By Chisom Obiudo, Senior Legal Officer at the Namibian Law Reform and Development Commission.
The 2008 global financial crisis brought about an unprecedented approach to financial services regulation. Regulators and legislators have taken a proactive and risk-based approach in examining the structure and protections of the financial regulatory system. Increased focus has been on the efficiency and effectiveness of financial or prudential supervision.
However, equal priority should also be given to consumer protection, encompassing financial supervision, and market regulation, and oversight of a company’s conduct.
The term “market conduct” is how a financial service provider such as an insurance company or a microlender, designs its products and services and manages its relationship with clients and the public, including through the use of intermediaries (representatives or agents). The goal of market conduct regulation is trust and fair treatment of customers.
The Year 2020 ushered in a new market conduct regulatory framework through the passing of the Financial Institutions and Markets Bill, administrated by the Namibian Financial Institutions Supervisory Authority (NAMFISA). The Bill which is yet to be published in the Government Gazette will bring with it extensive and modern regulatory change for Namibia’s non-banking financial institutions. In fact, it is arguably the single most significant financial sector regulatory reform that Namibia has ever experienced.
Part of the objectives of the Bill is to foster the highest standards of conduct of business by financial institutions and financial intermediaries and the protection of consumers of financial services.
Therefore as a regulator, part of NAMFISA’S mandate is to protect the public from unfair market practices by setting requirements/ regulatory standards and overseeing a financial service provider’s market-entry, market activities and market exit. The process is done through licensing, monitoring on-site examinations and other supervisory processes. Overall, these regulatory practices constitute market conduct regulation and supervision.
Market Conduct is not only focused on regulatory compliance; rather, it is an essential ingredient in building a sustainable business. Senior management should inculcate the right corporate cultural mindset down into the business. The tone at the top is an important indicator of a good corporate culture, and senior management will be held accountable for this by the regulator.
For the right corporate culture to cascade down a financial institution, business models and strategies must constantly be reviewed to reflect the fair treatment of customers alongside profit maximisation. Market Conduct should be regarded as one of a financial institution’s key strategic and cultural drivers.
A financial service provider that conducts itself with integrity, in the interest of the consumers’ needs rather than those of management or shareholders, promotes confidence in the sector by delivering better outcomes for consumers and the economy.
Improved customer experiences through cost-effective saving, borrowing, transacting and managing their risks through the financial sector would encourage a stronger sector, which translates into broader economic participation and growth.
As the saying goes, change is inevitable; it is required that institutions embrace this regulatory change, despite the additional burden and costs that are unlikely to be welcomed. However, market conduct has made its mark, it’s a new normal, and it cannot be avoided.
Perhaps in the near future, no industry sector would be immune; therefore, market conduct would cut across sectors such as banking, retail, wholesale, and investment management.
The proposed Consumer Credit Bill currently under the tutelage of NAMFISA is intended to ensure fair treatment of consumers, comprehensive affordability assessment and risk control in the value chain. NAMFISA and the Bank of Namibia have been tasked by the Minister of Finance to enhance supervisory and regulatory oversight functions on credit agreements with natural and juristic persons.
In light of the above, while NAMFISA will be intensive and intrusive in its supervision, we must understand that the regulator’s intention is not to overburden the financial services industry unduly with a myriad of regulatory rules and hurdles. Once NAMFISA is satisfied and comfortable that there has been a satisfactory change of corporate culture in its regulated industries and behaviour towards regulatory compliance and that Market Conduct principles are being applied effectively, it is more like to step back.
It is a two-way process; confidence and trust do not only need to be restored with the consumer, but with the regulator as well.
Chisom Obiudo is a legal practitioner, employed as a senior legal officer at the Namibian Law Reform and Development Commission and conducts research on all areas of law to reform and develop the law.
She holds a Masters degree in commercial law from the University of Cape Town and specialised certificates in compliance management and legislative drafting and is also a proud member of the Compliance Institute of Southern Africa.
She writes in her personal capacity. (firstname.lastname@example.org)