Finance Minister Pravin Gordhan is promising to strengthen the regulatory framework to promote more ethical market conduct and transparency within the financial services sector.
Gordhan, who was keynote speaker at the launch of the Alexander Forbes Benefits Barometer publication yesterday, said the financial sector was being challenged to identify weaknesses in the system, promote financial literacy and encourage consumers to save. This included the sector selling products that were affordable and appropriate to consumers.
The sector reform and the publication come against the backdrop of debates about the high fees charged in the financial sector, and the low numbers of people who preserve rather than tap into their retirement funds when they change jobs.
Alexander Forbes said the barometer emphasised “the requirement for an integrated approach to structuring employee benefits to ensure financial security and wellness for employees, while entrenching a savings culture”.
Gordhan said: “Market conduct, or lack of it, is of concern and is the reason why we ended up with the financial crisis, which appears to be with us for some years to come. Were it not for the crisis and the resultant recession, our economy would be growing at between 4 percent to 5 percent, China 10 percent and India between 8 percent and 10 percent.”
The government also intends to introduce financial sector reform under the twin peaks regulatory framework, which was first mooted in the original policy document, “A safer financial sector to serve South Africa better”, published in February 2011.
Under the twin peaks framework, the code of market conduct will be regulated by the Financial Services Board, while prudential regulation will be managed by the Reserve Bank.
Gordhan added that under market conduct, the government would introduce the Treating Customers Fairly policy, which would serve to ensure that the financial services industry sold appropriate products at affordable prices to clients. As such, it was important to increase awareness of this policy, he said.
He said low savings levels meant that there was a need to ensure that “appropriate” products that were available and affordable to people across the social spectrum.
“The emphasis is on caring and guardianship” of the consumer, he said.
Another concern for Gordhan was the requirement for a holistic approach to employee benefits to ensure that workers were sufficiently provided for at retirement age, especially as low preservation rates currently meant that few employees were preserving their pension contributions when they changed employment.
Edward Kieswetter, the chief executive of Alexander Forbes, said as a result of the low rate of preservation of retirement funds, “currently only about 10 percent of working South Africans will be able to maintain their pre-retirement level of consumption after they retire”.
Gordhan added that further debate and action was necessary regarding the fees in the financial sector, particularly in the employee and health benefits sectors.