The role of the South African Reserve Bank as central bank in the South African Twin Peaks-model

Abstract

South Africa has recently transitioned from a model of sectoral financial regulation to a Twin Peaks model of financial regulation by objective. The Financial Sector Regulation Act 9 of 2017 (FSRA) which puts in place the architecture for the new Twin Peaks model is a focused piece of legislation aimed at safeguarding financial stability. This mini-dissertation will guide the reader on the impact of the FSRA on role of the Reserve Bank of South Africa (SARB), as central bank, in relation to financial stability. The previous functions of the SARB will be discussed, to indicate how the role of the SARB has changed in the Twin Peaks model. This discussion will be informed by an overview of the reasons for, and lessons learnt from, 2008 Global Financial Crisis and the rationale for the introduction of a Twin Peaks model in South Africa. Thereupon the legal framework for the expanded financial stability mandate of the SARB is considered in detail. A brief discussion of the Australian Twin Peaks model is also provided with a discussion of the roles of the Australian Reserve Bank and the Australian Prudential Regulatory Authority, who share the mandate for financial stability in Australia. The purpose of this comparative discussion is to benchmark the role that the SARB plays within the South African model and to draw lessons that could aid in improving the South African model and particularly the central bank’s ability to promote and maintain financial stability.