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 2016To 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
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
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
- high unemployment
- low savings rates
- high lapses Report Abuse