BDO FINANCIAL SERVICES: REGULATORY CENTRE OF EXCELLENCE - BDO South Africa
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BDO FINANCIAL SERVICES: REGULATORY CENTRE OF EXCELLENCE Global regulatory responses to the Covid-19 pandemic: How does South Africa compare? John Martin, Partner: BDO in South Africa, Financial Services Bianca Earley, Audit Manager: BDO South Africa, Financial Services
INTRODUCTION
It is no secret that the Covid-19 pandemic has had a devastating impact on the condition of the global economy and financial
structure. During these unprecedented times, regulators around the world will want to know that the boards of directors are fully
engaged, that the capital and liquidity guidelines implemented are appropriate and that the risk management measures put in
place are effective in dealing with the impacts of Covid-19.
On 4 May 2020, the Financial Stability Institute (‘FSI’) of the Bank for International Settlements (‘BIS’) released FSI Brief No 1,
dated 15 April 2020, titled “Reflections on regulatory responses to the Covid-19 pandemic” (‘the Brief’).
Globally, regulatory authorities have introduced several interventions aimed at providing temporary relief to banks, whilst aiming
at the same time to ensure the resilience of banks and the financial system. Fiscal policies have also been deployed, but for the
purposes of this article, only prudential regulation and supervision have been commented on.
Highlights1
The Brief highlights four areas relating to the actions taken by regulatory authorities globally:
Regulatory policy responses should seek to support economic activity while preserving the financial system’s soundness
and ensuring transparency.
The recommendation for banks to make full use of capital and liquidity buffers should go hand in hand with restrictions
on dividends and bonuses and clarity concerning the process for rebuilding them.
Flexibility in loan classification criteria for prudential and accounting purposes should be complemented with sufficient
disclosure on the criteria banks use to assess creditworthiness.
The publication of detailed guidance on the application of expected loss provisioning rules, combined with sensible
transitional arrangements, may constitute a balanced approach to mitigating the unintended effects of the new
accounting standards.
Below is a summary of the selected policy measures already implemented by the major jurisdictions globally2 . We have included
a summary of the measures implemented by the Prudential Authority (PA) in South Africa to compare its actions to those of
other leading jurisdictions:
Jurisdiction Government Capital Requirements Asset Expected Loss Dividends and other
Guarantees Classification Provisioning Pay-outs
Australia Yes Encouragement to use buffers New Guidance - Expectation to limit
Canada Yes Lower Domestic Stability Buffer. New Guidance New guidance. Expectation to halt
Encouragement to use buffers Introduction increases
of transitional
arrangements
EU/SSM Yes Release CCyB, Encouragement to New Guidance New Guidance Expectation to halt
use buffers
Japan Yes Encouragement to use buffers Adjust risk weights - -
of certain loans
United Kingdom Yes Release CCyB, Encouragement to New Guidance New Guidance Expectation to halt
use buffers
United States Yes Encouragement to use buffers. New guidance. Optional suspension. Expectation of prudent
Adjust supplementary leverage Definition of Extension of decisions Smoothing
ratio restructured debt transitional of automatic
arrangements restrictions
South Africa3 Yes Systematic risk buffer New Guidance. New Guidance Expectation to halt
Temporarily reduced to zero Definition of
restructured
Capital conservation buffer exposures.
Banks allowed to draw down
against capital conservation buffer
(PA to be notified)
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Bank for International Settlements - Reflections on regulatory responses to the Covid-19 pandemic
2
Bank for International Settlements - Reflections on regulatory responses to the Covid-19 pandemic
3
Inserted by BDO for comparative purposes
OVERVIEW OF THE GUIDANCE ISSUED BY THE PRUDENTIAL AUTHORITY
The following Directives/Guidance Notes have been issued by the PA:
Document Reference Effective date
D1 of 2020 – Liquidity Coverage Ratio (LCR) 31/03/2020
D2 of 2020 – Capital relief 06/04/2020
D3 of 2020 – Restructured credit exposures 06/04/2020
G4 of 2020 – Distribution of dividends & payments of bonuses 06/04/2020
CONCLUSION
The measures implemented by the PA in South Africa are in line with the measures that have been taken by major regulators
globally, and is an indicator that the appropriate measures were implemented swiftly to try and minimise the impact that
Covid-19 will have on the local economy.
The following concluding remarks4 from the Brief provide a useful reminder of the challenges facing policymakers globally in
the fight against the pandemic:
“Policymakers have often described the historic challenges the pandemic has raised as a war that must be fought and won.
Hence the need for bold and extraordinary approaches, measures and instruments. Regulatory and supervisory responses are
no exception. But the war cannot be won if, in the process, policy actions compromise the vital intermediary role that financial
institutions perform. It is more important than ever today not to put at risk the stability and the transparency of the financial
system. This sets a limit on how bold and extraordinary the necessary steps can be. As the famous Chinese strategist Sun Tzu put
it more than 25 centuries ago in his Art of War, in order to win a war: “…there are roads which must not be followed, armies which
must not be attacked, towns which must not be besieged, positions which must not be contested…”.
BDO in South Africa is the South African member firm of BDO International. BDO is
the brand name for the BDO network and for each of the BDO member firms. The
global BDO network provides audit, tax and advisory services in 158 countries, with
NOTE TO EDITORS over 64 300 people working out of 1,400 offices worldwide. Service provision within
the international BDO network of independent member firms (‘the BDO network’)
is coordinated by Brussels Worldwide Services BVBA, a limited liability company
incorporated in Belgium with its statutory seat in Brussels.
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Bank for International Settlements - Reflections on regulatory responses to the Covid-19 pandemicWE TAKE IT PERSONALLY. FOR FURTHER
INFORMATION, TALK TO OUR TEAM OF EXPERTS:
JOHN MARTIN
Financial Services Sector Head of Financial
Regulatory and compliance services
E: jmartin@bdo.co.za
T: + 27 (0) 11 481 3002
/BDOSouthAfrica /bdoafrica /bdo_sa /company/bdo-south-africa
www.bdo.co.za
BDO South Africa Services (Pty) Ltd, a South African company, is a member of BDO
International Limited, a UK company limited by guarantee. BDO is the brand name
for the BDO International network and for each of the BDO Member Firms.You can also read
