The National Treasury document a-safer-financial-sector-to-serve-south-africa-better introduces a Twin Peaks regulatory architecture where prudential regulation is separated from market conduct regulation within the financial sector.
The Prudential Division facilitates the role of legislative and regulatory advocacy on behalf of the industry for matters pertaining to prudential regulation and policy formulation.
In layman’s terms, we consider the scope of prudential regulation to include the rules and regulations that banks and other financial institutions are supervised under, including their participation in financial markets. Prudential regulation could be explained within a banking context as what you must do to qualify for a business license to perform the business of a bank and the ongoing maintenance and reporting requirement of that license, whilst market conduct regulation would govern the how you engage your customers once you have a license to perform the business of a bank.
The Prudential Division does not address matters pertaining to bank customers using retail products but will address market conduct matters as it pertains to transacting in foreign currencies, debt markets, equity markets and other financial instruments.
The Prudential Division also includes within its scope, the broader financial stability role of the South African Reserve Bank, sometimes referred to as macro prudential or systemic risk management.
We monitor the pronouncements of the Financial Stability Board and the global standard setting bodies Bank for International Settlements (BIS) and the International Organisation of Securities Commissioners (IOSCO)amongst others, comment on their documents and work with policy makers and regulators domestically to ensure that these standards are appropriately implemented in the banking sector.
The Basel Committee on Banking Supervision (BCBS) is located at the Bank for International Settlements in Basel, Switzerland and is the global standard setting body for the prudential regulation of banks. Known as the Basel framework.
The South African Reserve Bank is a member of the Basel Committee on Banking Supervision.
The South African banking industry has been consistently recognised amongst the top ten banking sectors in the World by the World Economic Forum. However, these high standards come at a cost and now a model has been developed to begin explaining how the Basel regulatory costs imposed on the banking sector are translated into a selection of banking products.
The model does not attempt to provide a pricing tool as it is based on a virtual bank with no staff, no overheads and no profit maximising objective on its loan portfolio. The objective of the model is to demonstrate the changing cost structure over time with the introduction of the Basel Committee on Banking Supervision standards Basel I, Basel II and Basel III and may be of interest to both bankers and students in finance.
A short Tutorial is provided to introduce you to the model.
“The model is available free of charge from veronicas@banking.org.za, (currently Version 1.0)”