The total number of professionals in the South African market has stabilised post the era of emigration in the 1980s and 1990s. In terms of growth, new entrants in the professional market more or less replace those who retire annually.
Professionals surveyed in “The Professional Confidence Index”, voice concerns about certain macro issues, such as crime, healthcare, education, unemployment and the economic outlook for South Africa, but they also indicate a high degree (on average almost 80%) of confidence in the future of their respective professions and that they will remain in South Africa for the foreseeable future.
In excess of 70% of prospective PPS members targeted in the Student Confidence Index (SCI) indicated that they are confident about job opportunities in South Africa. This bodes well for the future of the professional market in South Africa.
Against a backdrop of global financial markets trading at or around all-time highs, we believe that the operating environment in South Africa will remain challenging as Rand weakness, inflationary pressures, slow economic growth and global uncertainty persist.
Weakness in the European economies and the faltering growth in the Chinese economy, which has until recently been the main driver of the global commodities market, will continue to weigh on South Africa’s growth prospects.
Locally we are facing serious challenges in terms of energy constraints, labour market disruptions, skills shortages, administrative shortcomings and difficulties in industrial transformation.
However, it is not all doom and gloom. The current significant decline in the oil price will bring in some relief for consumers in the medium term. We are also seeing increased economic activity and growth in sub-Saharan Africa with estimations that infrastructure spend could grow from $70 billion in 2013 to $180 billion by 2025, which in turn could have positive knock-on effects for South Africa.
The Retail Distribution Review (RDR) was published by the Financial Services Board (FSB) in November 2014. This review, which follows similar initiatives in the United Kingdom and Australia, focuses on improving customer outcomes in retail financial services products, including insurance, savings and investments.
We believe that the impact of the Retail Distribution Review (RDR) will be positive, not only for our business as the payment of take-on bonuses for intermediaries will be prohibited going forward, but also for the customer as it will ultimately limit the cost of advice.
Solvency Assessment and Management (SAM) regulations are now being implemented at PPS. These regulations require financial institutions to be “stress tested“ under a number of different scenarios, e.g. if stock markets drop 30% or interest rates fall materially or lapse rates increase significantly.
The level of capital required under different scenarios is modelled and the Financial Services Board (FSB) requires detailed reporting to ensure financial institutions can meet their commitments.
PPS remains financially strong and we are confident that the Group has the capital strength and governance structures to meet the SAM regulatory requirements.
The ‘Twin Peaks’ model, was due for implementation during 2015, aimed to divide the financial regulatory system into two regulatory regimes.
These two regimes will be headed by a prudential regulator and a market conduct regulator. The FSB will regulate market conduct and the prudential regime will be regulated by the South African Reserve Bank.
The objectives of this model are financial stability, consumer protection, combating of financial crimes and transparency. These changes will be funded by, amongst other things, increasing the levies paid by financial institutions to the regulators.
The year 2014 saw the draft Financial Sector Regulation Bill, which is an overarching Bill, which confirms the mandates and structures of both regulators and will include Treating Customers Fairly (TCF) principles (Phase 1). After Phase 1, the FSB will focus on further refinement of the powers and functions of each regulator (Phase 2).
The implementation of TCF at PPS included the establishment of monitoring mechanisms for the achievement of successful TCF outcomes. TCF is embedded in PPS’ risk management and business processes.