1. Why do banks have to be supervised?
While anyone may lend out money, only registered banks are allowed to take deposits from the general public. Should a bank run into financial difficulties and be unable to repay its depositors, the public will lose their money. As a result, in order to ensure that the deposits taken from the public are not used irresponsibly and to protect the public at large, banks have to be supervised. The Prudential Authority (PA) plays a pivotal role in this regard.
2. Mission and methodology
As one of the Bank’s core departments, the PA is fully committed to achieving its mission of promoting the soundness of the domestic banking system and to contribute to financial stability. In its interminable endeavour to continuously improve on its supervisory programme and practices, the PA steadfastly models its regulatory and supervisory framework on the following highly-regarded and internationally recognised key supervisory methodologies, namely:
- the 29 Core Principles for Effective Banking Supervision (the Core Principles) as published by the Basel Committee on Banking Supervision (BCBS); and
- the Basel II, Basel 2.5 and Basel III frameworks, which are widely regarded as the de facto standard for supervising banks.
3. Participation in international forums
The PA also participates in, and contributes to, various international forums in order to keep abreast of the latest developments pertaining to bank supervision. Such forums include the BCBS and its subgroups, the Group of Twenty (G-20) Finance Ministers and Central Bank Governors and the Financial Stability Board (FSB).
The global financial crisis, which commenced in 2007, revealed and accentuated fundamental weaknesses in international financial markets. In response to these weaknesses, international standard-setting bodies such as the G-20, the FSB and the BCBS announced various initiatives, strategies, and new or amended requirements and standards. The PA continuously monitor these developments, and incorporates them into its supervisory approach as and when deemed appropriate.
4. Underlying legislative framework
The legal framework for the regulation and supervision of the banking sector in South Africa comprise three tiers:
- Tier 1: The Banks Act, 1990 (Act No. 94 of 1990), the Co-operative Banks Act, 2007 (Act No. 40 of 2007) and the Mutual Banks Act, 1993 (Act No. 124 of 1993);
- Tier 2: The Regulations relating to Banks, Regulations relating to Co-operative Banks and Regulations relating to Mutual Banks; and
- Tier 3: The Banks Act, Co-operative Banks Act and Mutual Banks Act directives, circulars and guidance notes.
The PA’s approach to regulation and supervision of the domestic banking system is also informed by, inter alia, the following legislation:
- the South African Reserve Bank Act, 1989 (Act No. 90 of 1989),
- the Financial Intelligence Centre Act, 2001 (Act No. 38 of 2001),
- the Companies Act, 2008 (Act No. 71 of 2008) and
- the Postbank Limited Act, 2010 (Act No. 9 of 2010).