PA officially launched on 1 April 2018

In April South Africa’s financial regulatory system entered a new era following the launch of two new regulators – the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA). This marked the start of the full implementation of the new Twin Peaks model of financial sector regulation in South Africa.

In a speech announcing the launch of the PA, Finance Minister Nhlanhla Nene said Twin Peaks “is that dynamic, innovative and smart system (that) aims to streamline our approach to financial regulation, to clearly define roles and responsibilities, and to create flexibility.”

According to the National Treasury, the Twin Peaks “represents a decisive shift away from a fragmented regulatory approach and will reduce the possibility of regulatory arbitrage or forum shopping and close gaps in the regulatory system.”

“Twin Peaks aims to make the financial sector safer and make it work more effectively in the interests of all South Africans, by reducing potential threats to financial stability and better protecting customers by ensuring that financial institutions treat their customers fairly.”

Nene said the new regulatory system has created a dedicated PA to look after safety and soundness, and a dedicated conduct authority to look after the way financial institutions treat their customers.

The PA, which will be located within the SA Reserve Bank, will consist of four departments: Financial Conglomerate Supervision Department; Banking, Insurance and Financial Market Infrastructure Supervision Department; Risk Support Department; and Policy, Statistics and Industry Support Department. Minister Nene said April 1 will not only be remembered for the start of Twin Peaks. It will also be remembered for the day that “we took tough, brave and difficult decisions to restore fiscal sustainability.”

He said the first challenge faced by the country includes the need to restore fiscal credibility. A strong and stable sovereign is the rock on which a strong and stable financial system is built, said the Minister.

“The history of emerging markets is littered with examples of fiscal prolificacy followed by financial system collapse. This is will not be our future. The 2018 Budget took decisive steps to turn around the fiscal position.”

The second challenge is the need to keep up to speed with the constant changing financial system. “Every day, we see the rise of financial conglomerates, new types of financial intermediation, and new ways to do business. You can buy something called bitcoin on something called a smartphone. A few short years ago, neither of those things existed,” Minister Nene said.

He said this constant innovation reinforces the need for “our regulatory system, our regulators and most importantly you, the people that work at the regulator, to be dynamic, innovative, forward-looking and smart.”

Minister Nene and the Governor of the South African Reserve Bank Lesetja Kganyago appointed Deputy Governor Kuben Naidoo as the CEO of the PA.

Both the PA and FSCA will publish regulatory strategies within six months of their establishment, setting out in further detail their intended regulatory focus areas and work plans over the next three years.

The National Treasury explains that once fully phased in, the Twin Peaks regulatory model will focus on a more harmonised system of licensing, supervision, enforcement, customer complaints (including ombuds), appeals, and consumer advice and education across the financial sector. Ensuring that there is co-ordination across all regulators in the financial system is an important supporting pillar.