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The voice that needs to be heard

05 September 2016 Jonathan Faurie

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



Added by Marcus Visser, 05 Sep 2016
Nobody knows for sure what to expect and/or where the industry will find itself 5-10 years from now. But one thing is certain that all players in the industry can bank on; compliance and regulation will become increasingly onerous. Kicking against the goads is not going to help anyone...adapt or die...we have gone over the rubicon. Best is to plan for and position your business as adviser or planner to take advantage of the opportunities being presented...yes I said opportunities. There will always be a need for good (independent) financial advice. You can commoditize investment and insurance products, but customized and client-centered financial advice or planning cannot be commoditized. I'm also of the opinion that more players should leave the big product providers and go is the tied or multi tied agent who is going to struggle most in the new landscape envisaged by the FSB. A simple cursory reading of the RDR whitepaper makes this clear. I am excited about what lies ahead of us!
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Added by Kobus Kleyn, 05 Sep 2016
It is with grave concern that I read this article as clearly there is deep divides between stakeholder within our industry and profession and it nearly appears similar than a political party and leadership who is willing to self-destruct for reasons unbeknown. I would also believe we as a emergency countries would learn from first world countries and other where similar legislation has been tried and tested and some failed and others work in some form or other. I serve on various workgroups where the question of Q.E.D. comes up regularly and refers to a initialism of the Latin phrase quod erat demonstrandum, meaning "which is what had to be proved". Where is the prove that things is so broken currently that we need all these micromanagement legislation including RDR.
Saying all of that I have noted that the FSB is very negotiable and are interacting with many stakeholders and I take my hat of to them for listening. I also believe in RDR in the right format as I believe it is a huge step forward to professionalising our industry into a profession. So legislation will happen for certain but if we stay positive and embrace it through negotiations with the FSB we at least have a say in the final format we have to work with.
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Added by Peter, 05 Sep 2016
The unintended consequence of the slew of regulations is that the increased cost of compliance pushes good advice out of the reach of the majority of the population. It is unfortunate that similar regulation and Fit and Proper requirements are not enforced in Parliament, the Cabinet and public sector in general. This is where the public is being prejudiced the most. Far too many incompetent people making the laws.
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Added by Mervyn Sacks, 05 Sep 2016
We will not have to wait long they are chasing all of us away with a big sjambok under another name.
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Added by Paul, 05 Sep 2016
Thanks goodness for some lucid appreciation of the disaster that is impending for the Financial Services Sector.
Mark my words..
The good news is that in due course and after the fact(when this sector has collapsed)there will be deregulation.
Well done boys ,this is how you keep your worthless jobs intact.

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Added by Skylimit, 05 Sep 2016
Thankfully there are some people with common sense.Laws are just passed willy nilly without without considering all the ramifications.As a financial planner in my own business for 21 years now, I see the middle class and the poor being severely negatively impacted if the Reserve bank has its way....
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Added by Tim Jones, 05 Sep 2016
One of the unintended consequences has been that it is increasingly difficult for the Independent Advisors to run a profitable practice and deal with all the new compliance requirements. As a result many advisers have gone back to linking up with one supplier - perhaps that was an intended consequence?
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