Johannesburg - Reflecting on the six years he
has served since being appointed South Africa's first Fais (Financial Advisory and Intermediary Services Act) ombud, Charles
Pillai said it worried him that there had been very little transformation in
the financial services industry.
He said pressure must be brought to bear to compel transformation.
Pillai said when he became Fais Ombud, his first challenge was to be
suddenly confronted by a financial services industry that to a certain
extent was self-regulated but largely unregulated.
"I was faced with an unusual landscape dominated by the major financial
institutions around which were scattered the micro-lenders, loan sharks,
stokvels and peddlers of toxic financial products and Ponzi schemes.
"There were also very serious transformation challenges, characterised
by racial exclusivity, financial constraints and complexity, effectively
creating barriers to entry by previously disadvantaged people.
"Whilst certain opportunities for participation in the financial
services industry may have been created for the political elites through
Black Empowerment transactions, regrettably not much has changed for the
ordinary citizen.
"I am disappointed there has been so little transformation. My
observation from the scores of forums I have interacted with is that
financial services remains largely in the hands of white males, and the few
black groups of brokers that have come up are acting largely on the
periphery. I beg to be proved wrong.
"Whilst political power is 100 percent black and the majority of
consumers are black, there is this anomaly which remains to be corrected."
Pillai said South Africa boasted a raft of empowering legislation that
advocated employment equity, skills development and financial sector
participation.
"These need to be rigorously enforced to more truly reflect the
demographics of the nation."
Commenting on regulatory failure, Pillai said it was a sad indictment on
the regulatory and prosecutorial authorities and the financial services
industry itself that South African investors had fallen prey to unscrupulous
service providers who were encouraged by the clear lack of effective
enforcement of regulation.
"In the course of our work, we have had occasion to investigate and
report on numerous financial scams. In the Leaderguard case, where an amount
of R380m left the country, it saddens me to note that the
perpetrators are still at large notwithstanding a report to the National
Prosecuting Authority, Parliament and the Regulator.
"This lack of effective prosecution encourages similar schemes.
Currently there are major cracks in property syndications and Ponzi schemes
are rife. If there is not effective, pro-active regulation and enforcement,
these types of practices will flourish to the detriment our stable financial
system. Unfortunately it will consistently hit the pockets of innocent
citizens," Pillai noted.
He said his role as ombud inevitably compelled him to challenge even the
efficacy of the regulatory authorities.
"We challenged the process of allowing the very industry that is being
regulated to be part of the process of regulation, no matter how well-
intentioned their participation.
"In this regard, I was guided not only by my own assessment of
independence but also by what was spelled out by Judge Hennie Nel in the
Masterbond report, which precipitated the Fais Act.
"He pertinently drew attention to the fact that the regulator of
financial services should not be influenced by the industry which it
regulates."
"This ideal has yet to be realised."
Pillai said high on the agenda throughout his tenure has been the call
for a single ombud scheme in the financial services industry in South
Africa.
He said there was a plethora of voluntary ombudschemes within this
industry ostensibly doing the same work. The resultant confusion and lack of
integrity of the system could not be in the interests of consumers.
-
I-Net Bridge