Overkill on the road to better regulation?

Chris Rea, the English rock and blues singer, has a different perspective on what the road to Hades comprises in his ode to the infamous ring road around London:

She said, “Son, what are you doing here?
My fear for you has turned me in my grave.”
I said, “Mama, I come to the valley of the rich
Myself to sell”.
She said, “Son, this is the road to Hell.”

A reader recently shared his reaction after attending a workshop on proposed reporting requirements for FSPs, saying he would have to employ someone to complete the new information systems and returns, otherwise no clients would be serviced.

“If the new reporting system is implemented, then all SME FSPs will be prejudiced and many will just go out of business, which is counter to the best interests of the insuring public and business sectors.”

The gentle art of constructing legislation that has unintended consequences has taken on new proportions in recent years. Below are a few examples.

Fica proposals erect insurmountable barriers

Commenting on proposed amendments to the Financial Intelligence Centre Act (Fica), South African Institute of Chartered Accountants project director Juanita Steenekamp said should ensure a lesser regulatory burden on small businesses.

Eyewitness News reports as follows:

This week, the changes to the law, which aim to curb money-laundering activities in the financial sector, were discussed at a Parliamentary meeting by the Standing Committee on Finance.

In her presentation, Steenekamp pointed out that it would be financially and structurally impossible for an SMME to comply with the regulatory burdens imposed on them by the Act. She also said some issues need clarification, and that the costs of compliance were not taken into consideration.

“When you register with the Financial Intelligence Centre (FIC), there are certain compliance obligations that small practitioners have to complete,” she said.

“These small practitioners will now have to spend money on regulatory measures like onboarding, certain validations and reporting certain transactions.”

“Our members as accountants already have a code of professional conduct, and through the code, they are obligated to report on non-compliance, but (the proposed amendments) would be new and would take time and (money) to implement,” she said.

However, the FIC’s executive manager for legal and policy, Pieter Smit, said the amendments would require compliance from both big and small businesses.

“We should not make the mistake to assume that a small business only deals in low-risk customers, as that is not necessarily true,” he warned.

Smit also noted that the current scope of the Act already included a large number of small businesses, such as those in the legal sector, and they too were obligated to comply with the measures.

“The burden of compliance an institution needs to take is a function of the type of business it is in, the type of service it provides and the type of customer it chooses to deal with,” he said.

“The fact that it is a small firm does not reduce the risk of the business that it is dealing in.”

It appears from the above that:

1. Little cognisance is taken of other legislation; and
2. The impact of additional expenditure and productivity for those affected were not considered.

BEE procurement rules had unintended consequences

A Fin24 report quotes the acting director-general of the National Treasury, Ismail Momoniat, as saying that preferential procurement has been applied in a way that has produced irrational outcomes that are costing the economy.

In 2017, new regulations on preferential procurement stated that all contracts above R30 million should contain a local sub-contracting element of 30%, where feasible. The regulations also made it possible for state entities to set aside a portion of contracts for specific groups previously disadvantaged by apartheid.

Preferential procurement has its roots in the Constitution, which says that public procurement, while being competitive and cost-reflective, can also be used to empower previously disadvantaged groups.

The 30% rule and the requirement that state entities use “local” companies as suppliers might have driven extortion in the construction sector, giving local “business forums” a legitimate claim on government projects. The 30% slice of procurement was one of the central tenets of the radical economic transformation playbook.

National Credit Act does not cover rental agreements

An amaBhungane report on a glaring omission in the National Credit Act (NCA) highlights the plight of many defenceless victims now facing destitution after being scammed by unscrupulous operators into unaffordable rental agreements. Whereas the NCA does protect them against loan sharks and the like, there is no provision made for rental agreements which, in effect, come down to the same where they default on monthly instalments.

Burgeoning bureaucracy

Possibly the biggest threat facing smaller businesses in terms of survival, and bigger firms in respect of cost and affordability, is that these monstrosities require vast numbers of costly employees with specialist skills.

Even if technology is developed to handle the required compliance returns, those who must report are still saddled with the burden of providing the required information, as pointed out by our reader.

How the smaller players in the industry will handle the cost, regulatory overreach, duplication and POPIA concerns, to name but a few, remains to be seen. Now, more than ever before, those with the necessary knowledge and skills will have to bring sanity to the table to ensure the industry is not dealt a death blow in the name of good intentions disregarding unintended outcomes.

Oh, look out world take a good look
What comes down here
You must learn this lesson fast
And learn it well
This ain’t no upwardly mobile freeway
Oh no, this is the road to hell