Cape Town - Finance Minister Pravin Gordhan called for tougher rules to cover financial market abuses, citing the recent claims of bank collusion as a case in point of such transgressions.
Speaking at a media conference ahead of his 2017 Budget Speech, Gordhan said there’s a “reckless culture” in certain parts of the financial sector.
“Treasury said previously that it’s a good thing that the Competition Commission is investigation this matter and that rogue traders have been identified.”
Gordhan said it is exactly this “reckless culture” that permeated Wall Street and resulted in the economic meltdown of 2008 and the ensuing great recession.
“Those responsible must be dealt with,” Gordhan said, “but there are also legal processes that must be obeyed. A Constitutional democracy means everybody has rights and all sides of the argument need to be heard.”
Gordhan said collusion must be stamped out whether it is in banking, construction, or the bread industry.
The Reserve Bank and National Treasury have worked on a more comprehensive Financial Markets Review, Gordhan said.
Since the global financial crisis in 2008 South Africa, together with its G-20 partners, have worked towards making the banking system safer and prevent the same economic crises that banks can trigger.
“We responded with a series of substantial, intrusive and intensive regulatory reforms,” Gordhan said.
The reforms include the Twin Peaks regulatory system that will lead to the establishment of a dedicated market conduct regulator to protect consumers.
Transformation in the banking sector
Gordhan also echoed calls by President Jacob Zuma and the ANC that South Africa’s financial sector needs to be overhauled to broaden access through more affordable financial services.
Employment equity at top management levels also needs to take place and ownership patterns need to be changed.
Government is providing a supportive regulatory environment for the Financial Sector Code for broad-based black economic empowerment in the industry.
Among these regulations are the Insurance Bill that will encourage the provision of quality, low-cost insurance products for low-income consumers, the Cooperative Banks Development Agency is working to create new opportunities in the financial sector, particularly new banks.
Gordhan said employment equity is an area where meaningful transformation can be achieved most easily, yet financial institutions have been slow to improve their employment equity profiles, particularly at top management level.
“Black representation in top management was lower in 2015 than it was in 2013, although there have been improvements in black representation in middle and junior management. Some sectors, such as asset management, have changed less than others at senior levels.”
The substantial capital needed to ensure banks stands in the way of changing ownership patterns in the banking industry and has hindered the extension of direct ownership in the banking sector.
“To mitigate constraints to ownership transformation, the Financial Sector Charter proposed funding of R100bn, based on commitments by members, to support black business growth,” Gordhan said.
The funding would be made up of a combination of equity equivalents (estimated at R25bn) and empowerment financing (estimated at R75bn).
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