LONG-TERM BENEFITS
Getting their ducks in a row for the National Credit Act alone will cost banks between R300m and R600m, says Tom Marx, CEO of Nakatomi Corporation, a project management consultancy.
Nakatomi is advising several banks on how to implement the changes brought about by new legislation.
The National Credit Act forces banks to adapt their systems to cater for all 11 official languages and puts the responsibility on credit grantors to make sure customers are capable of keeping up with repayments before they are given credit.
Fica, on the other hand, places responsibility on banks to detect and prevent money laundering.
That’s not all. Marx says banks also have to cope with a raft of new regulations, chief among them the International Financial Reporting Standards and Basel 2, the new international risk management standard. Basel 2 regulates the way banks approach risk management across national borders.
The spate of legislative and regulatory changes means that banks are in a constant state of preparation. “Legislation is an industry on its own,” Marx jokes.
The constant ebb and flow of new rules and regulations makes it difficult for the banks to quantify the cost of adapting their IT systems. Internationally, it is not uncommon for 25% of the IT budget of banks to be set aside for regulatory changes, says Standard Bank director of technology engineering Hemmanth Singh
Singh says that while there are costs associated with getting Standard Bank to comply with the new legislation, it is making the most of its investment by getting these systems to provide better information about its customers. Singh says the new systems are helping the bank manage its risk and credit functions better as they provide it with a “single view” of the customer. Before, this information was dispersed over a range of systems. The new systems enable Standard Bank more easily to spot emerging trends, Singh says.
Nedbank has also taken advantage of new legislation to get more out of its information systems. “The National Credit Act has provided many opportunities to align to our evolving systems architecture earlier than planned,” says Nedbank GM for group risk services, Nick Jacobs
Jacobs says the Fica requirements have also improved the bank’s operations because it “adds to the client information and assists with normal banking decisions and service offerings”.
He says this can also be seen in the National Credit Act’s language requirements, providing an opportunity to tap into new markets because the bank has to create the ability in its systems to operate in any language.
The legislation is also driving a change in what IT systems concentrate on. They have been adapted to place much more focus on the information and documentation obtained from prospective and existing clients and the monitoring of their activity, Jacobs says.
Nedbank is trying to minimise the impact of the changes on the group’s day-to-day operations. “We are trying to keep it invisible,” Jacobs says. “The only change to its operations is the collection of supplementary data for granting credit.”
Banks are not alone in having to update their systems because of legislation. Cellphone companies have to comply with the horribly named Regulation of Interception of Communications & Provision of Communication Related Information Act (Rica), which forces them to compile a database of all their customers.
This kind of spending on IT systems is an example of how addressing corporate governance concerns can improve a country’s performance, says Nakatomi chairman Lot Ndlovu (Ndlovu is also deputy chairman of Nedbank.)
He dismisses the notion that the new laws are a drain on business. “I think there are very few if any businesses that will be put out of business by the legislation,” Ndlovu says.
The new legislation could result in a reduction in company margins but it will make them more sustainable in the long term, Ndlovu says.
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