February 12, 2005
 By Bruce Cameron
Dr Cyrus Rustomjee may be unknown to most people, but this highly educated achiever is just beginning to have an impact on the financial services industry – and consequently on the financial well-being of us all.
When her term of office as deputy Governor of the Reserve Bank expired earlier this year, the high-profile Gill Marcus stepped down as chairperson of two important consumer protection bodies.
Marcus was replaced by a fairly low-profile but extraordinary South African: Dr Cyrus Rustomjee BA (Hons)(Oxon), B.Com. (Unisa), B.Proc. (Unisa), CAIB (SA), MSc. (London), Ph.D. (London).
At the age of 45, Rustomjee has not only picked up an impressive string of academic qualifications, but has also helped shape South Africa’s Constitution, represented South Africa and 22 other African countries at the World Bank and International Monetary Fund (IMF), and advised some top local and international organisations, including the South African National Treasury and the Soros Open Society Foundation run by George Soros, the international financial markets guru and philanthropist.
Now Rustomjee heads two very important local institutions that have an impact on how much money we have in our pockets. The institutions are the Policy Board for Financial Services and Regulation and the Financial Services Board (FSB). The Policy Board is responsible for advising Finance Minister Trevor Manuel on matters affecting the soundness as well as the regulation of the financial sector, and the FSB regulates the entire financial services industry (excluding the banking sector), from the JSE Securities Exchange to funeral assurance.
From these two positions, Rustomjee is charged with initiating legislation and regulation and ensuring its efficient application to protect you from financial losses caused by, for example, the collapse of your bank, financial scams or the mis-selling of financial products. If he and his fellow board members do not get it right, there may be very serious implications for everyone.
His appointment comes at a time of significant change in the financial services industry, which has been hit by a number of disasters. These include the destruction of the retirement savings of many thousands of South Africans through the mis-selling of financial products; the collapse of financial institutions such as Saambou; and a series of scam operations, from Masterbond to Jack Milne’s Guaranteed Growth Fund.
Rustomjee’s first year in office will be marked by the introduction of the Financial Advisory and Intermediary Services (FAIS) Act, which is designed to ensure, for the first time, that you, as a consumer of financial services products, receive appropriate financial advice and protection from exploitation.
Early years
Rustomjee started his working life as a corporate banker in 1984. In 1992 he joined the African National Congress’ Department of Economic Planning, where his job was to study investment behaviour in the South African economy. After the 1994 elections he joined the government in the Department of Finance, serving as adviser to the deputy minister and playing a key role in drawing up the clauses in the Constitution related to finance, including those that define the role of the Reserve Bank and entrench its independence.
In 1996, he was appointed as the executive board member representing South Africa at the World Bank in Washington DC. Two years later, he was appointed alternate executive director of a 21-member group of African countries at the International Monetary Fund (IMF), and in 2000 he was elected to the position of executive director by the member governments.
Rustomjee returned to South Africa in 2002, and he and his wife and two-year-old daughter live in Durban, where he grew up.
Rustomjee also works as an independent financial adviser, but on a grand scale: he provides consulting, research and training services to governments, international financial institutions, municipalities, universities and private sector institutions.
He says South Africa is fortunate to have a well-developed financial system, but this makes the work of the Policy Board "rather extensive".
The board is served by a number of sub-committees, which examine specific topics and themes in co-operation with the financial services industry and various regulators, and prepare reports for discussion by the board. Recent work has included a detailed analysis of how financial markets can be made more attractive and accessible; a report on the feasibility of instituting a deposit insurance system to protect depositors in case of the failure of a bank; and studies on e-commerce and consumer protection. These reports are sent to the Minister of Finance for his consideration.
Like his predecessor Gill Marcus, he sees the Policy Board as a forum for bringing together the best and most experienced minds.
His experience as a member of the executive board of the IMF was particularly useful, he says, as it coincided with a period of extreme global financial instability. The resultant emerging market collapses sent shock waves around the world and showed him what can happen to the economy of a country when markets are not properly regulated and are vulnerable to systemic risk. (Systemic risk is the risk of the collapse of, say, a bank or banks, leading to a breakdown of the banking system of a country, with a domino effect on the economic system of an entire country or region.)
"The characteristics of our financial system differ markedly from several emerging market economies, but, as chair of the Policy Board, I’ve insisted on ensuring that we – both regulators and industry players – keep a close eye on potential sources of systemic risk, whether exogenous or within our control."
While with the Policy Board, Rustomjee can influence legislation and regulation, and as chairman of the FSB, he has to make sure the legislation is properly applied. The FSB is quite different from the Policy Board, he says, in that it’s a large and busy institution.
"At any one time, the FSB is dealing with a very wide range of issues, including those affecting both long-term and short-term insurers, pensions funds and consumer protection. There is also a very extensive legislative and regulatory agenda," he says. "Each issue has consequences for the stability of our financial system and requires thorough evaluation, assessment and discussion prior to any decisions being taken."
Rustomjee says he accepted the dual appointments for several reasons.
"The positions represent significant opportunities to interact with and learn from a superb group of highly qualified and accomplished individuals, both in the Policy Board and the FSB Board, as well as in the National Treasury and the Reserve Bank.
"I was also attracted by the opportunity to participate in the process of policy development for our financial system. Both positions offer scope for me to use my training and give back some of the knowledge gleaned from my time on the boards of both the World Bank and the IMF."
He says the financial services industry in South Africa is robust, flexible and, by emerging-market-economy standards, generally strong. Its sophistication is both impressive and daunting, he adds.
"South Africa’s financial industry meets and excels, in some instances, the many international standards and codes applicable. This helped South Africa weather the emerging-market financial crises of 1978 and 2000. However, there is never scope for complacency. One lesson of the emerging-market crises was that vulnerabilities usually emerge unexpectedly, so as far as systemic risk is concerned, though I see it as benign in South Africa, we need to be perpetually on guard."
Rustomjee says both the financial services industry and its regulators are doing a reasonable job in meeting the expectations of consumers. "But the challenge is enormous and the goalposts themselves are, for understandable reasons, changing on an ongoing basis," he says.
One of the problems, he says, is that a substantial part of the population does not have adequate access to the financial system – and by that he doesn’t mean just access to banking services. "In my view, the challenge is greater: to improve access to the variety of products and services offered by our financial system." The Policy Board and the FSB can play a role in rectifying the situation, he believes.
He also believes more has to be done to improve skills in the financial services industry, but he is pleased with the reaction of the industry to the FAIS Act. While this represents a generally sound foundation, and he is optimistic the intentions of the Act will be achieved, he says there are areas for improvement.
One of his interests is training in the economics and financial fields. He set up the Centre for Economic Training in Africa with links to the University of London to make available high-quality distance-learning masters degrees in economics and finance, both within South Africa and in the 20 other African countries he served as executive director at the IMF.
"The London University distance-learning master’s programmes are probably the best of their kind in the world and, fortunately, this particular initiative has taken off well," he says. "At public sector level, the programmes have been completed by many of our own policy officials. In Africa more generally, there are over 100 masters graduates of the programmes, including several central bank governors and finance ministers."
More recently, he put together a programme for an East African central bank.
Among his achievements are: the Oxford University undergraduate prize in politics (Gibbs Prize) in 1982; overall first place in the Institute of Bankers’ Diploma course (1989), with awards for statistics, management accounting and monetary policy; the Helen Suzman Fellowship Award for Ph.D. study at London University, 1993; and the University of South Africa Merit Award for performance in 1997 B.Proc. examinations.
Investments
On a personal level, Rustomjee uses many of the financial instruments on the market. "I use retirement annuities as my major savings vehicle, partly for the tax benefits and partly because I regard them as a reasonable long-term investment."
When he does find the time to escape from work commitments, he enjoys pottery, collecting stamps, playing the guitar and reading.
This article was first published in Personal Finance magazine, 4th Quarter 2004.See what’s in our latest issue
  
 
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