FSB Reviews Deposit Insurance and Resolution Framework in South Africa
FSB published results of a peer review on the bank resolution and deposit insurance frameworks in South Africa. The review focused on steps taken by the authorities to implement reforms in these areas, including by following up on the relevant IMF-World Bank Financial Sector Assessment Program (FSAP) recommendations and G20/FSB commitments. Although good progress has been made in recent years toward implementing both these frameworks in the country, the review found that additional work needs to be done to ensure that the new measures can be implemented effectively.
The report highlights that the framework for dealing with failing banks is being overhauled through the Financial Sector Laws Amendment Bill 2018 (FSLAB), which was published for comment in September 2018 and is with the Cabinet. Under the proposed framework, SARB will be the sole resolution authority for all banks and for any non-bank systemically important financial institutions. Once implemented, the proposed FSLAB amendments will address past recommendations of the FSAP and FSB by providing the authorities with an enhanced framework to plan for and undertake resolution. The authorities have applied lessons learned from recent bank failures to inform the proposals for adoption of a resolution regime that is broadly aligned with the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions. The review highlights that work is needed in the following areas to ensure the new measures can be implemented effectively:
- Setting a clear implementation roadmap, including the identification and sequencing of key policies, timelines for delivery, and resource requirements
- Enhancing the operating model for SARB as resolution authority
- Reviewing emergency liquidity arrangements in light of the new resolution framework
- Introducing a mechanism for ex-post recovery, from the industry, of public funds used for resolution
The review found that South Africa is the only FSB jurisdiction without an explicit deposit insurance framework. The authorities have, over the past few years, been working to introduce an explicit framework. The draft FSLAB includes provisions for the establishment of the Corporation of Deposit Insurance (CoDI). SARB is working diligently to operationalize the CoDI when the FSLAB is promulgated. Despite these accomplishments, further work is needed to address potential misalignment in the proposed framework vis-à-vis the Core Principles for Effective Deposit Insurance Systems (IADI Core Principles). Despite these accomplishments, further work is needed to address potential misalignment in the proposed framework vis-à-vis the IADI Core Principles:
- Developing the functional expertise at the deposit insurer
- Launching a comprehensive public awareness campaign covering different stages of the establishment of the deposit insurance system
- Reviewing the design features after the deposit insurance system is established
- Enhancing the funding structure of the deposit insurance fund by building up the size of the equity tranche, determining a long-term target fund size and setting a reasonable time frame to achieve it
Keywords: Middle East and Africa, South Africa, Peer Review, Deposit Insurance, G20, FSAP, IADI, Resolution Planning, Resolution Framework, SARB, FSB
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