What's Happening?

Regulation is a bitter tonic



Vishnu Naicker, Executive Head Business Assurance, Hollard Life Solutions


By nature, human beings want to be left to their own devices, but there is also a human need for security and protection.


The reality is that a harmonious and balanced relationship between these two desires is needed, which is why regulatory compliance is crucial for businesses to stay competitive, and to not be found on the wrong side of the rules. 


Financial regulation remains a source of contention for individuals and businesses. In the corporate arena, globally and locally, there is a constant reminder of this balance through regulations. 


Navigating regulation


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


For example, complying with legislation like the Protection of Personal Information Act (POPI) can be a time-consuming process for companies 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. 


The compliance process usually includes more than modifying policies and generally revolves around the effective change of management principles. This often entails revising existing data-processing systems or frameworks and retraining employees to ensure alignment with new regulations and 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, as the financial services sector plays an important role in every aspect of our lives. 


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


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


Financial regulation 


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, and marked the beginning of the defragmentation of South Africa’s legislation that governs the financial services industry. This was carried out 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.


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


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, along with various prudential standards, policies, procedures, guidance notes, and the like. Over the last 18 months, we have seen the adoption and implementation of a number of delayed provisions of the Protection of Personal Information Act (POPIA), Proposed Amendments to the Policyholder Protection Rules (PPR2A), and the Financial Intelligence Amendment Act. 


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


Compliance is crucial, whether you are in favour of regulation or not. 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 that may impact the company’s ability to remain competitive. 


Therefore, compliance 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 relies on the security and safety it creates.


The benefits of regulation


Regulation is beneficial to the industry in a number of ways. It has helped instil and 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, regulation has limited the extent to which a regulated business can be exploited for financial crime purposes. 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, and it is critical to keep up to date with the new. By paying attention to the regulation, and the latest trends and ideas, organisations can improve service quality. If they plan for these developments, they can go above and beyond what is required by the regulators, while improving their overall customer experience.


The financial services sector is fluid, and to ensure the stability of the sector, curb the illicit flow of funds, and protect consumers, regulators have to keep abreast of developments in the market. While the regulatory environment has served its intended purposes, it has not been smooth sailing or cheap, and there remains room for improvement.


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 that our team is always looking 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.