1 / 12

Aligning Financial Regulatory Architecture with Country Needs: Lessons from International Experience

Aligning Financial Regulatory Architecture with Country Needs: Lessons from International Experience. World Bank Conference, New Delhi, 5 June 2004 Choosing an appropriate regulatory structure – South Africa’s experience Andre Bezuidenhout South African Reserve Bank.

godfrey
Download Presentation

Aligning Financial Regulatory Architecture with Country Needs: Lessons from International Experience

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Aligning Financial Regulatory Architecture with Country Needs: Lessons from International Experience World Bank Conference, New Delhi, 5 June 2004 Choosing an appropriate regulatory structure – South Africa’s experience Andre Bezuidenhout South African Reserve Bank

  2. CHOOSING AN APPROPRIATE REGULATORY STRUCTURE - SOUTH AFRICA’S EXPERIENCE OVERVIEW • South Africa’s financial regulatory environment • The need for change • The process to review the regulatory environment • Alternative approaches • The current status and likely prognosis

  3. SOUTH AFRICA’S FINANCIAL REGULATORY ENVIRONMENT SOUTH AFRICA AT A GLANCE • Population - 45 million. Much diversity • Ten years of democracy • Rich in minerals – commodity producer • GDP US$150bn, per capita US$3300, growth 2% p.a. • Inflation (CPIX): 4.4%, within target range • Sound macro economic fundamentals

  4. SOUTH AFRICA’S FINANCIAL REGULATORY ENVIRONMENT DUAL CHARACTER OF THE FINANCIAL SYSTEM • Highly developed financial sector - Sophisticated, liquid forex and capital markets -Investment grade rating - Strong banking system - Generally sound fundamentals • Emerging market characteristics - Unemployment, poverty, crime - Low savings - Limited access to basic financial services - High HIV/Aids infection rate - Currency volatility

  5. SOUTH AFRICA’S FINANCIAL REGULATORY ENVIRONMENT THE CURRENT REGULATORY ARCHITECTURE Partially integrated • Systemic regulation/oversight: SARB (FinStab) • Prudential regulation/supervision: - Banks SARB (BSD) - Insurance, P/F, Securities FSB • Conduct regulation: - Banks - Industry association - Others - FSB

  6. THE NEED TO CHANGE ISSUES AND CONSIDERATIONS FOR CHANGE • Technical/product innovations • Deregulation/liberalisation/Internationalisation • Conglomeration, complexity of risk management • Concerns about regulatory effectiveness • Expansion of objectives of regulation: - Facilitate broad access to financial services - Promote public awareness and education - Reduce financial crime • Need to reform corporate law and accounting/ auditing profession

  7. THE NEED TO CHANGE • EVENTS THAT LED TO A NEED FOR CHANGE • Several small bank failures • Commissions of enquiry • FSAP • A bank liquidity mini-crisis • Second tier banks • Deposit insurance debate

  8. THE PROCESS TO REVIEW THE REGULATORY ENVIRONMENT PROCESS TO REVIEW THE REGULATORY ENVIRONMENT Apr 1999: Regulation Round-Table Feb 2000: MoF announces possibility of single regulator Dec 2000: Multi-lateral workshop of Policy Board “Alternative Financial Regulatory Architectures for SA” Mar 2001: Second Multi-lateral workshop “Financial Stability and the Regulatory Architecture” May 2001: Policy Board recommendations to MoF Feb 2002: MoF re-affirms intentions Aug 2002: Governor’s Address expresses concerns

  9. ALTERNATIVE APPROACHES THREE MAINALTERNATIVES • Status quo • Single (Mega?) regulator environment: - Systemic regulation/oversight: SARB - Prudential, all sectors: SFSR - Conduct, all sectors: SFSR (Single regulator would be a new institution outside of the SARB) • Objective driven integration: - Systemic regulation/oversight: SARB - Prudential, all sectors: SARB - Conduct, all sectors: FSB (Unification by objective) 

  10. ALTERNATIVE APPROACHES • MERITS AT A GLANCE • Single (mega) regulator: • - Potentially more effective conglomerate supervision • - Less regulatory arbitrage • - Politically expedient/more suited to transformation? • Perceived as more modern and accountable • Objective based split: • - More effective for stability objectives • - Less risk in a crisis • - Less cost of duplication • - Superior integration of monetary and regulatory objectives

  11. THE CURRENT STATUS AND LIKELY PROGNOSIS THE CURRENT STATUS OF DEBATE • Systemic regulation: • SARB is best placed to carry out • Prudential regulation: • Banks and non-bank financial institutions best supervised through a unified prudential regulatory agency • Debate?: Can it be within the SARB? • Conduct regulation: • Market conduct for all financial institutions should be within the same institution • Debate?: Does it have to be the same institution that does prudential regulation?

  12. THE CURRENT STATUS AND LIKELY PROGNOSIS EMERGING CONSENSUS • There is no single correct model • Country specific circumstances should determine most appropriate structure • Benefits of further integration are worthwhile pursuing • But, there are systemic risks that have to be managed • Mega regulator approach likely to benefit conglomerate supervision and perceived public accountability • But with probable reduced effectiveness of banking supervision and increased systemic risk • Joint Task Team to focus on: • Management of change risk • Institutional capacity building • Formal coordination mechanisms

More Related