Consumer Protection in the Banking Industry in the age of twin peaks

Abstract

The 2008 Global Financial Crisis was caused not so much by a failure in prudential regulation but rather by a failure in market conduct regulation. The light touch supervision of financial institutions allowed bad business conduct and greed to continue unabated until it resulted in spectacular financial collapse. The GFC thus highlighted to need for more intrusive, swift regulation of the role players in the financial system. It also highlighted the need for market conduct supervision to support prudential regulation and as such emphasized the role of financial consumer protection resulting in the international policy document G20 High Level Principles of Financial Consumer Protection being issued by the OECD in 2011. Notably banks in South Africa have been prudentially regulated over the years but have never been subjected to dedicated market conduct regulation. Some measure of consumer protection was however afforded to consumers through the voluntary Code of Banking Practice and the Office of the Ombud for Banking Services. Now in the Twin Peaks system of financial regulation introduced by the Financial Sector Regulation Act 9 of 2017 there will be a significant increase in the focus on financial consumer protection as one of the peaks of this model comprise of the Financial Sector Conduct Authority (FSCA) established as market conduct regulator. The FSCA has a clear mandate and an extended regulatory toolkit to enforce this mandate. Banks will now for the first time be subject to a dedicated market conduct regulator and this dissertation aims to provide an overview of how financial consumer protection in the banking industry will be increased due to the role that the FSCA will fulfil in the Twin Peaks model and the principles of “Treating Customers Fairly” that will be a key component in the FSCA’s mandate.