The South African Reserve Bank (SARB) has emphasised the importance of financial institutions having a solid succession plan, arguing that this leads to stability of the sector.
This was said by SARB deputy boss Fundi Tshazibana, who is also the head of the Prudential Authority (PA), during a media briefing this week.
Tshazibana’s comment follows the Pretoria High Court ruling on June 25, which found that the PA had acted unlawfully and exceeded its powers under the Banks Act 94 of 1990 on a recent matter.
The court determined that the PA improperly engaged in an informal process with the Absa Group and Absa Bank regarding the nomination of businessman Sipho Pityana as chairperson of the Absa Group and Absa Bank’s board of directors.
Specifically, the PA’s notification to Absa Group and Absa Bank about its objection, or potential objection, to Pityana’s nomination was deemed unlawful.
Tshazibana, who declined to discuss the merits of the Pityana case, only confirmed that the PA would appeal the court judgment.
The PA is responsible for regulating and supervising financial institutions to ensure their safety and soundness, and also promote financial stability.
This encompasses banks, insurance companies, cooperative financial institutions, and market infrastructures. The PA’s efforts are dedicated to protecting depositors, policyholders, and the public by maintaining the stability of the financial system.
She, however, pointed out that the PA’s requirements on financial institutions when individuals become board members were a “very intrusive process”.
“I need to know about your grandparents. I need to know about the businesses you had in 1985 that went under,” she said, highlighting the rigours involved in the process.
Tshazibana said these measures were meant to protect financial institutions for the benefit of clients so that the institutions do not end up with issues that might pose reputational risk. “Organisational and operational resilience has been a focal area that we have put forward as the PA, probably since 2021/2022, and Covid was a big learning to say: ‘What is it that allows financial institutions to survive a crisis?’
“So, in 2022, we started with succession planning as a big theme. In 2023, we followed up with another broader discussion on organisational resilience that brought together succession planning with other factors,” said Tshazibana.
Every time we meet with chairpersons, we ask about gaps in their boards, from a skills perspective. We also talk about the vulnerability of different individuals. You will find that the conversations around leadership are customised according to the needs of that institution.”
When it comes to management, the PA wants to find out if there is an emergency cover. “If something happens to the CEO, who comes in as emergency cover? Are there people who got the leadership potential to be CEOs?
“Some institutions will tell us that they have one candidate, which tells us they need to hire more people at that leadership layer,” she said.
