US President Donald Trump plans to “gut” the financial services sector watchdog, the Consumer Financial Protection Bureau (CFPB), writes Robert Reed in the
Chicago Tribune.
The seven-year-old agency is “one of the few regulatory friends” that American consumers have, and Trump is determined to “dismantle the agency’s mission, operations and agenda”.
Reed says that this is a mistake: “A strong and fair-minded consumer financial services regulator is essential.”
Currently, there are two contenders competing for the position of agency director: Trump’s pick Nick Mulvaney, director of the Office of Management and Budget, and Leandra English, the agency’s current acting director and her predecessor Richard Cordray’s choice. English is suing Mulvaney to stop his appointment.
Mulvaney’s past – in 2014 he called the agency “a joke” – indicates that he “hate[s] the agency he’s been named to manage”. While he can’t change the agency overnight, he can influence its future direction towards Trump’s deregulation agenda.
So far, Reed acknowledges, “the CFPB has done a pretty credible job of protecting the public from the excesses” of the financial services sector.
In 2016, it fined Wells Fargo $100m for creating phantom accounts to “gin up” business. Citibank and the Bank of America were also fined for their credit card marketing tactics.
They have also backed rules that force mortgage lenders to market loans honestly, and limit high-interest, short-term ‘payday loan’ lenders.
“Gut this agency and you’re only asking for trouble,” Reed concludes.
Chicago Tribune article
Over-regulated South AfricaMeanwhile, South Africa is suffering from the effects of over-regulation, which is limiting financial inclusion, writes IQ Business CEO Adam Craker in
Business Day.
He explains that “small businesses and the economically marginalised” have difficulty in accessing basic financial services because of over-regulation, resulting in South Africa having “one of the lowest savings rates in the world”.
The National Credit Card Act and the Financial Intelligence Centre Act, for example, have both led to “unexpected negative consequences for the poor” because the required documentation is difficult to supply.
A consequence of this is that vulnerable people are pushed into the “unregulated informal economy”, where lending practices could be unfair or illegal.
Policymakers are aware of the need for increased financial inclusion. The Treasury is moving away from the current one-size-fits-all approach towards a framework of guidelines and principles that manage risk.
"Gut this agency and you’re only asking for trouble"“The right approach to regulation … can reduce predatory financial practices and increase financial inclusion – they do not have to be mutually exclusive,” Craker argues.
Another reason for low levels of financial inclusion is South Africa’s poor rate of entrepreneurial activity – “a quarter of that seen in other sub-Saharan African countries” – and a lack of access to credit amongst the South African population. Without this credit, capital and inventory investment is harder for small businesses. Access to bridging finance when cash flow issues arise can be difficult too.
Once growth for the wider economy is brought about, the challenges of poverty, inequality and unemployment can be adequately addressed.
“We don’t necessarily need sophisticated regulation to achieve this feat; rather, cognisant integration,” Craker says.
Business Day article
Wholesale UK banks struggling to keep paceIn the UK, the “volume, pace and complexity” of regulatory change is a concern for wholesale banks, according to a report by Alexis Roberts and Claire Massie in
Mondaq.
A recent FCA
survey of compliance officers finds that regulatory change is seen by “nearly every respondent” as the most, or second-most, significant business challenge.
The next most cited challenge is adequate levels of compliance staff, a direct consequence of the first challenge.
Pinsent Masons’ Jonathan Cavill, a “contentious regulatory expert”, is quoted as saying: “While such changes are arguably necessary to further the FCA’s objective of protecting and enhancing the integrity of the UK financial system, the financial and operational pressures arising from these changes put firms and their compliance teams under significant strain.”
The FCA’s survey also says that it is now firms’ responsibility to define compliance and management’s responsibilities, especially relating to financial crime, as a result of “shifting boundaries”.
From the US to South Africa to the UK, it seems that there is no ‘sweet spot’ for regulation. Too much can leave firms struggling to keep up or exclude some consumers, while too little can leave these very same consumers vulnerable to exploitation. And, of course, there are the ever-changing political winds to consider – someone’s ‘red tape’ is another’s ‘necessary protection’.
Mondaq article