Speaking at a forum of financial experts organised by the African Institute of Financial Markets and Risk Management (AIFMRM) at the University of Cape Town (UCT), Da Silva said the FSB was planning new regulations to ensure there were more serious consequences for reckless and dangerous financial behaviour.
Her comments come in the wake of the Supreme Court of Appeal recently sentencing former Fidentia boss J Arthur Brown to 15 years in jail for fraud and as a Reserve Bank formal investigation into the collapse of Africa Bank is under way.
She added that bail-outs for banks, as was recently seen for Africa Bank, created the false impression that banks could act with impunity, pursuing high financial yields, knowing that if they failed there were no consequences for individuals.
"Banks take various risks and then they get bailed out because of the systemic risk their default might cause, but nobody is ever brought to account for what they were doing," agreed Professor Franklin Allen, executive director of the newly established Brevan Howard Centre for Financial Analysis at Imperial College in London and keynote speaker at the event.
"So what we need to do is to start looking at people, at who did what, and if people were doing things they shouldn't have been doing, we need to pursue those individuals. Either they get fired or they lose their pensions, for example. These people are completely protected and this is a big problem and helps to foster the moral hazard," he added.
Da Silva said this led to the 'too big to fail, too big to jail' sentiment in the financial world that needed to change. "This is the evolution we are going for (with the new regulations), holding people accountable, making them responsible for their decisions is a first line of defence instead of the regulator being the first line of defence."
"The financial crisis has made it uncomfortably clear that how our financial system takes risk, manages risk, and transfers risk is inconsistent, and needs to be fundamentally rethought," AIFMRM founding director, Associate Professor David Taylor, said.
"The financial crisis has taught regulators all around the world that they need to keep up with the innovation of the industry; if we don't change the way we do things, we will be inadequate regulators," Da Silva said. "The shift into the future will be from rules to principles. We will go from a tick-the-box compliance approach to an outcome-based approach."
Fellow panellist Professor Angela Itzikowitz, an executive at ENS Africa, also cautioned that local legislation needed to be situation-specific to take into account South African conditions to ensure that there were no unintended consequences. "We keep seeing that one size does not fit all."
Da Silva said the industry was wary of the new regulations. "The regulations are seen as a kind of tsunami by institutions. But this just a solid wave of reform, it is reform that needs to happen from the market's point of view as well as the regulators' perspective, so we need to consolidate but we also need to reform the market."
Chief operating officer for Nedbank Capital, Anél Bosman, said the banks were aware of the tsunami of regulation that was heading for financial markets and institutions. "There is not an unwillingness from the banks to participate and co-operate with new legislation, but there is a practical implication of how things will work on a day-to-day basis."
