By Ashleigh Brown, journalist, Justmoney
Following African Bank Limited’s (Abil) collapse and downgrades of some banks, many are now questioning the regulation in place for unsecured lenders.
Michael Tichareva, chairperson of the banking and finance committee of the Actuarial Society of South Africa, says banks involved in unsecured lending require specialised risk management systems designed to ensure the appropriate matching of assets and liabilities to better manage each bank's balance sheet for different categories of risks.
At the South African Institute of Financial Markets (SAIFM) Summit, Nicky Newton-King, the chief executive officer of the Johanessburg Stock Exchange (JSE), commented on the planned introductions of several regulatory changes. One such change would be the Financial Sector Regulation Bill, which will give effect to the Twin Peaks model.
Essentially, the Twin Peaks model will split the regulatory responsibilities between two major regulators. Prudential regulation of financial institutions will fall with one and supervision of business conduct and consumer protection with another.
“The draft bill is the first in a series of Bills that gives effect to Cabinet’s decision to implement a “twin-peaks” model of financial regulation to make the financial sector safer and serve South Africa better,” said Treasury in a press release.
The model aims to strengthen market conduct regulation through the Financial Services Board and build a more stable and thorough financial system under the oversight of the South African Reserve Bank.
“I am not arguing that we shouldn’t be following global regulatory trends because we are policy takers but I do think we have to give careful thought to what we are aiming to achieve through the new regulations,” said Newton-King.
Unsecured sub-committee
“The world’s toughest regulations cannot stop a bank with poor governance structures from failing,” said Tichareva.
Following this, Tichareva also announced that the Actuarial Society has approved the establishment of an unsecured credit sub-committee mandated to investigate current credit and provision practices in South Africa.
This committee will focus on the modelling of sound risk management systems specific to banks involved in unsecured lending. Furthermore, it will provide guidelines for unsecured credit and provisioning practices.
Banks have increasingly been looking towards the actuarial profession to provide the resources needed to accurately assess risk in banking and finance and implement the necessary controls, addedTichareva.
Banking fellowship
A Banking Fellowship subject for South African actuaries is also in the final stages of being finalised by the Banking and Finance Committee of the Actuarial Society. Tichareva expects the first examinations to be written in the second half of 2015. “In this subject, some of the issues that potentially led to the fall of African Bank are recognised,” he said.
The introduction of the Banking Fellowship subject will complement the Chartered Enterprise Risk Actuary (CERA) qualification introduced by the Actuarial Society three years ago. Actuaries with this internationally recognised qualification have sought after skills enabling them to devise and implement effective risk management strategies across organisations.