South Africa's financial sector proved exceptionally resilient during the global financial crisis but risks remain, Finance Minister Pravin Gordhan said on Friday.
“However, we should not be complacent, especially since the crisis continues, as we see in Europe, where Spanish and Greek banks face great challenges,” he told the National Assembly during debate on his budget vote.
Reforms to further strengthen the regulatory system included shifting towards a twin-peaks approach to financial sector regulation.
“The twin-peaks approach emphasises two things; firstly, it establishes a prudential regulator in the 1/8SA 3/8 Reserve Bank to supervise and monitor the health and soundness of financial institutions, and importantly also transforms the Financial Services Board (FSB) into a dedicated market conduct regulator.”
In particular, this regulator would focus on improving transparency and disclosure, in the financial sector, particularly given opaque and high costs.
Overall, the new approach also gave the Reserve Bank the requisite powers to monitor and respond to systemic risks, wherever they arose.
National Treasury had been working with the Reserve Bank and FSB to give effect to these reform proposals.
“It is my hope that the policy proposals will be finalised this year for consultations with all the key stakeholders and that the legislation to establish the twin-peak regulators will be tabled next year.
“I should point out that in the meanwhile, steps have already been taken, like introducing stricter capital requirements, and setting up the necessary forums like the Financial Stability Oversight Council, to monitor financial stability overall,” Gordhan said.
In addition, Treasury would already be tabling four pieces of legislation this year, including the Financial Markets Bill, Credit Rating Services Bill, Banks Act Amendment Bill, and the Financial Services Laws General Amendment Bill.
These bills gave effect to South Africa's G-20 commitments on regulating derivative markets, and strengthened the fight again market abuse and manipulation.
Gordhan said the global turmoil of the past four years was a reminder, not just of the risks associated with credit-based booms and the importance of rigorous financial regulation, but also of the inter-connectedness of financial and fiscal systems.
The issues confronting Europe and other parts of the world were not just about the economy but more broadly about the political economy of policy making in complex and challenging times.
Much of Treasury's work was focused on understanding these dynamics and ensuring that “we don’t step over critical solvency and sustainability frontiers”.
“But financial and fiscal health is not enough. We also need a vigorous enterprise economy, we need prosperous mines and factories, we need our schools and hospitals to function well, and we need to enhance competitiveness and improve productivity, both in government services and in the private sector.
“These are not just outcomes of sound budgets and sustainable financing arrangements, they also depend on effective implementation of policies and programmes,” he said. - Sapa