Prudential Authority Annual Report 2018/2019

The South African Reserve Bank (SARB) has published the Prudential Authority's Annual Report for 2018/2019.

The Foreword by EL Kganyago, governor of the SA Reserve Bank:

'The Twin Peaks model seeks to attain regulatory efficiency by creating specialist peaks for prudential and conduct regulation respectively. The foundational legislation underpinning this regulatory approach, namely the Financial Sector Regulation Act 9 of 2017 (FSR Act), was signed into law on 21 August 2017.

The FSR Act makes three significant changes to the South African financial sector regulatory landscape. Firstly, it gives the South African Reserve Bank (SARB) an explicit mandate to lead the process of achieving and maintaining financial stability. Secondly, it establishes a prudential regulator, the PA, to promote the safety and soundness of individual financial institutions. Thirdly, the FSR Act also establishes a market conduct regulator, the Financial Sector Conduct Authority (FSCA), to ensure that customers are treated fairly and that the financial products and services offered by the industry are safe. The PA, the FSCA as well as other financial sector regulators in turn play a major role in supporting the financial stability mandate of the SARB.

The role of the Prudential Committee (PruCo) is to ensure that the management and administration of the PA is effective and efficient. Over the past year, Pruco had robust deliberations in the making of various prudential standards, joint standards and other regulatory instruments related to financial sector laws within the ambit of the PA’s scope. The PruCo also adopted the Regulatory Strategy for the PA and finalised several memorandums of understanding (MoUs), as required by the FSR Act. The MoUs are living documents and will be amended as and when required to ensure that the PA finds the most expedient methods to cooperate with industry stakeholders.'

The SARB and the PA have made considerable progress towards aligning and embedding a culture that embraces the values of respect and trust, accountability, excellence, integrity and open communication to ensure the successful achievements of the respective mandates. The synopsis I have outlined serves to highlight the volume of planning and execution that has gone into establishing a cross-functional and harmonised organisation such as the PA.

The PruCo is of the view that the PA is well on its way to realising the objectives of the FSR Act through following proper governance and utilising prudential tools that are responsive to the ever-changing financial sector. The PruCo’s work will, no doubt, continue to be a demanding task, and requires us to always tread with prudence. We are, however, confident that the PA will continue to work tirelessly in promoting the safety and soundness of the financial institutions it regulates.'

According to the Annual Report, there are still several elements of the financial sector reform process that must be implemented. In the 2019/20 financial year, the PA will issue Prudential Standards for the supervision of financial conglomerates and will begin regulating the fitness and propriety of significant owners.

The PA will also continue the work begun in 2018/19 to raise governance standards in the sector.

Furthermore, the PA will continue to influence the development of global regulatory frameworks through its participation in various international committees, most notably the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors and the Technical Committee of the International Organization of Securities Commissions.