help to foreign regulators who need to make inquiries.
• Self-regulation oversight requires the presence of National regulations.
• Self-regulating organizations (SROs) observe standards of fairness, exercising delegated responsibilities.

Twin Peaks

• Financial Sector Conduct Authority (FSCA's) goal is to enhance efficiency and integrity of financial markets, and protect financial customers.
• The FSCA will regulate the conduct of financial institutions according to financial sector laws.
• The FSCA's regulatory purview includes securities/capital markets and collective investment schemes.
• The FSCA supervises and regulates the conduct of securities exchanges (JSE, ZAR-X, etc.), wealth management firms, and CIS operators.
• Also monitors the extent of fairness in the financial market by monitoring fair outcomes for financial customers.
• It is obliged to focus on the fairness and appropriateness of financial products/services.
• The FSCA disseminates information and education to the public.
• Research involves conducting and publishing of research relevant to objectives.
• Strategies are formed for financial education.
• The FSCA licenses and monitors securities/financial market infrastructure and intermediaries.
• Provision and enforcement of the conduct of business (COB) follows set rules.
• Standards and rules regulate the behavior of participant's in the securities market.
• The FSCA is tasked with the ability to revoke and suspend licenses for specific actors.
• This authority coordinates with other regulatory bodies and promotes a self-regulating business in South Africa.
• They promote competition and financial inclusion.

FSCA Independence and Accountability

• A juristic person, established by the FSRA, FSCA is a national public entity.
• The FSCA Commissioner is the accounting authority, accountable to Parliament, and must perform duties without prejudice.
• The Minister of Finance (FSRA s 61) appoints the Commissioner and Deputy Commissioners (max 4).
• Levies paid by regulated entities fund the FSCA making it financially independent.
• Ministers of Finance can remove a commissioner.

Prudential Authority (PA) Objectives and Functions

• Established within the Reserve Bank.
• Objectives include promoting safety of financial institutions, safety, and soundness of market infrastructures.
• They protect customers by protecting regulated financial institutions.
• The PA regulates and supervises financial institutions.
• Objectives also include financially supporting competition, inclusion in SA, working with sector regulatory roles.
• Duties is to cooperate with the Council for Medical Schemes on matters of mutual interest.
• To act requires conducting and publishing research objectives.
• The PA is headed by a Chief Executive Officer (CEO), appointed by the SARB Governor with the Minister of Finance’s concurrence.
• The governor has the power to remove from office.

Financial Services Tribunal (FST)

• Established by FSRA (s 218).
• Independent, impartial, and exercises its powers without prejudice.
• The FST reconsiders decisions and performs functions conferred by the FSRA and other sector laws.
• Jurisdiction involves decisions by sector regulators/ombuds.
• Decisions include market infrastructure and statutory ombud decisions.

Functions of a Securities Exchange

• Organized, regulated market to buy and sell.
• Must conduct its business in a fair and transparent manner
• The exchange enforces rules and listing requirements, supervises authorized user compliance, and oversees compliance by issuers of listed securities
• It makes provisions for settling transactions.

Requirements for Establishing a Securities Exchange

• Must be aptly licensed, and there are no exceptions for operating as a security exchange
• Applicant must show financial and human resources
• There must be governance arrangements transparent and safe
• Arrangements are regulated through the supervision of authorized users

Additional Requirements for Establishing a Securities Exchange

• One must show sustained exchange operations
• Ability to maintain records and maintain security
• There must be insurance, a fund or some warranty
• Provision for business and conduct
• Applicant requirements are authorization, user exclusion, technical capacity, good integrity.
• Capital should be adequate for risk management.
• Business done should be efficient, transparent, capital adequate, honest.
• Clearing and settlement are provided in the manners the securities must be cleared.

The Johannesburg Securities Exchange (JSE)

• JSE is licensed and operates in accordance to financial conduct of the FMA, making them eligible to maintain a securities exchange license

Functions of a Central Securities Depository (CSD)

• A CSD plays an important role in buying and selling securities through a security exchange
• They record transactions
• Depository must enforce the rules, monitor FMA compliance, maintain a securities account, be transparent, and conduct business right.
• Arrangements allow for proper compliance.

Trade Repositories

• New type of market participant to maintain electronic databases
• Transparency is enhanced
• One must conduct trades fairly, make info available, monitor effectiveness, and integrity.
• With that one has transparency enhanced in business.
• They ensures confidentiality integrity, providing any information required from the registar to limit systemic risk.