Adapting Financial Regulation in an Era of Rising Global Risks

In a keynote address at Stellenbosch University, the Governor of the South African Reserve Bank explored how financial regulation must evolve amidst an increasingly unstable global environment. The speech underscored the vital purpose of financial regulation—to safeguard economic and financial stability by ensuring trust in the system, preventing crises, and protecting both individuals and businesses from systemic threats.

Reflecting on past crises, notably the Great Financial Crisis (GFC) of 2007-09, the Governor highlighted how weaknesses in prior regulations paved the way for risk-taking that destabilized the global financial system. This led to the development and adoption of Basel III, which aimed to improve banks’ capital quality and quantity, strengthening their ability to absorb losses. Contrary to fears that stricter regulations would stifle growth, research shows only modest and localized economic impacts in South Africa, with most banks meeting higher standards through retained earnings without broad harm to lending or activity. However, the experience also demonstrated that no regulatory framework is foolproof, as seen in more recent banking failures due to governance issues and flawed business models.

Risks to financial stability, the Governor argued, are growing rather than receding. Elevated macroeconomic and geopolitical uncertainty, the rapid proliferation of crypto assets, increasing technological complexity, climate change, and the expanding role of non-bank financial institutions all demand renewed vigilance. Notable new challenges include the complex risks of decentralized finance, the systemic implications of artificial intelligence, and financial shocks triggered by climate events. Gaps in regulatory coverage—for example, in digital assets or “greylisted” jurisdictions—underscore the need for ongoing reform rather than deregulation.

The address emphasized that smarter, more adaptive regulation is essential—not less. Regulators must embrace cutting-edge technology, rapidly integrate climate considerations, and strengthen cross-border cooperation. Academic research plays a crucial role in holding regulators accountable, guiding effective policymaking, and developing the interdisciplinary skills necessary to manage today’s risks. In sum, the speech served as a call to action: as global risk factors intensify, financial sectors cannot afford complacency or retreat. Instead, rigorously coordinated, evidence-based regulation will be central to maintaining trust and stability in a rapidly changing world.

The imperative to strengthen, not weaken, oversight over the financial system has never been clearer as the global risk environment continues to evolve and intensify.