The pursuit of financial stability post Global Financial Crisis : is Twin Peaks the cure for South Africa?

Abstract

The South African Reserve Bank (SARB) derives its mandate from the South Africa Reserve Bank Act, 90 of 1989. This mandate is confirmed in section 224(1) of the Constitution of the Republic of South Africa, 1996 which provides that the objective of the SARB is to “protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic”. The SARB as the central bank of South Africa has various powers and functions in terms of section 10 of the South African Reserve Bank Act and its mandate for maintaining financial stability has historically been implied as a consequence of such powers. Financial stability has however not until very recently been captured in legislation as one of the explicit responsibilities of the SARB. However, recognising that achieving financial stability is the ultimate pursuit for economic growth, South Africa started a formal review of its financial regulatory system in 2007, and this review process which is detailed in the Treasury policy documents “A safer financial sector to serve South Africa better (2011) and “Implementing a Twin Peaks model of financial regulation in South Africa (2013)) eventually culminated in the enactment of Twin Peaks model of regulation in 2017. In terms of the Twin Peaks model the prudential regulation of financial institutions and the regulation of market conduct are separated in order to put equal focus on both functions. Notably, the Financial Sector Regulation Act, 9 of 2017 (FSR Act) as a framework act for the South African Twin Peaks model also strengthened the mandate of the SARB by entrusting it with the responsibility of ensuring financial stability and generally the macro prudential oversight over financial institutions.