In South Africa, the Financial Sector Regulation Act 9 of 2017 as amended made the SARB responsible for monitoring and reviewing risks to financial stability, and for taking steps to mitigate systemic risk. A risk is systemic if its occurrence impairs the financial system so much that key financial services are disrupted, which can severely affect the real economy. The SARB’s macroprudential policy framework focuses on macroprudential instruments designed to limit various aspects of this risk.

There may be times when policy instruments that had originally been designed for other purposes, such as microprudential or market conduct regulation or central bank balance sheet management, could be employed for macroprudential purposes. They should, however, (i) explicitly target reducing systemic risk; and (ii) be underpinned by the necessary governance arrangements (FSB, 2011). There may be instances where an instrument could be deployed to mitigate a financial system vulnerability and/or improve the resilience of the financial system, but it may not necessarily be a prudential tool that vests with the SARB or the PA (e.g. market conduct instruments or instruments aimed at promoting financial system integrity).

The South African definition of a macroprudential instrument is as follows:

Any policy instrument, regardless of the institutional authority with whom it vests, that at the direction of the SARB is explicitly applied to (i) mitigate vulnerabilities in the financial system and/or reduce systemic risk; thereby (ii) improving the resilience of the financial system; in turn (iii) protecting and enhancing financial stability in South Africa.

The SARB’s macroprudential policy document details the available instruments at the direction of the SARB and the PA.

Figure 2: SARB macroprudential policy framework and decision-making process