‘Toolkit’ developed to secure financial system
THE Reserve Bank is developing a toolkit to tackle systemic risk to the financial system for possible implementation following the passing of the Financial Sector Regulation Bill last week, its annual report released on Monday shows.
Parliament approved the bill, also known as Twin Peaks, on June 22. Once signed into law, it will establish an in-house prudential authority to oversee all providers of financial products and securities services and confer a mandate to maintain financial stability on the bank.
“The processes to promulgate this bill have taken longer than expected,” governor Lesetja Kganyago said in the annual report, signed on June 7.
“This has delayed the establishment of the proposed prudential authority, which will expand the [bank’s] regulatory responsibilities in the financial sector.”
Kganyago said preparations for the bank’s new responsibilities were well advanced and would be put into action as soon as the bill was passed.
“While this delay has caused some uncertainty for staff involved in the restructuring process, it has not detracted from our focus on those areas of responsibility that we currently have,” he said.
The Treasury, which took the Twin Peaks bill to parliament, said it was now awaiting the president’s signature into law. During the year to March, the bank prepared itself for Twin Peaks by dissolving the South African Reserve Bank Captive Insurance Company, its short-term insurer, replacing it with an “appropriate and cost-effective alternative structure”, to prevent a conflict of interest for the bank.
The prudential authority will expand the bank’s regulatory toolkit. It will add to its current stress-testing regime, the latest of which was conducted in 2016 and found that participating banks had enough capital to withstand adverse scenarios.
These ranged from a mild baseline scenario – with the assumption of modest domestic growth, high unemployment and gradual interest rate increases – to the more severe assumption that portfolio outflows dried up, the value of the rand plunged 56% and inflation accelerated sharply as a result. — TMG