FANews
FANews
RELATED CATEGORIES

A year of struggles for the financial sector

02 March 2016 Jonathan Faurie
FSB Chairperson Abel Sithole

FSB Chairperson Abel Sithole

After some stalling and delays, the Financial Services Board (FSB) has finally released its Annual Report for the 2014/15 period.

While many expected the report to include information regarding the recent allegations which have been levelled against the regulator with regards to pension funds, the FSB did not use this platform to provide any comment related to the issue.

Rather, it used the report to show that that the industry is going through a tough time, and that it is pushing ahead with regulatory reform to improve the industry.

A year to forget

FSB Chairperson Abel Sithole points out that the period under review was another challenging period for the financial services industry.

"The fragility of the economic recovery was well illustrated by the problems of African Bank, which tested public confidence in financial services generally in mid-2014. This event, however, again emphasised the importance of key mandates; particularly that of ensuring sound financial institutions and of empowering consumers through education. One cannot overemphasise the urgency of implementing the new twin peaks model of financial regulation,” says Sithole.

While the FSB has been on a drive to implement its regulatory reform, it has been keeping an eye on the market to see how best to manage this given the challenges it currently faces.

“The greatest challenge faced by the FSB remains the final structure and timeframe of implementing the new regulatory regime, given the effect this has on setting and achieving our own longer term strategic objectives and fulfilling our mandate. We are also paying particular attention to managing change in an industry characterised by the shortage of specialist skills,” says Sithole.

A challenging sector

The African Bank saga had a bigger impact on the industry than many expected. Advocate Dube Tshidi, FSB CEO, pointed out that from the second to the third quarter of 2014, net inflows to the collective investment scheme sector plummeted by R40 billion which can be seen as a direct and immediate result of the loss of consumer confidence.

“While no regulatory system will ever fully be able to identify deliberate financial misinformation, valuable lessons were learned and every effort made to protect new investors,” said Tshidi.

Some of these effort include Treating Customers Fairly, the moving forward of the Retail Distribution Review discussion paper and the prohibition of the practice where iinsurers offer large upfront bonuses to advisers to entice them to move.

Tshidi points out that because these bonuses are invariably linked to performance targets on new business for the new company, the inherent conflict of interest is seldom in the best interests of the client. “As an interim measure, these bonuses have been prohibited until the RDR is finalised,” says Sithole.

Implementation of the Solvency Assessment and Management (SAM) project is proceeding well. This new risk-based regulatory framework for insurers sets out enhanced capital, governance and risk management requirements.

Sithole added that SAM’s primary purpose is better protection of policyholders and beneficiaries, as well as aligning capital requirements with the underlying risk of an insurer; providing incentives to insurers to adopt more sophisticated risk monitoring and risk management tools; and maintaining financial stability. The SAM project is on course for full implementation in early 2016.

The impact on the regulator

There is no doubt that regulatory reform is going to have an impact on the industry, it will also have an impact in other spaces. The move towards becoming a dedicated market conduct regulator will also have an impact on the FSB. According to the regulator, the move will have the following impacts:

-               organisational changes, specifically the shift from an industry silo structure to centralised licensing, supervision and enforcement capacity along functional lines to ensure consistency and efficiency;

-               a significant investment in IT system support to drive efficiency, specifically IT upgrades to support efficient business processes and enable analysis and identification of risks;

-               skills development to drive judgement based supervision recognising that the outcomes focused approach will require supervisory judgement, specialist support teams, and skills development;

-               enhanced checks and balances built into supervisory processes, recognising that expanded powers and a judgement-based approach require a robust system of review for consistent regulatory decisions; and,

-               robust mechanisms for consultation and cooperation including stakeholder consultation on standard setting and strong coordination with other regulators.

Editor’s Thoughts:
The net effect of this environment is having a heavy toll on the industry. Sithole further pointed out that during the period under review, high unemployment was reflected in low savings rates and high lapses for insurance policies. Intermediaries will have to refine their business models in order to cope with this impact.  Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by Dougal, 02 Mar 2016
Dear Ed,

To quote your second paragraph, you said:

"While many expected the report to include information regarding the recent allegations which have been levelled against the regulator with regards to pension funds, the FSB did not use this platform to provide any comment related to the issue."

While deeply unfortunate, it appears that it has become the South African way to avoid, circumvent and downplay anything and everything that may in any way tarnish me or organisation.

So immensely sad.

Best,
Dougal
Report Abuse
Added by Fergus, 02 Mar 2016
The industry is under pressure with many external factors outside the control of many businesses. The esteemed Finance Minister projected that the economy's growth will be less than hoped. Therefore, when we (the FSB and industry) can control and mitigate certain risks, should we not be doing so?

The FSB Chairperson acknowledges the impact of regulation and the pressure it will place on the industry. The principles of most are good practice and some necessary.

This is a world class industry with world class people from all walks of life serving it. Its people passionate to provide quality and lasting insurance solutions for the policyholder. If regulation adds value in ensuring the industry remains world class, and it is cost effective, then we ought to embrace it. To coin a phrase, the customer is king, and so we must utilise all means feasible to ensure it remains so.

If not, notwithstanding that there may be good intentions, the FSB is obligated to find a better solution. If it is superfluous and escalates the costs, which very few can absorb, surely this is within the control and ability of the FSB to avoid? Rather than urgently push ahead and place the industry at risk, should the FSB not find ways more advantageous that will refine and tweak existing regulation, fundamentals and practice?


Report Abuse
Added by Gavin, 02 Mar 2016
"While no regulatory system will ever fully be able to identify deliberate financial misinformation, valuable lessons were learned and every effort made to protect new investors,” said Tshidi.

Some of these effort include Treating Customers Fairly, the moving forward of the Retail Distribution Review discussion paper and the prohibition of the practice where iinsurers offer large upfront bonuses to advisers to entice them to move" HOW ARE ANY OF THESE MEASURES GOING TO PREVENT ANOTHER AFRICAN BANK SAGA. Only proper enforcement of existing law will achieve that!
Report Abuse
Added by Eric, 02 Mar 2016
This years theme will consist of more -
- high unemployment
- low savings rates
- high lapses
Report Abuse

Comment on this post

Name*
Email Address*
Comment
Security Check *
   
Quick Polls

QUESTION

South Africa went to Davos to pitch itself as an investor-friendly destination, then signed an Expropriation Act. What message does this send to global investors?

ANSWER

Invest at your peril
SA is open for business
Two steps forward, one land grab back
Welcome to Hotel California
fanews magazine
FAnews February 2025 Get the latest issue of FAnews

This month's headlines

Unseen risks: insuring against the impact of AI gone wrong
Machine vs human: finding the balance
Is embedded insurance the end of traditional broker channels?
Client aspirations take centre stage as advisers rethink retirement planning
Maximise TFSA contributions before year-end
Subscribe now