We have probably neglected market conduct, says Reserve Bank’s Francois Groepe
The SA Reserve Bank deputy governor now that new structures are in place, he has ‘full confidence’ market-conduct authorities will focus on these type of issues
South African regulators could have paid more attention to the conduct of companies in the financial-services sector in recent years, deputy governor at the South African Reserve Bank Francois Groepe said.
Rather than fix their attention on the potential exploitation of the poorest people by a rapidly expanding unsecured lending industry, regulators instead prioritised prudential regulation, he told editors at a lunch in Johannesburg on Thursday. Prudential regulation ensures that banks are adequately capitalised and have the buffers to withstand risks.
“If I am honest, I do think we have probably neglected market conduct,” Groepe said.
SA has suffered two recent bank failures, both of which targeted low-income earners. African Bank Investment collapsed in August 2014 when investors of the country’s then-largest unsecured lender balked at replenishing its capital and bad debts soared. VBS Mutual Bank is being wound down after being taken over by administrators in March, with a subsequent investigation labelling the plundering at the lender as “The Great Bank Heist”.
In April, the department of finance changed the way South African lenders and market participants are regulated. It created the Financial Sector Conduct Authority to ensure customers get fair treatment, while also overseeing financial markets, where some investors and listed companies have complained about the lack of rules for short sellers. The Prudential Authority will watch over the stability of the financial-services industry.
“Now that we have these new structures, I have full confidence that the market-conduct authorities will focus on these type of issues,” Groepe said.
The National Credit Regulator, which oversees lending practices, has also had to toughen up, fining several retailers for over-extending consumers or charging them extra fees. Lawsuits were also filed against banks, including a class-action case that was settled outside of court by Capitec Bank.
Financial-services companies were also accused of taking advantage of recipients of state welfare. In other cases, unsecured lenders issued garnishee orders on the salaries of miners, part of what caused protests in 2012 in which police massacred 34 people at a mine owned by Lonmin.
Still, regulators have to be careful that in policing credit markets they don’t damage financial inclusion, Groepe said.
“There is always that danger that you push people out of the regulated sector and into the shadows,” he said. “There they are often exploited where you have these pay-day lenders or you have so-called loan sharks.”