Regulation is the bitter tonic required to protect consumers and to ensure industry stability and competitive edge

The regulatory framework changes have fostered financial inclusion and enabled millions of South Africans to have access to financial services products.

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Financial regulation remains a source of contention across communities, for individuals and businesses. By nature, human beings want to be left to their own devices, free, unrestricted and unconstrained. Equally though, there is a human need or desire to have security and protection while conducting their affairs. The reality is that a harmonious and balanced relationship between these two desires is needed. In the corporate arena, globally and locally, there is a constant reminder of this balance through regulations. Thus regulatory compliance is crucial in order for businesses to stay competitive and not be found on the other side of the rules.  

The financial services industry is governed by a plethora of regulations and guidelines that can be seen by some as constraining at best and onerous at worst, while others may welcome the regulations and enjoy robust regulatory engagement. Compliance with the raft of regulations can be not only cumbersome, but also expensive.

The financial services industry is undoubtedly the most regulated sector of the economy.

For example, compliance with legislation like the Protection of Personal Information Act (POPI) can be a time-consuming process for companies operating in the financial services sector. The time it takes to implement the necessary processes can range from weeks to months, depending on a company’s strategy, operating model and future ambitions. Compliance usually includes more than just modifying policies, and generally revolves around effective change of management principles, which often entails revising existing data-processing systems or frameworks and retraining employees to ensure alignment with new regulations or amendments. 

The financial services industry is undoubtedly the most regulated sector of the economy. Some may regard this as overly burdensome, but these strict guidelines are necessary. This is because the financial services sector has an important role to play in every aspect of the lives of the country’s citizens

The sector promotes economic growth and job creation, and drives key infrastructure construction as well as the long-term development for South Africa and its people. As a result, closer scrutiny of the industry is necessary to ensure its stability.  

The regulatory framework changes that have been adopted over time have gone a long way toward enabling the financial stability of the sector, while also guaranteeing stronger consumer protection. The changes have also fostered financial inclusion and enabled millions of South Africans to have access to financial services products.  

Financial regulation has altered dramatically over the last two decades, as the legal and territorial borders between banking, securities, and insurance markets have become increasingly blurred and globalised. Even in free markets, financial authorities must defend the rights of those participating in purchasing, selling, manufacturing, and other operations. 

The Financial Sector Regulation Act (FSRA), South Africa’s regulatory framework, was signed into law on August 21, 2017. This marked the beginning of the defragmentation of South Africa’s legislation that governs the financial services industry to make it easier to implement and hold financial institutions to account. The Act has been welcomed as a big step towards harmonising our financial laws with international norms. 

Those companies that don’t comply compromise their ability to play competitively in the market.

Insurers are regulated by the Prudential Authority which was established with effect from 1 April 2018. The Authority operates as a juristic person within the administration of the South African Reserve Bank (SARB) in terms of the FSR Act, and the Financial Sector Conduct Authority, a dedicated market conduct authority replacing the Financial Services Board.  

In response to these high-level reforms, the FSCA, Prudential Authority and the Financial Intelligence Centre have issued a slew of new and revised subordinate laws, as well as prudential standards, policies, procedures, guidance notes, and the like. Over the last 24 months, we have seen the adoption and implementation of a number of delayed provisions of the Protection of Personal Information Act (POPI), Proposed Amendments to the Policyholder Protection Rules (PPR2A) and the Financial Intelligence Amendment Act.  

I personally am not convinced that the financial services industry is over-regulated. On the contrary, I am of the view that the current regulations in place have a crucial role to play in maintaining the much-needed balance required to sustain the sector and, at the same time, protect the consumer.

Compliance is crucial, whether one is in favour of regulation or not. Those companies that don’t comply compromise their ability to play competitively in the market. Maintaining a competitive edge requires staying on top of the rules, which are constantly changing. Failure to do so will result in penalties and other possible legal issues and, in turn, impact on the company’s ability to remain competitive.

“By paying attention to the regulations, and to the latest trends and ideas, organisations can improve the quality of what they provide.”

Therefore, compliance with a slew of regulations in the financial services sector is not an option but is mandatory, and not because a company licence depends on it but rather because our society at large relies on the security and safety it creates. 

Regulations have been beneficial for the industry in a number of ways. Firstly, they have helped to instil market confidence and to preserve confidence in the financial system. Secondly, regulations have ensured financial stability by contributing to the financial system’s protection. Thirdly, regulations have provided a range of protection mechanisms for consumers, and lastly, they have limited the extent to which a regulated business can be exploited for financial crime purposes. 

Vishnu Naicker – Head of Business Assurance: Hollard Life Solutions

But toeing the line is not only about compliance, it is also about remaining competitive. The current regulatory environment impacts every organisation’s overall approach, so it is critical to keep up to date with what’s new. By paying attention to the regulations, and to the latest trends and ideas, organisations can improve the quality of what they provide.  

They will be able to go above and beyond what is required for compliance if they plan for these developments. In addition, they will be doing something to improve the overall experience of their customers. 

The financial services sector is fluid, and regulators have to continuously keep abreast of developments in the market in order to stay on top of trends, to ensure the stability of the sector, curb the illicit flow of funds and protect consumers. 

While the regulatory environment has served its intended purposes, it has not been smooth sailing, or cheap, and I’m among those to admit that there is still room for improvement. 

I am of the view that the implementation of regulatory change must be operationally efficient, as new and ongoing regulatory changes can stifle operational efficiency, resulting in lower profits or a failure to meet defined corporate objectives.  

This means my teams and I are always looking out for ways to drive regulatory changes in the business without disrupting operations. This entails engaging with stakeholders on a frequent basis to ensure that the essential adjustments are met with little or no resistance.