Kganyago laments loss of trust in financial system
Reserve Bank governor Lesetja Kganyago is confident SA will be removed from the Financial Action Task Force (FATF) greylist in 2025.
The FATF, which sets global standards for the combating of money-laundering and terrorism financing, found SA’s regime deficient and placed it on the greylist in 2023.
In an address to the Financial Sector Conduct Authority industry conference on Wednesday, Kganyago said: “We feel confident that SA will be removed from the greylist by the next review date, in 2025, given the fixes we are implementing.
“But this has been a costly episode for us. The lesson is that joint efforts are required to look after the integrity of SA’s financial system. We all suffer when this is compromised. We got this ‘high risk’ designation partly because of poor conduct by institutions and because of the exploitation of vulnerabilities in the existing financial frameworks relating to anti-moneylaundering regulations.”
The governor also remarked on the low level of public trust in the financial system, as evidenced by the reaction to the inquiry into rand manipulation by several banks.
The Competition Tribunal largely rejected the Competition Commission’s inquiry in January and found there was no evidence of a conspiracy, but the commission is taking the ruling on appeal. MPs were among those who castigated banks for damaging SA and contributing to the devaluation of the rand.
“Unfortunately, we cannot say the public image of the financial sector is everything it should be,” Kganyago said.
“It was remarkable … how ready people were to believe that there was a giant conspiracy to rig the rand, and that this had seriously weakened the exchange rate, pushed up inflation and raised interest rates.
“Economists and market specialists understood that even if there had been market manipulation by some traders, the macro effects of the exchange rate being a few cents weaker or stronger for an hour or so would have been trivial. The impact on inflation and rates would have been zero,” Kganyago said.
“We also saw the competition appeal court rule in January that there was no evidence of a general conspiracy. But this was not
the conversation taking place in the public domain. Most people could tell that traders were behaving unethically, plotting in chat rooms, and this misconduct was so obviously wrong it eclipsed further analysis.
“What I learnt from this is that public trust in the financial system is not as deep as it needs to be. I worry about our ability to have well-informed policy conversations in potentially more stressful circumstances if bad analysis can get this kind of public reaction.”
The governor said SA’s financial system was resilient and coped well with stress. Capital buffers had held up.
“We have not seen a rise in defaults that would indicate irresponsible risky lending, or largescale ever-greening of loans designed to conceal losses.
“Of course, there are also problem cases, such as certain institutions which we put into curatorship recently.
“But I think those actions should be interpreted as vigilance, mitigating problems before they grow too large. In a well-regulated financial system, you are more likely to see banks being closed from time to time, rather than dysfunction being tolerated indefinitely.”
The governor remarked on SA’s low economic growth rate and falling living standards.
“The gap between SA growth and world growth is now double its longer-term average. We are falling behind. A big reason for this is that other places have functioning rail networks, ports and electricity.
“At the same time, government debt has risen too fast and is now too high.”