More transformation required in financial services, say, FAIS Ombud
Reflecting on his six years after being appointed South Africa’s first FAIS Ombud, Charles Pillai said it worried him that there had been very little transformation in the financial services industry.
He said pressure must be brought to bear to compel transformation.
Pillai said when he became FAIS Ombud, his first challenge was to be suddenly confronted by a financial services industry that to a certain extent was self-regulated but largely unregulated.
“I was faced with an unusual landscape dominated by the major financial institutions around which were scattered the micro-lenders, loan sharks, stokvels and peddlers of toxic financial products and Ponzi schemes.
“There were also very serious transformation challenges, characterised by racial exclusivity, financial constraints and complexity, effectively creating barriers to entry by previously disadvantaged people.
“Whilst certain opportunities for participation in the financial services industry may have been created for the political elites through Black Empowerment transactions, regrettably not much has changed for the ordinary citizen.
“I am disappointed there has been so little transformation. My observation from the scores of forums I have interacted with is that financial services remains largely in the hands of white males, and the few black groups of brokers that have come up are acting largely on the periphery. I beg to be proved wrong.
“Whilst political power is 100 percent black and the majority of consumers are black, there is this anomaly which remains to be corrected.”
Pillai said South Africa boasted a raft of empowering legislation that advocated employment equity, skills development and financial sector participation.
“These need to be rigorously enforced to more truly reflect the demographics of the nation.”
Commenting on regulatory failure, Pillai said it was a sad indictment on the regulatory and prosecutorial authorities and the financial services industry itself that South African investors had fallen prey to unscrupulous service providers who were encouraged by the clear lack of effective enforcement of regulation.
“In the course of our work, we have had occasion to investigate and report on numerous financial scams. In the Leaderguard case, where an amount of R380 million left the country, it saddens me to note that the perpetrators are still at large notwithstanding a report to the National Prosecuting Authority, Parliament and the Regulator.
“This lack of effective prosecution encourages similar schemes. Currently there are major cracks in property syndications and Ponzi schemes are rife. If there is not effective, pro-active regulation and enforcement, these types of practices will flourish to the detriment our stable financial system. Unfortunately it will consistently hit the pockets of innocent citizens,” Pillai noted.
He said his role as Ombud inevitably compelled him to challenge even the efficacy of the regulatory authorities.
“We challenged the process of allowing the very industry that is being regulated to be part of the process of regulation, no matter how well-intentioned their participation.
“In this regard, I was guided not only by my own assessment of independence but also by what was spelled out by Judge Hennie Nel in the Masterbond report, which precipitated the FAIS Act.
“He pertinently drew attention to the fact that the regulator of financial services should not be influenced by the industry which it regulates”
“This ideal has yet to be realised.”
Pillai said high on the agenda throughout his tenure has been the call for a single ombud scheme in the financial services industry in South Africa.
He said there was a plethora of voluntary ombudschemes within this industry ostensibly doing the same work. The resultant confusion and lack of integrity of the system could not be in the interests of consumers.
