Financial sector needs the heat
Parliament’s standing committee on finance released its draft report on the transformation of the financial sector on Wednesday. Committee chairman Yunus Carrim has been at pains to point out that the report is still to be circulated to all participants in the hearings, who have two weeks to comment.
In an environment in which there is much real dissatisfaction about lack of transformation in banks, among asset managers and so on, as well as much populist politicking over what should be done, the committee’s draft report is modest and cautious.
It is modest in that it states upfront that as politicians assisted by parliamentary support staff, the committee’s members do not have the technical expertise and knowledge of participants in the sector. It recognises that a parliamentary committee is not the best forum to make complicated policy and that the nuts and bolts are better left to the Financial Sector Charter Council, on which all the stakeholders including the government are represented.
It is cautious in that the committee has not waded recklessly into difficult policy debates. On the big issue at the heart of the sector’s transformation — on whether it is a special case and cannot be expected to align its charter with the 2013 black economic empowerment codes — the committee says it has not yet taken a view.
This needs “more focused and concentrated discussion”, it says, and like the “once empowered, always empowered” special status the banks secured in the first charter, in the end is a matter for negotiation among the various parties. While the final report might be more conclusive, the reluctance to stray too far into the territory of the charter council does raise the question: what the point was of the hearings in the first place? But while cynics will say there wasn’t one, a more balanced view is that the process has certainly brought some gains.
The political heat on the banks, to which the hearings were in part a response, has focused the minds of the leadership in the sector, which is displaying much stronger resolve to engage genuinely and urgently on transformation. Executives are engaging with the Treasury and regulators on how to transform more effectively. The Banking Association SA is initiating processes across the sector with procurement officers and human resources managers to analyse how to unblock barriers to stronger transformation.
It has also been an honest engagement in which MPs have got a better sense of what they can and cannot do. And a bit of a reality check. On the dream of a state bank, for instance, the Treasury noted that a bank that had the privilege of banking poorly run, financially unstable state-owned companies might be a risk-laden rather than a transformative experiment.
The engagement has also demonstrated the weakness in the tick-box approach to transformation that flows inevitably from the charter and codes methodology. Because the charter is focused so heavily on changing existing enterprises, it did not look at how to grow and diversify the sector. But the start-up of new financial services companies, such as co-operatives, with less onerous regulatory requirements could be one of the most effective ways of dealing with the concentration and ownership in the sector.
What this points to is the need for a vision of a future, more transformed financial services sector. What types of institutions could be imagined? What roles could they play? How could they be established? This is not something that has been on the agenda at the parliamentary hearings. It has also not featured strongly in discussions on the revised charter.
But it is an obvious thing to do in building a more vibrant and diverse banking sector.
THE CHARTER DID NOT LOOK AT HOW TO GROW AND DIVERSIFY THE SECTOR