Managing regulatory change

Meeting the expectations of our regulators and serving the best interests of our customers and clients

The regulatory framework governing financial services continues to evolve, at a national and global level, and the supervisory powers of certain regulatory bodies have been significantly increased. We work closely with all regulators to ensure that we understand and meet their expectations. We support regulatory reform that contributes to a safer financial system for all and that facilitates economic growth across the continent.

Why this is important

Since the global financial crisis, banks around the world have been subject to an unprecedented programme of regulatory reform aimed at improving risk management and enhancing protection for customers. All aspects of SBG’s operations are affected by these reforms: how much capital we hold, how we interact with customers, the types of products and services we offer, how we distribute and market them, how we manage risks, and who we do business with.

The capability to manage regulatory change effectively is a source of competitive advantage. It involves an understanding of the intent behind new regulation and early action to alter risk management and compliance controls and systems. It also includes cultivating a mind-set that sees and harnesses the commercial opportunities that arise from regulatory change.

How we manage this area

Standard Bank has invested in its ability to manage regulatory change – the group regulatory and legislative oversight committee oversees advocacy and regulatory change management activities. The regulatory change Manco meets monthly to determine the need for new regulatory change programmes.

Group compliance drives regulatory change programmes efficiently and cost-effectively. Over the past year, the team has championed programmes from the implementation of new global tax disclosure rules for customers, to the introduction of new privacy requirements and the new focus on market conduct under the Twin Peaks system in South Africa.

Prudential regulation aims to ensure that depositors’ funds are safe and that the risks to financial stability are properly managed. Group Finance monitors and assesses the implications of new requirements for the bank’s capital and liquidity requirements, and has led SBG’s responses to new regulatory requirements related to resolution and recovery in the event that a bank fails. A Manco comprising senior executives has been established to oversee this work.

The group policy, advocacy and sustainability team engages with government departments, regulators, and Members of Parliament to provide input and feedback on policy and regulation. Over the course of the year, the team focused on South Africa’s Financial Sector Regulation Bill, the legislative framework for Twin Peaks. It also made submissions on various aspects of consumer credit regulation, proposals on the Retail Distribution Review, comments on changes to the regulation of credit life insurance, and highlighted the unintended consequences of European Union regulation for African countries. Advocacy is conducted on a bilateral basis, and through the BASA and other trade associations.

Compliance training and awareness-raising play a critical role in sustaining a culture of compliance. The introduction of a single learning management system across businesses and geographies provides all employees with online access to learning opportunities and enables them to fulfil their compliance training obligations. Training and awareness initiatives provide information on specific regulatory developments and enable us to entrench compliance values at every level of the organisation. All employees are required to complete mandatory regulatory and business compliance training. The training framework is standardised across SBG, with jurisdictional content managed locally, as appropriate.

Opportunities and challenges

Opportunities

  • A proactive approach facilitates efficient implementation and lowers the costs of regulatory change and compliance.
  • A constructive approach to influencing policy and regulation builds trust with stakeholders and supports an effective and fit-for-purpose regulatory framework that minimises negative consequences for the economy.
  • A strategic approach capitalises on the commercial opportunities arising from policy and regulatory changes.
  • Our compliance ethos builds trust with regulators and customers and enhances our reputation as a responsible corporate citizen.

Challenges

  • The pace, scope and volume of regulatory change is massive and impacts on operating costs. Lead times to redesign IT systems and train employees are often short. The single learning management system across our businesses and geographies is helping to overcome this challenge.
  • There is a lack of consistency and alignment of regulatory requirements across the various jurisdictions in which we operate. We are leveraging our investments in information technology to align these requirements.
  • Considerable changes in terms of how regulatory risk is managed have been precipitated by the shift to principles-based and outcomes-based regulation. Accordingly, we are making investments into driving a culture change across SBG. A one-size-fits-all approach to consumer credit regulation is impacting negatively on secured lending with unintended consequences for the ability of certain customers to afford their own homes or purchase assets, such as cars.
  • To overcome constrained project planning caused by policy and regulatory uncertainty, we engage often with regulators and policy‑makers.

Performance overview

Key performance indicators

Chart

The graph above highlights the volume of new regulatory issues per year that we assessed, and that the pace of regulatory change annually remains high.

Chart

The bank makes submissions on proposed policies, laws and regulations directly to regulatory and policy-makers, as well as through trade associations. This indicator tracks the number of issues on which the bank has made submissions. Our conversion rate reflects the materiality of the regulatory change for the bank.

SBG played a leading role in the discussions in Nedlac on the Twin Peaks legislation.

Progress in 2015

Preparing for the Twin Peaks model of supervision and regulation in South Africa

The Twin Peaks reform is the most significant change to how banks are regulated. Twin Peaks is a comprehensive system for regulating the financial sector that moves away from the current fragmented regulatory approach and creates two financial sector authorities – the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA). The National Credit Regulator (NCR) remains responsible for supervising all consumer credit providers, including financial institutions like Standard Bank. Given the importance of consumer credit to the bank, this means there are effectively three supervisory ‘peaks’.

Standard Bank’s work to prepare for a new system of financial sector supervision and regulation started a few years ago with the publication by National Treasury of the ‘Red Book’ – a policy paper with the title ‘A Safer Financial System to Serve South Africa Better’. Standard Bank supports the goals of the Twin Peaks system and submitted commentary to National Treasury on specific elements of the new system, including the supervision of the national payments system, financial crisis management, and the risk-based approach to conduct supervision.

Internally, more than 50 workshops were held with executives and senior managers on the implications of Twin Peaks. Meetings were held with National Treasury to understand its approach towards implementation. SBG played a leading role in the discussions in the Nedlac on the legislation. The bank also invested time in understanding concerns and questions, and hosted a parliamentary delegation on a Twin Peaks study tour of the United Kingdom in December 2015 at our London office.

Forward focus

  • Expanding the regulatory advocacy work across the rest of the continent.
  • Introduce a newsletter for employees on relevant developments in Parliament.
  • Continue advocacy on the new Market Conduct policy and legislation.
  • Establish a Market Conduct Board to drive an integrated approach to conduct requirements.
    Expand the Conduct Framework across the continent.
  • Continue with the proactive and sustainable approach to regulatory change management to manage the volume of regulation.
  • Continue to seek competitive advantage by ensuring that regulatory change initiatives are aligned with business strategy.

Download a list of our Material policy and regulatory developments

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