Twin Peaks ‘Not Enough’

by Dr. Andrew D. Schmulow

The Herald [South Africa], 22 June 2016.

Without well-regulated banks, South Africa’s economy will not grow and develop. Without sound banks it may face a financial catastrophe. That could decimate the economy, impoverish a nation, wipe out the value of property and retirement savings, and cause millions to become jobless.

For these reasons South Africa is about to engage in the most far-reaching reforms to the regulation of its financial system since the abandonment of the gold standard in 1932. The goal is to provide a regulatory environment that will assure South Africa of a stable financial system, fit for purpose, and adequate to the needs of a globally integrated economy in the 21st century.

South Africa’s reforms are based upon the so-called ‘Twin Peaks’ model first adopted by Australia in the late 90s, and subsequently copied around the world, including in the UK, New Zealand, Qatar, and (independently) the Netherlands; and currently under consideration in a slew of other countries. The Australian model has become popular because of the perceived success with which Australia navigated the global financial crisis, and the strength and resilience of Australia’s financial system. In addition, there is a perception – only a perception mind you – that Australia enjoys good market conduct and that its banks are well regulated.

The Twin Peaks model uses two, peak government regulators. One is charged with ensuring good market conduct and consumer protection – the market conduct regulator. The other is tasked with ensuring a stable financial system – the prudential regulator. In South Africa the former will take the form of the Market Conduct Authority (MCA). The latter will be the Prudential Regulation Authority (PRA) – a division of the SARB.

Also published in HeraldLive eEdition.