We have an industry to be proud of
Regulatory reform was introduced into the South African insurance sector in an attempt to offer enhanced protection to clients who the Financial Sector Conduct Authority (FSCA) felt were becoming increasingly vulnerable.
Yet, over the past three years, the industry had to deal with the liquidation of Saxum and the concerns relating to Insure Group and its possible association with the VBS saga.
The big question is: is regulatory reform working? FAnews spoke to Olano Makhubela, Divisional Executive of Retirement Funds at the FSCA, to gain more insight into the effectiveness of regulatory reform.
Is regulatory reform necessary to ensure the sustainability of the industry and insurers?
Yes. The introduction of Twin Peaks was done because it recognised that the old architecture was not appropriate and did not adequately take into account the risks facing the South African Financial Sector. A particular concern was the ever evolving financial services market place of the 21st century.
Regulatory reform recognises that the silo approach (with the South African Reserve Bank prudentially regulating banks and the FSCA regulating non banks) was not the appropriate approach. Twin peaks created a dedicated Prudential Authority across all prudential entities and a Market Conduct Authority across all financial institutions, including banks.
This approach allows for two sets of eyes over institutions and a real ability to see connections across sectors; and this, we believe, will sustain the financial sector.
Despite intensive regulation, we still had to deal with the Saxum failure and the Insure Group issues.
We need to bear in mind that no regulatory regime can be a guarantee against failures as it is not the mandate of a regulator to run the affairs of private companies.
However, a regulator that is closely monitoring the sector will pick-up and respond to emerging risks in a way that stops these risks spreading further before more damage can be done to consumers, financial stability and industry reputation.
What did the FSCA learn from Saxum and Insure Group?
These matters each illustrate the need for the proactive, pre-emptive, intensive and intrusive approach to supervision and regulation being implemented through South Africa's twin peaks model of regulation. The Insure Group issue resulted in premium collection reforms currently under discussion with the sector.
South Africa is a member of the G20, and international standards setting bodies. We are subject to peer reviews so some of our regulatory reforms are driven by international or global best practice and are adopted by us where they are appropriate in the South African context. Our regulatory architecture of Twin Peaks was adopted because it was perceived to be the best architecture given our own unique characteristics.
Editor’s Thoughts:
2019 will be another big year for regulatory reform. The CPD cycle ends at the end of May and compliance with the Default Regulations is expected by 1 March. It will be interesting to see if the industry is improved by these interventions. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
