Will the banks get a new boss?

Finance Minister Pravin Gordhan is weighing the possibility of a new independent regulator for South Africa’s banks.

And it is understood that the issue will form part of Gordhan’s planned meeting with bank leaders, which is also intended to give impetus to the recommendations of the banking inquiry.

The Mail & Guardian has learned that discussions on the issue are under way in both the Treasury and the Reserve Bank.

Supervision currently falls under the Reserve Bank’s national payment system department, which effectively allows the banks to-regulate themselves through the Payments Association of South Africa (Pasa), of which they alone are members.

Some officials believe that a key lesson of the global financial crisis is that banking self-regulation is a bad idea, and that the Reserve Bank should extend its regulatory role or that a new independent regulator, possibly falling under Treasury, should be set up.

It is also argued that membership of the payment system should be decided by an independent body that follows strict, transparent criteria that will facilitate the membership of small banks and non-banking institutions.

The Reserve Bank would not comment, and banking leaders interviewed this week were divided on the proposal.

Sizwe Nxasana, CEO of FirstRand, said that he is not opposed to the creation of an independent regulator, adding: “We told the [banking inquiry] panel that we believe a regulatory framework with government as regulator should take over with regards to who has access to the payment system. It’s not something we as banks can sort out.

“An independent regulatory body protects the integrity of the system by allowing other players in and removes the perception of a boys’ club.”

Pasa head Walter Volker, however, took different view. He agreed that the current regulatory system is untenable, but not because of the behaviour of member banks. The weakness lay in the omission of non-banks, who are not Pasa members, from the regulatory system.

Although non-banks fall under the the Reserve Bank’s national payment system department, Volker said it did not subject them to adequate regulation. The banks were becoming increasingly concerned about the size of this effectively unregulated portion of the payment system, which is responsible for billions of rands in transactions.

Volker added that any non-bank could become a Pasa member once the Reserve Bank approved it as a clearing house. However, such institutions had not applied because it suited them to remain in a less regulated space.

He said Pasa wanted non-banks to be required to join Pasa, ensuring that the entire banking payment system played according to the same set of rules.

Volker insisted Pasa had proved itself an effective regulator. A new regulatory body might lack experience and fail to bring an improvement.

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