The voice that needs to be heard

While there is a general feeling that the Financial Services Board (FSB) is implementing regulatory reform with the best intentions at heart – the ultimate goal of improving the industry – there is an undercurrent of criticism within the industry; particularly from those who are very active in the industry.

This was the basis of a discussion at the Free Market Foundation (FMF) where the organisation was openly, and unashamedly critical of the regulator.

A poor foundation

When commenting on the purpose of regulatory reform, in particular the Financial Sector Regulation Bill (FSRB), Leon Louw – Executive Director of the FMF – said that the FSRB is complex and massively expensive, and is far reaching without any indication about what the benefits will be.

When embarking on the road towards the implementation of the FSRB, the FSB followed protocol and undertook a Socio Economic Impact Assessment (SEIA) to find out what the true impact of regulatory change would be on the industry.

But Louw, who has previously written a book on SEIAs, said that the FSB’s SEIA can be a perfect case study on how not to do an impact assessment.

The case for no direction

Louw stopped very short of openly accusing the SEIA of having no direction, but a strong inference to that fact was definitely made. “The SEIA does not point out the problem that is inherent in the industry. It does not make a case for why there needs to be the implementation of this law at all. Saying that they want to improve the industry because of the inherent problems within the industry is not a justification,” said Louw.

Louw then asked what exactly the FSB wants to achieve with the FSRB other than the creation of a better world; an objective which he inferred was idealistic at best. 

Secondly, he accused the SEIA of making amorphous (without a clearly defined shape or form) statements about the problems that the FSB thinks are inherent within the industry. “None of these statements are concrete regarding the problems which are inherent within the industry now. It also provides no quantification as to how much it will actually cost to resolve these problems,” said Louw.

Die vark in die verhaal

For those who are unfamiliar with the above Afrikaans idiom, om die vark in die verhaal te wees is an expression which when translated means to be the ‘bad guy’ in a story. Often, the ‘bad guy’ is unfairly labelled as such and becomes the ‘villain’ as a victim of circumstance rather than because of an action.

According to Louw, the FSB has used the global financial crisis (GFC) as a major motivator as to why the FSRB needs to be implemented pointing to the inference of the FSB that we don’t want to revisit the tough economic times experienced in 2008.

“However, the GFC never caused the perceived problems that we have in the industry now. In fact, South Africa was one of the global economies that remained largely unaffected by the crisis. Why do we need to make sure that we need to have structures in place should there be a repeat of the GFC when we weren’t severely affected by it in the first place,” said Louw.

He added that all of the above can be summarised into the fact that causal nexus does not exist. There is no visible link between the proposals set out by the SEIA and its intended outcome. “Aside from organisational structures, the bill changes nothing within the industry,” said Louw.

A partridge in a pear tree

Clarity and openness are two of the ideals which the FSB hopes to promote through the regulatory reform process. But here again, Louw is very critical of the regulator.

He said that we are moving towards a defragmented industry, a situation that the FSB is actually trying to avoid.

“There will be inter-ministerial councils, councils within the regulator, National Treasury, the South African Reserve Bank and the Prudential Authority. No one in parliament will know what law they are making,” said Louw.

This sentiment was echoed by Professor Robert Vivian, Professor of Finance & Insurance at the University of the Witwatersrand. “Under the new FSRB there will be two regulators, three ministers, three government departments, nine policy setting bodies and twenty acts of parliament which will underpin it,” said Professor Vivian. 

Editor’s Thoughts:
If we ignore the debate above, and look at global trends, companies cannot operate in an industry which has a lot of red tape or bureaucratic hurdles. If the FSB is confident that the industry will be improved after the implementation of the FSRB, then all power to them. But they need to be aware of unintended consequences and the pushback that will occur if this is not the case. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

Ends 

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