Regulation has it

gone too far?

The South African financial services regulatory environment is
in flux! It is experiencing significant regulatory change, which
is becoming increasingly burdensome to financial institutions
operating in the South African financial services sector. While the
intentions behind the new wave of regulations may be sound, the
implications to market participants are significant and challenging.
The source of this burgeoning South
African financial services regulatory
landscape is primarily rooted in the
recent global financial crisis. Since the
beginning , governments, politicians
and regulators around the world have
been calling for additional and stricter
regulatory oversight, and South Africa
is no exception. This has seen the
introduction of laws and regulations that
have impacted on the activities of South
African financial institutions and the
manner in which they conduct business.
While the need to protect the taxpayer
from ever having to bail out the banks
again is laudable, we need to ask the
question, has regulation gone too far,
especially in the South African context
of no bank bailouts during the financial
crisis?
The financial services industry needs
regulation that serves the economy in
which it operates however this does
not necessarily mean just more.
Increased regulation has both a negative
and positive impact, it will increase
compliance costs, increase the need for
additional staff to monitor compliance
which in turn can reduce the availability
of resources for innovation, change and
can impact the way investors see their
opportunity of return. For customers
this may mean reduced credit offering,
trade finance and risk management
services. Similarly we cannot discount
the benefits of regulation. The objective
of the regulation reforms is to enhance
stability, consumer protection, access to
financial services, coordination between
regulators and comprehensiveness
whereby businesses operating in the
financial services sector are licensed
and registered.
All stakeholders, local and international,
have a key role to play in striking a
balance between the cost of regulation
and that of economic growth. After

all, operating in the financial services

industry does not mean a zero-risk
business, failures may occur from time
to time.
Increased regulation could be viewed as
looking ahead to prevent the possibility
of another financial crisis or alternatively
viewed as filling the voids exposed by
the last one.

The Life cycle of regulation

The principle objective of government
and regulators has been first and
foremost to make the financial system
safe and to ensure public/customer
confidence. The perception of the
financial environment has been negative
since 2008. The rate at which regulatory
reform has flowed from the financial
crisis has been significant but at what
cost?
Certain costs associated with the
implementation of regulation have
increased, reducing the availability of
lending and services to customers.
For example, in order for the banks to
raise additional capital and liquidity, their
lending margins have been impacted,
which in turn creates lower loan to value
rates and thus impacting lending in the
wider economy.
Looking specifically at the reforms in
South Africa there are a number of new,
amended and proposed regulations
such as;

The Financial Services Board (FSB)

is in the process of developing a
new risk-based solvency regime
for South African short-term
and long-term insurers, known
as the Solvency Assessment
and Management regime
(SAM). This will align the South
African insurance industry with
international standards