2015 – a forward glance 17 February 2015

South Africa has a sophisticated credit bureau system

Advantages of a sophisticated system are:  Widespread participation based on principles of reciprocity.  Improved mechanisms for management of data quality.  Robust scoring models.  Full file credit reporting systems.  Compliance to the regulatory frameworks.

World Bank report on General Principles for Credit Reporting (September 2011): 1.Data: should be relevant, accurate, timely sufficient data – inlcuding positive data, which should be retained for a sufficient period of time. 2.Data Processing: credit reporting systems should have rigorous standards of security and reliability and be efficient. 3.Governance and Risk Management: these systems should ensure accountability, transparancy and effectiveness in managing the risks associated with businesses and fair access of information by users. Principles for sound Credit Information Law

4.Legal and Regulatory: the overall legal and regulatory framework should be clear, predictatble, non-discriminatory, proportionate and supportive of data subjects and consumer rights. 5.Cross Border Data Flows: should be facilitated, where appropriate, provided that adequate controls are in place.

World Bank Ratings  In 2011 the World Bank’s Doing Business Report ranked South Africa 4 th in the world in terms of ease of getting access to credit based on the strength of legal rights and the depth of credit information.  In 2013 South Africa moved to number 1 together with Malaysia and the United Kingdom.  The 2015 report shows a drop in ranking, which is attributable to counter-productive credit policies – i.e. making access to credit information more difficult by requiring credit bureaus to remove negative credit information from their databases [source: South African Government News Agency].

 BUT we now have new legislation that will change the way in which data is treated and displayed and that will impact on how complete, accurate and up to date the data is.  What needs to happen to make sure that we are able to survive the ‘hockey stick’ effect?

Regulatory & Governance Frameworks

What are the unintended consequences?  Credit is an underlying element of all modern economic infrastructures.  Responsible access to credit is dependent on sound risk and affordability assessment tools.  Credit reporting systems are integral to well functioning credit markets.  Less data means more risk – diminished data will impede lenders from distinguishing between good borrowers and bad borrowers.  Lenders will not be able to perform comprehensive affordability assessments – non compliance to the NCA.

 Consumer behaviour may be positively of negatively affected.  Overall it may increase the systemic risk of the sector, economy and the country as was seen recently with African Bank.  There is a need for more comprehensive datasets as more than half of the South African population is not presented on the bureaus. The broadening of data sources (UIF, municipal data and other governmental data) will deliver huge benefit.

Regulatory Framework Legislation National Credit Act Protection of Personal Information Act Data Sharing - Industry Regulation Credit Providers Association (CPA) CBA Framework Code of Conduct Policy Directives

For purposes of this presentation we focus on: The NCAA and draft Regulations  Develop timelines:  No final regulations makes it very difficult for credit bureaus to develop – especially display periods.  Project Evolution Compliance development.  Credit Provider ability to meet above development requirements.  New data layout – Reg 19(13)  All current development based on the format 700 v2 layout.  Engage industry through CIF  NCR must provide industry guidelines for new CPs

 Credit bureaux must submit to all Credit Providers: o All credit providers will be required to provide ALL the information as set out in S70 of the NCA as consumer credit information (name, address, telephone no, record of all credit agreements including history of payment, pattern of payment behaviour, enforcement actions, defaults, etc.) to credit bureaux. o Credit bureaux will be required to provide full credit reports to all credit providers to enable them to perform the affordability assessment required in terms of the Regulations.

 Credit Providers must submit to all bureaux: o In terms of the Regulations, credit providers are required to provide “credit information to all registered credit bureaus”. o Mechanism? o Guidelines?  Issues of interpretation: o The legislators and regulators should strive to eliminate areas that are open to interpretation by issuing guidelines. o Examples – data submission rules, prescription, etc.

Protection of Personal Information Act (PoPIA)  Credit bureaus carry an extremely high level of liability if data breaches are found –  Particular concern is the transmission of personal information (such as credit reports) over .  The NCA contains a provision allowing credit bureaus to transmit personal information via and moreover this is a consumer expectation.  Bureaux require a directive.

Opportunities:  Project Evolution, which is a combined industry initiative to merge CPA and NLR data enables 48 hour updates of openings and closures, which is a word first. This will directly benefit affordability assessments.  NCR guidelines to lay down industry standards where open to interpretation.  Industry engagement to ensure relevant and practical solutions within the South African environment.  Consumer education  Training of industry players.

Conclusion South Africa has lead the way in terms of its credit legislation and is being used as a benchmark for other countries who are only now starting to implement similar legislation. CBA can continue to represent, engage, align, drive quality and educate but we can only achieve success through partnership. We need to strive for stabilisation – to protect the economy and to protect consumers.

Thank You Presented by : Jeannine Naudé Viljoen |