Super regulator

In principle, there are some sound reasons for a single financial regulator. The boundaries between banking, insurance and other financial services products have been eroding for some time. The dividing lines between companies in the SA sector are blurred, with banks controlling life assurers, life assurers controlling banks and bancassurance groups housing both. Banks sell insurance products and vice versa; banks and insurers do asset management. All these entities trade bonds, commercial paper, equities, foreign exchange and their derivatives across financial markets.

But regulation is fragmented in SA with the Financial Services Board in charge of insurers, asset managers and financial markets while the bank supervision department of the central bank regulates banks.

Integrating the regulators should, in theory, enable better monitoring of risk across the industry. It could also aim to bring the best and brightest minds together to focus on complex issues involved in financial regulation.

There are, however, many potential pitfalls in creating a super-regulator. Banking supervision, particularly, is a delicate and skilled matter. SA's banking regulators have been dealing this year with a crisis of confidence in the sector. If the super regulator merger were even temporarily to disrupt the system or cause a loss of skills, it could be dangerous. There are also issues around whether the monitoring of banks can easily be separated from the central bank's monitoring and implementation of monetary policy.

A key problem with the super-regulator idea is that it is quite new and untested. The Australian Prudential Regulation Authority (Apra), on which government wants to model the SA single regulator, is just three years old. The UK's Financial Services Authority only gained its full "super-regulator" status in December.

Government must take care to ensure the decision on a single regulator is driven by policy and technical issues, not political considerations. All key stakeholders should have a say on how such a regulator would be structured and how its creation would be managed.