Banks face hefty fees from Twin Peaks

Consumers would absorb cost of levies, says DA as banks face hefty fees in Twin Peaks financial regulation bill

The big four banks could each be forced to pay more than R60m a year in fees to regulators if a draft levies bill is adopted in its current form.

Excessive regulatory costs would be passed on to consumers and compromise financial inclusion, said David Maynier, the DA shadow minister of finance.

The DA had opposed the bill, also known as Twin Peaks, in the National Assembly over the uncertainty concerning costs, Maynier said. It had also taken issue with the fact that the National Credit Regulator did not fall under the Financial Sector Conduct Authority.

“Twin Peaks creates one peak and one molehill,” Maynier said, referring to the Prudential Authority and the conduct authority respectively.

Under Twin Peaks, the Prudential Authority will be formed from the Reserve Bank’s bank supervision department and will regulate the soundness of financial institutions, including banks and insurers. The Financial Services Board will become the Financial Sector Conduct Authority, regulating the conduct of these institutions.

In terms of the draft Financial Sector Levies Bill, published in June, the largest banks would pay a maximum annual levy of R45m to the Prudential Authority and R15m to the Financial Sector Conduct Authority. This did not include fees for statutory ombud schemes and a tribunal.

The country’s largest banks pay R300,000 in annual licensing fees to the Bank. They also pay fees for other licences, such as those allowing them to grant credit and sell insurance. Industry participants say the overall cost increase is considerable and is not commensurate with the regulators’ increased scope.

“We are going to have to manage this as best we can,” said Banking Association of SA MD Cas Coovadia. Remaining at the cutting edge of international best practice was a part of being a member of the Group of Twenty and having such a sophisticated banking system.

“Ideally, we shouldn’t have had Basel III in SA: we didn’t have a financial crisis nor did we have any bailouts,” Coovadia said, referring to the latest round of global banking sector regulation, which imposed stringent capital adequacy and liquidity requirements on banks.

The World Economic Forum ranks SA second in the world for the soundness of its banks in its Global Competitiveness Report.

The Free Market Foundation, a fervent critic of Twin Peaks, said the regulation was not in line with international best practice. Only three countries of the 140 that were part of the International Association of Insurance Supervisors had adopted it.

The bill had “profound and damaging consequences” for the insurance industry in particular, said University of Witwatersrand professor Robert Vivian.

A socioeconomic impact assessment completed by the government’s planning department was “grossly inadequate” and failed to demonstrate any financial benefits, said the foundation’s executive director, Leon Louw.

The needs for which Twin Peaks had been designed – strengthening consumer protection and market conduct of financial institutions, and creating a more resilient financial system – were already met by existing regulation, he said.