HR: Severe Shortage Of Critical Skills and Regulatory Oversight
Recent Gauteng Business News
Nearly half of the industry leaders taking part in the PwC 15th Annual Global Survey believe that the limited availability of key skills is a serious threat to their growth prospects. Tom Winterboer, Financial Services Leader, PwC Southern Africa and Africa says: CEOs in the financial services sector are facing the most challenging business conditions of their careers as profitable markets come under pressure and businesses grapple with huge and potentially disruptive changes in regulation, technology and customer demand.
While 1 258 CEOs from 60 countries took part in the survey, the report provides a summary of findings on issues specifically affecting the financial services sector. It is based on interviews with 368 CEOS in the financial services industry (121 from insurance, 125 from asset management and 122 from banking and capital markets) in 52 countries. The findings form part of PwCs newly launched Financial Services (FS) Journal for Southern Africa, which addresses strategic, operational and technical issues that can potentially affect the sectors future performance. PwCs FS Journal also address the effect of Basel 3 on the banking industry, Solvency Assessment and Management in the insurance industry, the objectives of the new National Health Insurance Scheme, the far-reaching consequences of the US Foreign Account Tax Compliance Act on financial institutions, the principles for governance of retirement funds, and the implications of International Financial Reporting Standard 13 for the real estate industry.
Economy Likely to Get Worse
According to the PwC global CEO survey, CEOs in the banking and capital markets remain upbeat about their growth prospects despite the economic uncertainty of last year, with more than 80% being confident about improving revenues in the next 12 months and over the next three years. More than half of CEOs believe that the economy will get worse over the next 12 months, compared to 20% who believe it will improve. South America, Asia and Africa were identified as regions where key operations are expected to grow in the next 12 months.
For the first time in the PwC study, CEOs were asked how concerned they are about bribery and corruption. A significant percentage of South African CEOs (66%) expressed concern, compared to 34% of global CEOs. Economic crime remains a challenge for business leaders, says Winterboer. While banks in the rest of the world cite the shortage of liquidity and the availability of capital as their prime concerns, South Africas banking industry views the risks of fraud and criminality as their main concerns, according to PwCs recent 2012 annual Banking Banana Skins survey.
CEOs in the insurance sector are also optimistic about their prospects for the future, with 90% being confident about improving their companys revenues over the next 12 months and 95% about doing so within the next three years. However, they view economic uncertainty as the greatest threat to growth in the short term. Around 60% believe that the financial crisis has had a significant effect on their finances and say it has triggered changes to their strategy, risk management or operational planning. Nearly half of CEOs believe that the economy will continue to get worse over the next 12 months, while only 12% expect it to improve - one of the most pessimistic outlooks in the report.
A significant percentage of CEOs (80%) in the asset management industry express confidence about their companies prospects for revenue growth over the next 12 months and more than 90% expect to do so within the next three years. As the euro zone crisis unfolds, asset managers are worried that market volatility will deter investors from buying their products. Half of asset managers think that the global economy will decline over the next 12 months, while 44% are extremely concerned about economic uncertainty.
Financial Services in SA Going Through Change
Johannes Grosskopf, Banking and Capital Markets Leader for PwC Southern Africa, notes that the financial services industry underwent much change last year. The industry can expect these changes to continue and even accelerate in some instances, says Grosskopf. In terms of capital requirements, South African banks will mostly be affected by the trading book elements of Basel 3 such as credit valuation adjustments and stressed value at risk. The 6% scalar, which is being implemented in South Africa for the first time, will also have a significant effect.
He says that the Basel 3 requirements will also complicate the use of Central Counter Parties (CCP). The G20 (Group of 20) nations recently called for standardised over-the-counter derivatives to trade through an electronic exchange and, where possible, to clear through a central clearing counterparty by 2012. In response to this call, regulators around the world are working to implement this objective. For instance, in the US and Europe, the Dodd-Frank Act and European Market Infrastructure Regulations are pushing to clear over-the-counter derivatives centrally. Recently in South Africa, the Financial Markets Bill proposed two types of clearing houses; namely an independent clearing house and an associated clearing house to facilitate the clearing of over-the-counter derivatives in line with the G20 and International Organisation of Securities Commissions recommendations.
Similarly, the insurance industry worldwide can also expect regulatory changes to take place, such as Solvency 2 and finalising accounting proposals, says Victor Muguto, Insurance Leader for PwC Southern Africa. South Africas regulators are also implementing similar proposals, adapted to local conditions, called Solvency Assessment and Management (SAM). South Africa is also a member of the Southern African Development Community (SADC), whose regulators have agreed to adopt common minimum insurance supervision standards. The economic uncertainty has also increased the dialogue between the US, European Union (EU) and emerging markets to harmonise global insurance regulations.
Muguto says that in addition to these global trends, South Africa has its own social reform agenda which could change the way insurers carry out their business over the next few years. These include the implementation of micro insurance legislation; National Health Insurance proposals aimed at increasing access to health insurance to include all South Africans; proposals to treat customers fairly which are aimed at regulating the market conduct of financial services providers; pension fund and national security reform proposals which are still in development; and the Twin Peaks model of financial services regulation to separate the regulation of prudential and market conduct activities of financial services providers between the South African Reserve Bank and the Financial Services Board.
He continues: The aim of these regulatory changes is to increase access to financial services to the previously disadvantaged, while at the same time improving consumer protection.
The Foreign Account Tax Compliance Act recently became law in the US. The legislation has far-reaching consequences for financial institutions, including non-US entities. In particular, it requires financial institutions to employ due diligence procedures to identify US persons who have invested in either non-US financial accounts or non-US entities. Although a substantial portion of the law is yet to be written, the definitions are broad and classify a number of financial services industries that fall under the scope of the legislation.
Although the new regulatory challenges may prove to be tough for industry in that organisations will be forced to change the way in which they conduct business; they will also bring about new opportunities, says Winterboer.
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