Interview: Dube Tshidi
What is the rationale behind the implementation of the “twin peaks” regulatory structure?
DUBE TSHIDI: The motivation is driven by the fact that a huge part of the population has not been properly educated regarding financial products. By overseeing prudential regulation in addition to market conduct, the FSB has not done enough in its role of protecting the consumer. While the financial soundness of institutions is indirectly a part of consumer protection – as you want people to put money in healthy institutions – the man on the street is only concerned with how they are treated by these institutions. The costs of retirement savings, banking and many financial services transactions in South Africa rank amongst the highest in the world. To some extent, this demonstrates how those with knowledge have been exploiting the situation of those without knowledge and that we as the FSB have not been protecting consumers as much as we should have.
What impact are compliance burdens having on the industry’s performance?
TSHIDI: Industry often expresses concern, but we are encouraging regulated entities to put systems in place that match our own. The more you internalise compliance, the less you will see of me as a regulator, and the lower your regulatory burden will become. Under Twin Peaks, we will introduce tiered penalties for compliance infractions. If you self-report to the FSB, so long as you are genuine and transparent in your mistake and seek to rectify the transgression, we will reduce and minimise the penalty. However, if you fail to report the breach and we discover it ourselves, the penalties will be much harsher. If regulated entities align and internalise compliance, these costs can be streamlined and the compliance burden reduced dramatically.
To what extent do economic needs require deviation from international regulatory frameworks?
TSHIDI: South Africa, through the FSB, is on the executive and technical committees of key international organisations. We play a role in establishing standards, and have our own national objectives. We are not going to support something that is completely not in our interests, and will always customise the implementation of standards where necessary. Our overall application and adherence to standards is what allowed us to come out of the global financial crisis intact, and we will continue to follow international benchmarks as best as possible. Problems that arose elsewhere were due to the fact that some of the larger countries think they are above the standards they helped set.
How crucial do you believe mandatory savings levels are for pension funds?
TSHIDI: Organised labour, business and government all agree that greater preservation is needed. However, organised labour has two very valid objections to compulsory preservation. First, if you demand employees preserve all of their retirement savings, should you not make it compulsory for employers to contribute? Second, they question regulating preservation in isolation without looking at the issue of social security as a whole.
In absence of unemployment benefits, how do you expect someone who loses their job and has no money for food to not have access to savings until they reach retirement age? We recognise these as very valid points.
And under the current pension fund regime, allowances have been made for an individual to access one-third of their pension as a compromise.
Is there concern that unsecured lending could lead to a cycle of over-indebtedness?
TSHIDI: In choosing between more secured lending and no lending growth at all, we perceive unsecured lending as the lesser of two evils. We need to provide access to finance for those previously disadvantaged, and to do so sometimes you have to break rules and be more lenient. Once more people are in the system, the financial sector will see sustained systemic growth, and as a government we will have greater revenue.