Institutional arrangements for financial sector supervision Establishment of the Prudential Authority in South Africa Dr Janet Terblanché Head: Policy Division 4 March 2019

Overview Before Twin Peaks Twin Peaks – The Design Scope Transformation Governance structure Working with other regulators and the SARB The PA and the FSCA The PA and the SARB Experiences Regulatory strategy and supervisory framework Crucial co-operation and co-ordination with the other Twin Challenges

1. Before Twin Peaks Fragmented legislation Regulatory arbitrage Market Infrastructures Financial Markets Act \ Banks Banks Act Mutual Banks Act Co-operative Exemption Notices CFIs Insurers Long-term & Short-term Insurance Acts Pensions Pension Funds Act Collective Investment Schemes Collective Investment Schemes Control Act Friendly Societies Friendly Societies Act Friendly Societies Friendly Societies Act Fragmented legislation Regulatory arbitrage Different regulators with a prudential mandate Conduct regulation not uniformly applied

Assist in maintaining financial stability Twin Peaks – The design The Financial Sector Regulation Act 9 of 2017 establishes the PA and the FSCA FSCA PA Objective Enhance and support the efficiency and integrity of markets Protect customers from unfair treatment, by providing financial education Promotes safety and soundness of financial institutions Protect customers against risk Assist in maintaining financial stability

Scope of the PA FMIs Banks Insurers CFIs

The PA transformation Prudential Authority Prudential Authority CFI Supervision Bank Supervision Insurance Supervision FMI Supervision CFI Supervision Bank Supervision Insurance Supervision FMIs Conglomerates Significant Owners Effectiveness Efficiency Excellence Develop New Competencies Insurance Supervision Prudential Authority Bank Supervision CFI Supervision

PA governance structure Prudential Committee SARB Risk Committee SARB Audit Committee PA adopts the policies of the SARB where appropriate PA Management Committee Licensing Panel Designation Panel Sanctions and Enforcement Panel Policy Panel Restructuring and Expansions Panel Risk and Capital Panel

Working with other regulators and the SARB FSRA Memorandum of Understanding PA Micro-prudential FSCA Conduct NCR, FIC Credit, AML SARB Macro-prudential Assist each other achieve objectives Share info Adopt consistent regulatory strategies Share databases Agree on attendance of international forums Develop appropriate consistent policy positions Co-ordinate actions incl. regulatory instruments, licensing, etc.

Interactions between the PA and the FSCA TWO-KEY LICENSING: - Approval of both regulators Satisfy prudential and conduct standards 2. REGULATORY INSTRUMENTS – development of prudential & conduct standards drafting joint standards 3. FINANCIAL CONGLOMERATES – designation of a financial conglomerate 4. SIGNIFICANT OWNERS – concurrence when declaring that a person is not a significant owner 5. INSPECTION & INVESTIGATION – share info relating to objectives

Interactions between the PA and the SARB SYSTEMIC EVENTS SARB notifies PA of a systemic event Advises PA of steps taken PA assist SARB on restructuring, winding up, etc. of institutions 2. ROLE OF PA Provides SARB with info to manage systemic risks/events Consult SARB before exercising any powers that might compromise SARB’s initiateves Works with SARB to maintain financial stability 3. SIFIs SARB consults PA when imposing prudential directives on SIFIs

Experiences – Regulatory strategy and supervisory framework The Regulatory Strategy deals with the PA’s approach to regulation and supervision, the areas of immediate focus as well as areas of additional priorities Approach to regulation Approach to supervision Supervisory frameworks Immediate focus areas Additional priorities

Experience – Crucial co-operation and co-ordination with the other Twin Memorandum of understanding finalised in September 2018 Information sharing Consultation ICT requirements Working groups Concurrence Delegations

Challenges Forthcoming Enhancing relationships with other regulators - FSAP - FSB Peer Review - FATF Mutual Evaluation Enhancing relationships with other regulators Reliance on primary legislation to be developed: Levies Bill New frameworks - Resolution Framework - Conduct of Financial Institutions (COFI) Act - Corporation for Deposit Insurance (CODI) Rapid developments: Int. standards Capacity and skills Aligning frameworks Time to understand new mandate and roles Full scope of PA – medical schemes, CIS, Pension funds

Discussion