The controversial “Twin Peaks” regulatory system is now law with the signing of the Financial Sector Regulation Act by President Zuma on 21 August 2017 “and it is a sad day for consumers of financial services and for SA’s economy,” says the Free Market Foundation (FMF).
In a statement today, the FMF set out what it thinks the new regulatory system means for SA:
Anti-transformational (most young blacks will find it impossible to comply)
Anti-innovation (all new product innovations to be approved in advance by civil servants)
Another stealth-tax (R6 bn more to come out of consumers’ pockets)
Unworkably complex (see video explanation)
NOT “international best practice” (only 3 countries have tried it)
Will NOT prevent another “financial crisis” (there are no provisions to address such matters)
Reserve Bank not constitutionally empowered to act (constitutional amendment probably required)
No proper need identified (no empirical research has been done)
No proper cost or benefit analysis undertaken (costs are inconclusively stated – benefits are not even mentioned)
No better alternatives considered (no research done on any of the world’s many alternative regulatory structures)
“Contrary to the statement released (yesterday) by the Presidency which quotes the Treasury saying that the Act aims to achieve a financial system that works in the interests of consumers, and ‘supports balanced and sustainable economic growth’, Twin Peaks does the opposite. The Act introduces nothing of substance, merely adds an overlay of a massively expensive administrative system that will cost cash strapped consumers an extra R 6 bn to implement. – passed on in increased fees and charges in yet another stealth tax – and in fewer innovative products being available. It will also mean that fewer independent brokers are giving necessary advice in a complex area,” the FMF adds.
“Far from being “protected”, consumers are now on their own. It contains nothing whatsoever that will prevent another international financial crisis. Moreover, it is certainly not ‘international best practice’. Only 3 of the 140 countries who are members of the International Association of Insurance Supervisors have experimented with it, all with dubious degrees of success.”
The FMF says Twin Peaks’ extreme complexity will ensure that it becomes a costly financial jumble, grinding to a grid-locked mess in no time at all.
“This Bill has profound and damaging consequences for the financial services sector and in particular for banking and insurance, the ‘handmaiden of commerce’. Also it has severe consequences for transformation, for employment and for consumers of insurance and other financial services.”
Speaking about the Bill after it was passed through Parliament, Robert Vivian, Insurance Professor, WITS School of Economics and Finance said, “The FSRB is bad policy and fails to address any empirically identified need. Urgent reconsideration is required before implementation, including undertaking a proper and full SEIA (social economic impact assessment) to replace the grossly inadequate document produced as an afterthought by Treasury and the FSB”.
Yet the Bill is now an Act, the FMF says, and no proper SEIA exists. “The media should demand answers”.
The FMF alleges that the Treasury and FSB have failed to give clarity to why this legislation is necessary when its stated objectives can and are being achieved under current, simpler, much less expensive legislation.
“Insurance, which is one of SA’s oldest, most stable and most economically necessary private sector functions, and banking, have been lumped together and added to yet other financial services, whereas the world’s experience unequivocally shows that they each require independent specialist regulation.”
The FMF says it is profoundly concerned with the Cabinet mandated Social Economic Impact Assessment (SEIA) that was produced by Treasury and the FSB after the fact.
“An SEIA is required to precede all new legislation. The SEIA produced is grossly inadequate and misleading and a case study in precisely how not to produce such an assessment.”
The FMF says it is not opposed to sensible regulation – but all the regulation required to achieve the stated objectives of FSRB and more is already in place – at a fraction of the cost and with much less confusing architecture.
“We believe that this Act will hamper transformation in the industry and further encourage concentration into a few large firms instead of many smaller, more competitive banks, insurance houses, agents and brokers.
“Yet again, government legislation will deliver the opposite of what is intended: the creation of monopolistic, concentrated conditions.”
The FMF says it is furthermore concerned about whether the legislation complies with fundamental Constitutional principles or adheres to the principles of the Rule of Law. (i.e. Contains many unguided discretions for civil servants.)
It also believes inter alia, that to allow the SARB to act as a regulator of entities other than banks, requires a change to the Constitution.