The role of the Prudential Authority in the South African Twin Peaks model

Abstract

The ability of a country to promote and maintain financial stability depends to a large extent on whether it has an effective and efficient financial regulatory model. It is of great importance that the regulators within such a regulatory model must have clear objectives and mandates. A financial regulatory model that has been hailed as an optimal regulatory model is the Twin Peaks model as designed by Michael Taylor. This model establishes peak regulators namely a systemic and prudential regulator on the one hand and a market conduct regulator on the other who then work together to regulate the financial system in the interests of financial stability. The Twin Peaks model was first pioneered in Australia in 1998 where it has been adapted to contain three peaks, namely the central bank as systemic regulator, APRA as prudential regulator and ASIC as market conduct regulator. South Africa has recently transition to a Twin Peaks model with the introduction of the Financial Sector Regulation Act 19 of 2017. The South African Twin Peaks model, like the Australian model is also a three peak model comprising of the central bank as systemic regulator and the newly established Prudential Authority and Financial Sector Conduct Authority as prudential and market conduct regulators respectively. This dissertation accordingly interrogates the institutional structure of the South African Twin Peaks model with specific focus on the role of the Prudential Authority. It considers the objectives, powers and functions of the Prudential Authority as well as its management structure and location to determine its role as aforesaid. It further compares the role of the South African Prudential Authority with its Australian counterpart to assess whether there are any aspects that require further reform.