Should the South African Financial Markets remain regulated?
Based on how the financial services have developed and the many participants in the industry, it is evident that the financial markets industry in South Africa needs to continue to be regulated.
As the saying goes, ‘The love of money is the root of evil’, and the financial markets deal with financial transactions that facilitates the movement of large sums of funds. If these transactions are not guided by means of rules and regulations, then the financial market industry is left in a vulnerable position that is susceptible to financial crimes (white collar crimes) financial market abuse.
Regulations do not just protect participants from financial crimes and market abuse but also ensures that there is a reduction of systematic risk in the market. Due to the interconnectedness of financial organizations, the failure of one organization may lead to problems with other organization. A perfect example of systematic failure was back in September 2008 when Lehman Brothers, an American bank, filed for bankruptcy, sparking the global financial crisis. The South African Reserve Banks and the FSCA operate using the Twin Peaks model to put measures in place to ensure that the South African Commercial Banks do not undergo the same crisis.
Since the global financial crisis financial systems around the world have been undergoing major structural changes, to keep up with this fast change, regulatory boards need to constantly be evolving and responsive to change, hence the recent amendments made by the FSCA regarding the short and long-term insurance.
Licensed financial service providers (FSP’s) are held accountable if any of the license requirements are breached, this provides confidence that the financial service providers are being regulated and if regulation is breached the people or organizations responsible are accountable for their actions, consequently, more people may participate in the financial markets.
Although regulations protect investors and consumers mainly, they may also become barriers of entry for emerging service providers and individuals who want to become service providers, at times, the requirements are only met by organizations which have large capital reserves that enable them to enter and exit the market as they please while small and emerging organizations find it hard to keep up with the cost of meeting the requirements set by regulatory boards to enter and operate in the financial markets. This also encourages more newly formed organizations to operate without a license and that it becomes difficult for the FSCA or other regulatory boards to hold unlicensed service providers accountable.
The benefits of regulations in the financial markets outweigh the costs, therefore it is clear that as a country it is imperative to continue having up-to-date regulations that can mitigate the level of financial crimes against innocent participants and reduce systematic risk within the financial markets.
