The Prudential Authority’s 3-year regulatory requirements
Through the adoption of its regulatory strategy, the Prudential Authority’s (PA) will help market participants and the public understand the approach it will take in overseeing financial stability of the markets.
Kuben Naidoo, Chief Executive Officer of the PA the Authority, was quoted in the FSCA Bulletin as saying the PA will follow a risk-based and proportional, forward-looking, outcomes-focused and integrated supervisory approach.
The core focus areas for the next three years are:
• Strengthening regulation and supervision of banking institutions;
• Implementing regulation and supervision of financial conglomerates;
• Regulating and supervising Market Infrastructures;
• Regulating and supervising insurers with critical outcomes, by implementing Insurance Solvency Assessment and Management (SAM); and
• Establishing a regulatory and supervisory framework for significant owners.
The globalisation of financial markets has led to the development of complex, internationally active financial groups that provide a broad range of products and services, including banking, insurance, securities and investment services. These products and services are often provided in multiple jurisdictions and critical functions are dispersed in various legal entities, both nationally and globally.
As a result, the adoption of financial conglomerate supervision has emerged internationally as a critical supervisory area.
Naidoo told the FSCA Bulletin that the PA intends applying a multi-tiered supervisory framework, which includes the supervision of individual stand-alone institutions, specialist group institutions and conglomerate groups – focusing on depositor, policy holder and member protection. The PA aims to establish a regulation and supervision framework that prevents firms from capitilising on loopholes, mitigates contagion (shock in one economy or region affecting other regions) and assists in addressing the risks that arise from unregulated parts of a financial conglomerate.
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The PA’s role: The Prudential Authority aims to promote and enhance the safety and soundness of financial institutions that provide financial products, securities services and Market Infrastructures, while simultaneously ensuring the protection of financial customers against any risks presented by financial institutions. Prudential regulation and supervision ensures that financial institutions comply with the minimum prudential requirements related to capital, liquidity, leverage and other metrics that assist in measuring financial health.