The global financial crisis and the pursuit of financial stability as a new regulatory paradigm

Abstract

The 2008 Global Financial Crisis was a watershed event in financial regulation. In response to this global crisis the pursuit of financial stability emerged as core objective of financial regulation. Although South Africa escaped the GFC relatively unscathed the South African Government nevertheless committed to reform of the approach to financial regulation in South Africa. The silo and fragmented approach to financial regulation was discarded in favour of the Twin Peaks model of Financial Regulation as encapsulated in the Financial Sector Regulation Act 9 of 2017. This model comprises of two peak regulators, namely the Prudential Authority, dedicated to oversee the safety and soundness of all financial institutions in South Africa and the Financial Sector Conduct Authority mandated with market conduct oversight. The South African Reserve Bank is given a comprehensive and express financial stability mandate which concentrates on the prevention of systemic risk. Australia is a jurisdiction that is well-known for its resilient financial system which can largely be attributed to its robust approach to financial regulation. It was the first jurisdiction to adopt a Twin Peaks model of Financial regulation in 1998-well before the 2008 GFC. In the Australian model APRA is the prudential regulator and ASIC is the market conduct regulator. The Reserve Bank of Australia is mandated with maintenance of financial stability. This dissertation interrogates the various approaches to financial regulation, focusing spesifically on the Twin Peaks model. It analyses the Financial stability mandate of the SARB within the South African Twin Peaks model and also reviews the Australian Twin Peaks model in order to benchmark Twin Peaks in South Africa and how it enables the promotion and maintenance of financial stability.