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Treasury touts Twin Peaks Bill amid banking scandal

News24 logo News24 2017-02-17

© iStock Cape Town - South Africa’s financial sector regulatory reform process is well-underway, maintained National Treasury.

This followed calls for urgent change in the financial services sector in the wake of a rand rigging scandal and market allocation by 17 banks.

Banks implicated include local players Absa, Investec and Standard Bank as well as big international players such as HSBC, Standard Chartered and Nomura International.

The banks have been referred by the Competition Commission to the Competition Tribunal for prosecution. The Commission is also seeking an order declaring that the banks are liable for the payment of an administrative penalty equal to 10% of their annual turnover.

"We view this matter in a very serious light and welcome any steps taken against wrong-doing by any financial institutions, and will respect whatever outcome of this process at the Competition Tribunal," said Treasury in a statement.

"If proven to be true, it would confirm the pervasiveness of unbridled greed within the ranks of the forex trading sections of banks even after evidence that such behavior has potential to collapse national and global financial systems and bring about immeasurable pain to ordinary people as evidenced by the deep recession of 2008-09 which was triggered by banks conducting their business recklessly. This has to be punished and brought to an end!"

Treasury said the allegations, if proved to be correct, point to poor market conduct practices at such offending institutions.

"This is precisely the type of abuse the National Treasury had in mind in 2011 when proposing the coming Twin Peaks reform to put in place a new market conduct regulator to ensure that all financial institutions treat their customers fairly and operate with the highest ethical standards."

Twin Peaks

The bill aims to establish a new prudential regulator under the helm of the SA Reserve Bank (SARB) that will be responsible for regulating all financial institutions – banks, insurance houses and the asset management sector.

Currently the Financial Services Board is overseeing the conduct of insurance houses and asset managers, but in future the body will cease to exist and a new body will be formed in its place, tasked with regulating market conduct and protecting consumers.

With the Twin Peaks Bill, Treasury wants to increase protection of South African consumers and regulate market conduct, while at the same time creating a more stable financial system.

Treasury noted that the SARB is a prudential banking supervisor and not a market conduct regulator. It explained that Twin Peaks will create a dedicated market conduct regulator with scope of responsibility across the financial sector, to cover market conduct issues, in both the retail and wholesale market.

"These regulators will support the achievement of proper competition outcomes in the sector."

Serious misconduct by several global banks in the foreign exchange markets came to light in 2013 internationally, following steps taken after the 2008 global financial crisis.

The US Department of Justice in 2015 slammed penalties against six banks for more than $5.6bn, with regulators in other jurisdictions like the UK also acting.

Treasury said the activities in question internationally have often been driven for short-term exchange rate gain (often by rogue traders) rather than long-term currency manipulation, and do not seem to have had a significant impact on currency levels.

"These abusive market conduct practices highlighted the problems caused by the light-touch regulatory regime that characterised the financial sector before 2008. Since the crisis, regulators around the world have radically shifted their regulatory paradigm and embarked on a more intensive, intrusive and effective regulatory framework to regulate the financial sector, given risks they pose to the economy," it said.

"These are precisely the reforms outlined in the Financial Sector Regulation Bill that is currently before the NCOP in Parliament, having been already passed by the National Assembly."

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