NOMPU SIZIBA: The Minister of Finance, Tito Mboweni, has appointed Mr Unathi Kamlana as the commissioner of the Financial Sector Conduct Authority. That’s effective from June 1, 2021 and is a five-year term. Kamlana is currently the head of the department responsible for policy, statistics and industry support at the Prudential Authority at the Reserve Bank. He was involved in the formulation of the Twin Peaks reforms between 2011 and 2018, and also in their implementation thereafter. In terms of his education, he holds a Master of Commerce degree in taxation from Rhodes University and a Master of Science degree in finance and economic policy from the University of London, among other qualifications.
So before he jumps into the hot seat at the Financial Sector Conduct Authority, we speak to Unathi Kamlana, who’s on the line with us. Thanks very much, Unathi, for joining us. Congratulations on your appointment as commissioner of the FCSA. This office does an important job of regulating the conduct of financial services players – and we know it’s been lacking steady leadership for a while. So what are your top five things to do when you get into the hot seat?
UNATHI KAMLANA: Yes, Nompu, I think that you are quite right. It’s been quite important to actually have steady leadership. So I think that’s the top priority – to provide that stability to the organisation – and I think clarity of strategy and focus as well, which is I would say related to the first one around stable leadership.
I think, in terms of the mandate of the organisation, what’s important is to enhance or lift the focus on consumer protection in the financial sector and broad market-conduct issues and the integrity of financial markets. I think in the South African space from a regulatory point of view, given that I do have experience on the other side of Twin Peaks, the focus has been on soundness and financial stability issues, much more than a focus on championing the cause of consumer-protection issues and integrity. That’s what we are wanting to focus on, and to elevate that, not just to the same level as what you have in terms of prudential soundness, but also that is the stand-alone strategic focus – that boards of financial institutions focus on this agenda item, and also customers know and have confidence that actually being treated fairly is something that’s seen as a sustainability question, and something that’s much more important than just regulatory compliance, once you know what you want to focus on.
NOMPU SIZIBA: What kind of regulator do you envisage yourself being? One who sort of sits in his office and comes up with great ideas, or one who goes out there and interacts with these leaders who are supposed to ensure that they implement policies like treating customers fairly, and so on – almost to prevent lapses in conduct rather than trying to put out the fire afterwards?
UNATHI KAMLANA: Definitely it is about partnering the regulated institutions. While we talk about championing the cause of consumer protection, these are their customers and they know much more about them than any regulator would at any particular point in time. So it is to partner them in talking to what we might perceive as gaps or things that they might not be paying particular attention to. I think that is much more effective as a strategy than just to wait for reports and so on and test from a compliance perspective – I think being proactive and being out there and having those conversations to prevent market conduct failures.
I don’t want to be responding to market-conduct scandal. I want to be able to say we have a comprehensive plan to deliver on market conduct, and where there are failings we are able to respond in an agile fashion like you’ve seen reportings …… [4:29], because there isn’t a distance between ourselves and the players. So that’s definitely what my approach would be to these issues.
NOMPU SIZIBA: It’s a similar question, but obviously the question I pose to you is about how you relate to the leaders and the heads of financial service organisations. But then on the other hand, are you hoping that the FSCA can also be proactive in enforcing policy, like looking at leads from special journalism investigations, for example, or whatever it may be – using those as leads to be able to go and probe? Or do you think that the FSCA doesn’t really have enough resources for you guys to conduct yourselves in that way, and that you just have to wait until the complaints come sitting on your lap?
UNATHI KAMLANA: I think the issue of resources is definitely one to attend to. I don’t think I can say right now that the FCSA has no adequate resources to be able to attend to each and every complaint and issue that’s raised. The point is to be risk-based and be able to attend to things that are systemic or endemic that might affect an entire category of customers. We are not an ombud regulator; we are a financial conduct authority. So our focus is much broader.
But in line with what I was saying about partner institutions, we would to partner any other person who does work to investigate issues that we should be attending to in terms our mandate. And of course, once that information is there, we have to determine as a regulator from a risk-based perspective whether it’s something, given our limited resources, that we should be attending to – or refer to others or postpone. That’s the responsibility of leadership, that’s what we must determine, given limited resources.
NOMPU SIZIBA: Some of the issues that are currently very topical in the real financial world include trading in cryptocurrencies. We know that’s an area of possible regulation that the FSCA has been looking at. Since you’re not in the hot seat just yet, perhaps you’re at greater liberty to share your views on what you think about cryptocurrency and the regulation thereof, because it seems to me that it doesn’t matter what you do, people are not going to stop dabbling in this area.
UNATHI KAMLANA: A couple of things. I think firstly I’m still a central banker. My views are informed by that background. I would refer to crypto assets, as opposed to cryptocurrency, because currency has a specific definition in economic terms and obviously [being] able to deliver. So I think I’m much more comfortable referring to crypto assets.
Locally the approach has been to unpack the riskiness of the various types of crypto assets. You have a crypto assets that are not backed by any kind of underlying value or assets, right up to stable coins, which are backed one-on-one by underlying assets or even specific currencies. And in the end, it’s quite important to not treat all of them the same, because the risk profile and the exposure, therefore, often …… [7:58] customers to those crypto assets is not the same.
And my understanding is that the FSCA is actually doing a lot of work to be able to incorporate some crypto assets into the regulatory fold, including around disclosure requirements, making some of them subject to the Fais Act with some kind of protection to customers who participate in those kinds of investment opportunities.
Quite importantly, even in this asset class, it’s important for people to understand where they don’t have regulatory protection, and where they need to familiarise themselves with what risks they are taking, so that there is not misalignment in terms of expectations found in many interactions with customers. That’s because they are able to invest in innovation, they almost overlook some of the riskiness of these assets, given that they are new, they are quite volatile and some of them are not backed up by any kind of assets.
And if you do lose your investment, then you really have no protection in terms of that. So it’s a combination of that. What you can incorporate in regulatory framework, information that you make available – and transparency in insisting that providers make some information available to customers, that they know what protection they …… [9:31] or not.
NOMPU SIZIBA: Like you say, you’re going to have the benefit of having been able to see both sides of the Twin Peaks policy. On the one hand you’ve been involved in financial stability of financial institutions, and now on the other hand you’re going to be insuring and bolstering financial institutions’ conduct. But you were involved obviously as well at the inception of the whole Twin Peaks process, and you gave input and so on and so forth. That took many years – like seven years or whatever it may be. How do you think we’re doing with the new Twin Peaks dispensation? Was it worth all the hassle?
UNATHI KAMLANA: I think we’re making good progress. Like I was saying, I think the focus has been around stability, given that that’s just the focus that you’ve had in South Africa because of the market structure. You will have a few dominant players. If they do fail or fold over, you have imminent implications not just for the economy, but also for customers.
I think the next frontier is now to focus on consumer-protection issues and conduct issues broadly …..[10:52]. We are progressing steadily towards meeting all of the objectives of the Twin Peaks regulatory architecture, just to put it out there that it was established only in April, 2018, and it was replacing a system that was in place for more than 30 years. I think …… [11:15] to give it a bit of time to first embed organisational building in the both peaks. And then of course to have clarity of focus in terms of strategy and then execution.
So I think it takes a bit of time. But in terms of the direction of travel, I’m quite comfortable that we are making good progress in terms of where we should be two years in …… [??]
NOMPU SIZIBA: Of course we’re living in the times of Corona, and you’re going to be transitioning to a new role. Are you going to have a break before you start your new job?
UNATHI KAMLANA: That’s what I planned to do. I’ve got bosses, though, who might have different plans. So I’ll discuss this with the CEO of the parental authority and the governor and see what’s possible. But it doesn’t matter. I’m quite close to the issues, have worked closely with colleagues in the FSCA in my current role as well. So I think it should be a smooth transition.
NOMPU SIZIBA: Excellent. That was Unathi Kamlana, the incoming commissioner of the Financial Sector Conduct Authority.