Supervision of unit trusts to be ‘strengthened’

Twin Peaks Bill will be tabled this year.

PRETORIA – National Treasury says it will take steps to strengthen the supervision of big financial groups and collective investment schemes (unit trusts) – especially money market funds.

A recent report by the International Monetary Fund (IMF) concluded that South Africa’s financial and regulatory system is sound.

However, the report also highlighted a need to strengthen the supervision of large financial groups and collective investment schemes, especially in light of the concentration and interconnectedness of the financial sector, Finance Minister Nhlanhla Nene said during his Budget Speech on Wednesday.

Money market funds came under scrutiny last year as a result of the demise of African Bank. Several money market funds had exposure to the unsecured lender’s debt and took a beating in the aftermath of the bank’s collapse.

African Bank seems to be making good progress.

“Under its curatorship, African Bank is now generating positive cash flows. We announced a R7 billion backstop last year, but our expectation is that the bank will be stabilised without recourse to taxpayer funds,” Nene said.

He said measures have already been introduced to strengthen the regulations for banks and this year insurers, derivatives and hedge funds will come under the spotlight.

The overhaul of the Collective Investment Schemes Control Act (Cisca), which governs unit trust funds, has been long in the making.

Some minor changes to Cisca will likely come through in the Financial Services Laws General Amendment Bill this year, but the full overhaul will probably be on hold until the roll out of the new Twin Peaks model.

Nene said the Twin Peaks reform bill would be tabled this year.

This model is intended to make the financial sector safer “by empowering the Reserve Bank to oversee financial stability, entrenching a culture of coordination among regulatory authorities and strengthening the protection of financial customers”.

“The Twin Peaks approach establishes two complementary regulators: the Prudential Authority, responsible for the safety and soundness of financial institutions, and the Financial Sector Conduct Authority, covering market conduct and securities regulation,” the Budget Review said.

The second draft of the Financial Sector Regulation Bill was published for comment in December last year. An amended bill will be tabled in Parliament by June.

Indebtedness

Nene said extreme household indebtedness remains a significant concern.

Roughly 45% of credit active consumers have impaired credit records.

“This results in part from poor market conduct by lenders and financial advisors,” he said.

Treasury is engaging with major banks on measures to assist consumers who are drowning in debt.

Nene welcomed initiatives by private sector employers to audit the emolument attachment orders issued against their employees in order to identify illegally-issued orders.

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