Regulator seeks partnership with industry bodies

30 March 2011 Gareth Stokes

Gareth Stokes, FAnews Online Editor

Jonathan Dixon, Deputy Executive Officer: Insurance at the Financial Services Board (FSB) says the interaction between financial services regulators and the industry’s various representative bodies should be viewed as a partnership. He was presenting at t

The financial services environment is continually evolving, with policy set in response to both external and internal factors. Externally, the financial crisis sweeping the world since 2008 takes centre stage, whilst internally government is focused on consumer protection and improving access to financial services. “Most of the external intervention is coming from the G20 stability board as they react to lessons from the financial crisis,” says Dixon. Stakeholders are hard at work to ensure financial stability through stronger prudential regulation. “Regulators and industry have to respond to these challenges – for the Financial Services Board (FSB) this means translating objectives into regulation – and for industry it is about translating objectives into business models and processes.”

The role of the industry body

Stakeholders across the financial services industry share the objective of improving the sector’s long-term financial stability to the benefit of consumers. “We jointly shoulder the responsibility of delivering on policy priorities and then making sure that we reform the regulatory environment in a way that supports these objectives,” says Dixon. An industry body such as Asisa can play an important role during the planning, implementation and supervision stages of regulation.

In recent years the relationship between regulators and industry stakeholders has shifted from one of confrontation and resistance to collaboration. “The FSB has found that we can achieve the best results in terms of regulatory processes by partnering with industry stakeholders who are operating at the coal face in terms of providing the products and services,” says Dixon. By engaging with industry at the beginning of the process the regulator hopes to address fundamental differences of opinion at the earliest possible stage. “Let’s partner from the very beginning, from when we start developing ideas,” he says. That way the regulator benefits from the expertise and knowledge the industry brings to the table and industry recognises some benefits from the process too.

A proxy for best practice

Regulatory change is about more than creating and enforcing rules. Dixon says reforms such as SAM (South Africa’s version of Solvency II) and Treating Customers Fairly (TCF) are clearly aligned with what is good business practice. “This is part and parcel of the shift away from the rules-based compliance type approach of regulation used in the past to a system whereby regulation is risk-based and places a premium on proper governance and risk management,” he says. In the future the regulator won’t have to use the tick box audit approach as firms increasingly adopt a culture of compliance.

Over time the FSB will be able to spend less time conducting audits, relying instead on the judgement of company senior management, boards and internal auditors. “Hopefully, over time, a situation develops whereby the regulatory requirements are things that a good board of directors would require of the business in any case,” says Dixon. He envisages a regulatory environment where business engages with the regulator around what they see as risks in the business and what they are doing to mitigate those risks. The debate will shift from what risks need to be regulated to reaching agreement on the appropriateness of the risk management measures put in place.

Self regulation within the regulatory framework

In his closing remarks Dixon appealed to the industry to police itself. He said that industry stakeholders could no longer condone unethical behaviour among their peers. “The TCF regulation is designed to bring about behavioural and culture change,” he said. “You can no longer put products out there and think this is ok as long as you put some disclosure in the fine print! Industry stakeholders must step up to the plate and take issues such as the fair treatment of customers and guarding the confidence in the sector far more seriously. You must embed these values throughout your organisation and apply your mind to embedding similar behaviours across the sector.”

Editor’s thoughts: The Financial Services Board (FSB), through Jonathan Dixon’s conference presentation, certainly challenged the view that the regulator plays a dictatorial role in setting policy in the financial services sector. We’d love to hear your responses to the question he put to conference attendees: Given that the FSB and industry share the common objective of improving confidence in the sector – is industry doing enough to make sure that the integrity of the sector and confidence in the sector is as jealously guarded as it needs be? Add your comment below, or send it to gareth@fanews.co.za

Comments

Added by Craig A, 31 Mar 2011

So true CB, as brokers leave the industry, less fees will be paid to the FSB. Their fees will continue to increase, along with all out other fees that we have to pay. We will probably have to write regulatory exams every couple of years (at a fee). They will probably change the commission structures for all products. I think our days are numbered. But the insurers arent complaining, we are a cost to them. The consumer will continue to buy insurance and we will either be working for the insurance company directly, or be doing something else.
Report Abuse

Added by yes, 31 Mar 2011

I am so busy with compliance and Regulatory exams, My poor clients get the the worst service from me, Imagine telling my clients I am busy. The running cost of my practise increased by 10 folds, For 20 years I applied morals, values, services, to-day I just have to have certificate showing how compitent I am.
Report Abuse

Added by Ron, 30 Mar 2011

Where was any consideration given to the hundreds or thousands of intermediaries in this industry who are Afrikaans, Zulu, Xhosa etc and who have been running successful practices for 30 or more years and are now autocratically instructed, write and pass the exam in English, or get out. No further income for you if you don't comply. Jonathan Dixon, consider all the facts when you open your mouth and sprout such drivel about partnerships and consultation. I will be first in line to embrace continued improvements in our industry but the manner in which the FSB has approached the 31 Dec deadline is nothing short of unconstitutional.
Report Abuse

Added by Skorriemorrie, 30 Mar 2011

Ten years after the start of the inevitable, the public still thinks the industry stinks. On a poll run by Rapport last Sunday 35% of the respondance trusted their broker, the rest thinks they are only in it for the money and to give preference to some product providers. My question is simply whether all the millions of rands and billions of man hours spent on creating a professorial environment, or should I say more professorial has been worthwhile or successful? Unfortunately it does not seems to be the case. Of the promised bigger cake there is also no sign, simply because in theory, it should be true. In practice, it is firstly not a cake, but a pyramid. What is happening is that the base of the pyramid, that is now the people who cannot afford our services, is growing by the day due to the cost to operate and the top , where everybody is aiming for, is getting smaller. Now put that in you pipe and smoke it !!!!!
Report Abuse

Added by johan marais, 30 Mar 2011

THEY GET PAID BIG FAT SALARIES AND WORK IN NICE OFFICES THEY WILL DESTROY THE INDUSTRIE.I THEY DO NOT MAKE RULES THEIR IS NI REASON FOR THE FAT CAT TO BE AROUND. I NEED TO BE CONVICED THAT WE NEES ALL THIS BULL..................
Report Abuse

Added by CB, 30 Mar 2011

I've been commenting on this for quite a while. We're now following the UK's example of +- 15 years ago and, probably by the end of 2012 the industry will have shed another 25% to 50% of its salesforce and probably by the end of 2014 another 25% to 35% of what then still remains. The UK lost 80% of its insurance salesforce within 13 years. We're heading in the same direction. In Australia, who also took the UK's legislation and fitted it into their economy, not one individual broker remains. It's now only corporate brokerages that remain. What is also probably going to happen is the FSB will have to continue increasing its annual fees by between 12% and 25% per annum (way beyond the inflation rate) because of the ongoing reduction in licenced brokerages in comparison to the FSB's increasing operating costs. In 2009 alone the industry lost 17% of its marketing force and the licence fees escalated by 23%. I'm now really interested in "watching the next thrilling episode" of the legal saga now unfolding, along with the related financial implications to both the FSB as well as licenced FSP's and Product Providers.
Report Abuse