One of the criticisms levelled against the financial services industry is that at times it can be a secretive industry. At the end of the day, there is little engagement with clients when it comes to all industry changes and how these changes will impact them. This was the basis for the first consumer aimed event that the Financial Services Board (FSB) and National Treasury participated in, which was held on 3 March. The event was hosted by the Sowetan Newspaper and gathered a crowd of brokers, advisers and concerned citizens to talk about how regulatory reform will impact them.
An appropriate season
It was pointed out that South Africa has one of the most sophisticated financial services sectors in the world which has a rich history and tradition of offering clients world class advisory services. So why then is there a need for change?
Kershia Singh, Deputy Director at National Treasury, pointed out that despite the fact that we have this esteemed history, there are challenges in the market.
“Why is it that client’s need to go to great lengths to get reciprocity when there is an issue with a product or when there are clear cases of mis-selling? Why are there these problems in the first place? There needs to be a reform in the industry and government is not blind to this,” said Singh who added that this is why the Twin Peaks model of regulation is a key piece of legislation.
The new broom
We can expect a lot of changes in the industry. Singh pointed out that there are three ways in which Twin Peaks will benefit the industry.
The first way is that it will ensure better behaviour and better conduct. According to Singh, the current laws within the industry are simply not strong enough.
The second way that Twin Peaks will show its worth is ensuring that there is a strong enforcer of the law in the Financial Sector Conduct Authority (FSCA), which is what the FSB will become under Twin Peaks. Singh assured the audience that Treasury will give the FSCA the necessary tools to enforce the law in a better manner and that there will be stricter minimum requirements that companies will have to adhere to in order to ensure compliance to the law.
This suggests that while Treasury values the relationship it has with the FSB, it is not completely happy with its enforcement function.
A centralised system
The third way that Twin Peaks will benefit the industry is that it will reinvigorate the ombudsman system.
If we include the National Credit Regulator and the Ombudsman for Banking services, there are currently six ombudsmen serving the financial services sector. At times, this can be very confusing as clients may not be fully aware of which Ombudsman will handle a specific complaint.
This will be resolved through the creation of an Ombudsman Council which will be a body that will assist clients in clarifying which ombudsman will handle the complaint. According to Singh, the Ombudsman Council will also ensure that there is consistency when it comes to the Ombudsmen handling of complaints.
Singh added that the Ombudsman’s Council will be a platform where clients can make complaints or raise concerns about specific ombudsmen.
Matters of conjecture
While it is admirable that Treasury took the time to engage in this discussion, we need to question one or two things.
There is no doubt that there are bad apples in the industry. However, Treasury must be careful not to paint every insurer, broker or adviser with the same brush. There are far more success stories in the industry than horror stories, and this needs to be acknowledged.
To label the laws within the industry as not strong enough (thereby suggesting that they are inappropriate and inefficient) may be a form of self-criticism as Treasury has to approve any law that is passed in the industry, but it also infers that the industry is filled to the brim with law breakers. This is simply untrue.
Also, while there certain changes that the public does need to know about, do they need to know about every change in the industry? How will that benefit them?
At the end of it all, we can expect a more open, and if Treasury has its way honest, financial services industry. However, the rose tinted glasses need to be set aside. The industry is not entirely made up of charlatans and Treasury will do well to acknowledge this. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts firstname.lastname@example.org.