Consumer protection remains end goal

South Africa’s financial services sector, rated by the World Economic Forum’s Global Competitiveness Survey as among the best in the world, came under the spotlight during back-to-back presentations by Ismail Momoniat, Head: Tax and Financial Sector Policy at National Treasury and Jonathan Dixon, Deputy Executive Officer: Insurance at the Financial Services Board (FSB). In his talk, titled What is the end goal of current regulatory reforms?, Mr Momoniat observed that the regulator was working towards a safer financial services sector that serviced consumers optimally. In a nutshell, government wants a strong and viable financial services sector that is more accessible to low income earners and offers products that are appropriate to their needs. “The views of the regulator on what the end goals of regulation should be are very consistent with those of National Treasury,” said Mr Dixon. “From an insurance perspective, the goal is better protection of the policyholder, and everything we do is unashamedly about that.”hideTo ensure policyholder protection, regulators must align the regulatory requirements with the underlying risks—whether they relate to financial or market conduct—and thereby enforce better governance and risk management in practice. “We are worried about risk management processes, the prudential management of capital, governance reporting and disclosure and the management of policyholder data to name a few,” said Mr Momoniat. Both National Treasury and the FSB stressed the importance of proper management information and systems capability in achieving the various proposed regulatory interventions. The local insurance sector has witnessed countless regulatory changes in the past decade. With the ground breaking Financial Advisory & Intermediary Services Act bedded down, stakeholders are now dealing with the proposed draft demarcation bill, changes to binder regulations and the implementation of the Treating Customers Fairly (TCF) regime to name a few. From a structural perspective, the regulators are hard at work on ‘Twin Peaks’ legislation that will lead to the establishment of both a prudential regulator (the South African Reserve Bank) and a market conduct regulator (which replaces the FSB). Against this backdrop, stakeholders in the South African financial services arena could be excused for thinking that they have been hit by a regulatory tsunami. But the question of whether to regulate or not is largely irrelevant. It is now widely accepted that continued improvements to the regulatory system are necessary to ensure that it serves both the industry and the consumer. South Africa’s regulators have no choice but to keep up with international regulatory trends in order for local businesses to remain competitive on the world stage. “What we are experiencing is a regulatory paradigm shift—moving from a space that was backward-looking—reporting on historical statistics—to one that is forward-looking,” said Mr Dixon. How does government protect financial services consumers? “By regulating prudentially we can make sure that companies are financially sound and can deliver on the promises that they make,” said Mr Momoniat. The emphasis is on getting firms to conduct their business in an ethical manner. Equally important is to ensure that product suppliers’ market conduct lives up to consumer expectations through the implementation of the six outcomes introduced in the TCF regime. “We want to make sure that the board and senior management of insurers and insurance intermediaries pre-emptively and proactively deal with the risks of poor market conduct rather than relying on remedial actions by the regulators,” said Mr Dixon. He said that a second trend was the shift from a compliance-based approach to an outcomes-based approach. In future, insurers will have to demonstrate concepts such as financial soundness and fair treatment of consumers to the regulator rather than simply submitting a ‘check box’ form. There is a marked shift in South Africa’s financial regulatory strategy from a ‘one-size-fits-all’ to a risk-based and proportional approach. Another important development is the move from silo-based regulation and supervision to a consistent, industry-wide insurance regulatory framework. “We are moving to a framework that is more comprehensive and can be consistently applied across sectors because it is based on the same set of principles,” said Mr Dixon. He added that prudential oversight was important to achieve and maintain financial stability, which ultimately contributes to the overarching objective of protecting consumers. Regulatory intervention is fast paced and Mr Dixon told conference attendees that he expected the Twin Peaks structure, solvency assessment and management regulation and TCF programme to be fully implemented by 2016. Reforms proposed in the ongoing Retail Distribution Review should also be announced and implemented by then. “In what we refer to as Destination 2016 we are looking at a space where the ultimate goal is that customers can have confidence and trust that they are dealing with firms that will keep their promises and are sustainable in the long term,” he concluded. From National Treasury’s perspective it was time to step up the debate around structural issues. In the insurance sector, Mr Momoniat singled out crime enforcement, road traffic law enforcement and whether to make third-party motor insurance compulsory as areas of interest. Government will also have to consider other objectives such as financial inclusion, improved coverage for poorer consumers and affordability of insurance product.

Consumer protection remains end goal

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