Twin Peaks model to boost SA's financial system

In 2011, the South African National Treasury issued a policy document for financial reform that proposed the adoption of a Twin Peaks model of financial regulation.

This regulatory structure involves separate prudential and market conduct regulators, thereby creating a more resilient and stable financial system.

"The FSB welcomes the planned reforms and agrees that a shift to a Twin Peaks model provides a good opportunity for South Africa to streamline responsibilities and elevate the importance of market conduct regulation," said the FSB in its peer review on South Africa.

The FSB has been established to coordinate at the international level the work of national financial authorities and international standard setting bodies; and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies in the interest of financial stability.

Last week, the Financial Regulatory Reform Steering Committee (FRRSC), comprising the National Treasury, South African Reserve Bank and Financial Services Board, published for public comment a summary of the proposals for implementing the Twin Peaks model.

In a statement at the time, Treasury said the Twin Peaks approach entailed creating a prudential regulator housed in the South African Reserve Bank (SARB), and transforming the Financial Services Board into a dedicated market conduct regulator.

The objective of the prudential regulator will be to maintain and enhance the safety and soundness of regulated financial institutions.

The Financial Stability Board suggested that South Africa should consider shifting legal authority for financial disclosure and regulation of public companies from the Department of Trade and Industry to the Financial Services Board, which will remain the lead regulator of the exchanges under the Twin Peaks structure.

"There is scope for additional cooperation between the South African Reserve Bank and the Financial Services Board with the National Credit Regulator," noted the Stability Board.

The FSB brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.

The peer review of South Africa is the seventh country peer review conducted by the FSB.