What is a stable financial system?
A stable financial system is one that efficiently manages the flow of funds through its financial intermediaries, markets and market infrastructures such that it promotes growth in its economic activities.
What does macroprudential and microprudential regulation or supervision mean?
The term ‘microprudential’ denotes the regulation or supervision of individual financial institutions by the PA. On the other hand, ‘macroprudential’ oversight refers to the responsibilities of the SARB, which is charged with identifying, assessing and mitigating risks for the financial system as a whole.
Why does the SARB regulate the financial system?
The financial system plays a critical role in supporting economic activity. Households and businesses need ways to save and borrow in order to fund consumption and investment; payment systems to facilitate local and international transactions; and insurance to manage their day-to-day risks. The public needs to be confident that banks, non-bank deposit takers and insurers can and will continue to provide these services, and that the payment and settlement systems will work as expected.
However, the financial system is exposed to risks, which come from a wide range of sources, both global and domestic. The South African financial system is also relatively small and open, and is dominated by a handful of institutions that are highly connected. The distress or failure of one of the major institutions is likely to have significant implications for the system as a whole.
How does the PA change the work of the SARB?
With effect from 1 April 2018, when the PA was established, the Bank Supervision Department of the SARB ceased to exist. The resultant PA consists of the following four departments: the Financial Conglomerate Supervision Department; the Banking, Insurance and Financial Market Infrastructures Supervision Department; the Risk Support Department; and the Policy, Statistics and Industry Support Department.
In fulfilling its mandate to promote and enhance the safety and soundness of financial institutions, the PA is responsible for:
- assisting the SARB maintain financial stability;
- cooperating and collaborating with other regulators, including the SARB, in issuing regulatory instruments (prudential standards and joint standards);
- conducting information gathering, supervisory on-site inspections and investigations;
- taking enforcement action (directives, leniency agreements, enforceable undertakings, etc.);
- issuing administrative penalties;
- regulating significant owners of financial institutions; and
- regulating and supervising financial conglomerates.
What is the relationship between the PA and the SARB?
The PA is a juristic person operating within the administration of the SARB. It is not a public entity in terms of the Public Finance Management Act 1 of 1999. The PA is headed by a chief executive officer (CEO) who must be a deputy governor of the SARB but not the deputy governor responsible for financial stability. The CEO’s term of office is five years and the CEO is eligible for reappointment for one further term. The PA is governed by the Prudential Committee, which consists of the governor of the SARB, the CEO of the PA, and the deputy governors of the SARB. The Prudential Committee is mandated to oversee the management and administration of the PA to ensure that it is efficient and effective.
How will the implementation of the Financial Sector Regulation Act 9 of 2017 change the lives of South African citizens?
While, in general, South Africa has a modern and prudent financial sector that protects the interests of all customers and citizens, there are too many cases of abuse and exploitation in the sector and the sector still poses immense risks to the economy. Effective regulation will help make the financial sector more responsive to the needs of all South Africans.
