Why we must keep a closer eye on SA’s financial market

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JIMMY MOYAHA: They often say that when it rains it pours and if you haven’t been living in South Africa for the last couple of months, that has been the exact case in our financial services sector. The financial services industry has gone through myriad concerns and cases and things coming to light. We were greylisted by the Financial Action Task Force for facilitating, or not having sufficient controls in place to prevent the flow of illicit funds, and to prevent fraud measures and those sorts of things.

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So we have not exactly had the best of times in our financial services sector of late.

One particular organisation that operates in the financial services sector that has taken this quite seriously is of course Investec, one of the leading private banking institutions in the country. It is actually hosting a market surveillance conference today and tomorrow [Wednesday and Thursday], bringing together players like the FSCA [Financial Sector Conduct Authority], Bloomberg, Nasdaq and the JSE to discuss what we need to be doing in the financial services sector, and what we need to be doing from a market surveillance perspective in terms of dealing with the concerns that have been raised by a number of parties.

I’m joined on the line by the senior analyst of market surveillance at Investec Bank. Themba Maseko. Good evening, Themba. Thank you so much for your time.

I guess let’s start with the current things that are known challenges within market surveillance in the context of South Africa. As I mentioned earlier, in recent times we’ve had stories around the banks being implicated in things like the ‘Gold Mafia’. We’ve seen that we were, of course, greylisted due to the financial or the market surveillance aspects of our financial sector. What other challenges have we been seeing in this sort of space?

THEMBA MASEKO: Good evening, Jimmy and your listeners. Thank you very much for having me. Thank you for the opportunity to allow us to share our thinking in terms of the conference we are hosting. I think there are a few things that I need to clarify, Jimmy.

First, this market surveillance conference is not about the greylisting, but obviously the greylisting is one of great opportunities for us as a country to use as a defining moment and say this is what we’re facing in the financial market – and what are we going to do about it?

As an organisation, we’ve decided to use this as a defining moment and look around us and say this is what we’re facing. What is it that we can do?

We then decided to call all the different stakeholders into one room and have these frank conversations to say these are the challenges we’re facing; these are the opportunities we have.

What is it that we can collaborate on and make sure that we build some of the best practices which can be used by investors [to build] confidence in our market? You’d agree with me that one of the most important aspects of any financial market is to attract investment in the South African market.

So this market surveillance conference is really bringing different stakeholders, the FSCA, the JSE, some of the sponsors and all the members of the JSE, to have this conversation and say we are faced with challenges. What is it that we can do? What is it that we can build on to make sure that our market remains a very attractive market?

We can invite investors to come and invest in our market. Day one of the conference has been very successful and we are looking forward to day two.

JIMMY MOYAHA: At this stage, as Investec, what are you hoping to achieve on day two? Knowing that day one was successful, knowing that you got the participants in the room and you’re having these conversations, what are the important outcomes going into day two? It is only a two-day conference, it’s a very brief conference, but obviously there are some really important issues that need to be addressed so that things like greylisting going forward are dealt with and are the responsibility of everybody.

As you mentioned, yes, it’s not a greylisting type of conference, but rather about the market as a whole. But the impact of things like greylisting is quite significant on the market that you operate in.

THEMBA MASEKO: Thank you for that question. We have crafted an agenda which is lasting us for today and tomorrow. And what we are going to be discussing tomorrow is one of the very important topics to which we may not really have been paying attention. It’s the skill set that we have in the country. Are we developing practitioners which are able to identify some of these issues and come up with some of the solutions, the technology that is available.

What is it that we can do to ensure that the technology can help us or enable us to make sure that we have effective market surveillance in the South African financial market?

Tomorrow is just a continuation of the agenda which we have worked [on] with the FSCA and the JSE and some of our sponsors … and which goes on for two days. But tomorrow we’re going to be looking at the skill sets.

We’re going to be looking at some of the specific risk, because when it comes to market abuse – because this conference is on market surveillance against market abuse – we’re going to be looking at, when it comes to issues of potential insider trading and price manipulation, what we can do to constantly better manage these risks.

So we’re looking forward to tomorrow to look at the skill set that is available. The current education system – does it really help us, the informal education that we need to constantly train our practitioners to be good at what they do? So, yes, tomorrow we’re going to be looking at the skill set. We’re going to be looking at some of the risk, to complete the picture of the whole conference.

JIMMY MOYAHA: Before I let you go, Themba, I want to look at, one, the importance, as you alluded to earlier, around this market-surveillance side of it, but also who bears the responsibility for ensuring this? What we’ve seen – and I’ll use an example that happened in the US – [is that] the US banking crisis has now triggered a whole host of new problems in the US. Following that there’s been talk around the US Congress passing legislation to prevent things like Congress officials trading on inside information and trading stocks, etc, and enhancing the market surveillance aspects on their side. I wonder how we can take lessons from what’s happening in countries like the US and what we can apply locally so that, one, we don’t find ourselves in a situation where we can’t get off the grey list, or two, we don’t find ourselves in a situation where the financial services sector goes further against what it should be doing, or goes backward in terms of the goals that it aims to achieve.

THEMBA MASEKO: In this conference I must say, Jimmy, we are lucky. We have Bloomberg and Nasdaq, which are some of the main sponsors. They have brought some speakers from those jurisdictions you have mentioned – the US and Europe. One of the things we’re hoping to achieve is really to share different ideas in terms of some of the best practices they have implemented in their jurisdictions, and which are working.

But coming back to your question, the most important thing to understand when it comes to these issues is that this is an ecosystem.

There’s no one person who can have a solution for all the challenges. We need to understand the different roles that the different stakeholders must play for the market to adopt some of the best practices.

That [extends] from the issuer to a sponsor, to a bank, to an exchange, to the compliance practitioners, to the regulators. So everybody has to understand what it is that they have to do in terms of their regulatory obligation, and make sure that they do it [as] the best of the best.

That’s why this conference [really includes] all the stakeholders, because we fully understand that the approach of looking at one institution or one stakeholder and seeing ‘this is the person [who is] supposed to do A, B and C for this ecosystem to work’, really doesn’t work. We’ve all got to understand that this is an ecosystem in which we all have to play different roles, understand our role, and make sure that in our role we fully understand the technology that is available, the skill set that we need, and enhance it to be able to have an ecosystem that works; that can protect the investment that comes into our market.

And [we need] to attract investment to the country which has the good, great, macro effect in terms of some of the issues we’re facing in the country in terms of high unemployment.

Our approach is to say, yes, there are best practices in other jurisdictions, so let’s bring those conversation under one roof. But let’s all understand our role in the different parts of the whole ecosystem.

JIMMY MOYAHA: Well, hopefully this is the first of many of these sorts of conferences aimed at moving the South African financial markets forward, because we definitely have a strong financial ecosystem and a top-tier banking infrastructure in South Africa that could definitely lend itself towards the rest of the continent and the world.

But that’s all we have time for, Themba. That was Themba Maseko, who is market surveillance senior analyst at Investec Bank, just giving us a sense of what’s happening with their current market surveillance conference happening today and tomorrow, and what it means for the financial services industry.