South Africa’s new and broadened financial regulator, the Prudential Authority, starts operating on 1 April 2018 and will have material impact in the world of cooperative banking institutions amongst others.
The Prudential Authority comes to fulfill one of the two pillars of the new architecture for the regulation of the financial sector as set out in the Twin Peaks principle. The principle comes to collapse the regulation of key financial institutions and sectors, like insurance and banking, under one umbrella.
In the past regulation of the sector was diffuse and lived in a number of independent institutions. Forinstance the banking sector was regulated from the South African Reserve Bank and the insurance sector was regulated from the Financial Services Board. A section of cooperative banking sector, the CFI portion, was regulated from the Cooperative Bank Development Agency (CBDA) which was housed inside the National Treasury. It would seem the CBDA is set to fall away.
The Prudential Authority will be responsible for regulating banks, insurers, cooperative financial institutions, financial conglomerates and certain market infrastructures.
The Prudential Authority is a juristic person operating within the administration of the South African Reserve Bank (SARB). It will consist of the following four departments: Financial Conglomerate Supervision Department; Banking, Insurance and Financial Market Infrastructure Supervision Department; Risk Support Department; and Policy, Statistics and Industry Support Department.
I a statement the SARB says the Twin Peaks model for financial sector regulation was proposed as a means to reform the regulatory and supervisory system insofar as it relates to financial institutions. In June 2011, Cabinet approved the move towards the model which resulted in the drafting of the Financial Sector Regulation (FSR) Act.
The FSR Act gives effect to three important changes to the regulation of the country’s financial sector. First, it gives the SARB an explicit mandate to maintain and enhance financial stability. Second, it creates a prudential regulator, which will be known as the Prudential Authority, located within the SARB.
Third, the FSR Act establishes what is called a market conduct regulator, which will be located outside of the SARB. This regulator is taking shape around the Financial Services Board (FSB).
The passing of the FSR Act is the culmination of collaboration on financial sector reform by the SARB, National Treasury and the Financial Services Board over the past decade, and marks an important milestone on the journey towards a safer and fairer financial system that is able to serve all citizens.
The dedicated Prudential Authority website, www.prudentialauthority.co.za, goes live on 1 April 2018, with the full PA team on hand to ensure the effective regulation of South Africa’s financial sector.