Original Research

Financial sector regulation reforms in South Africa: Post-adoption review of Socio-Economic Impact Assessment System that justified the Twin Peaks Regulatory model

Edward W. Khumalo, Jan van Romburgh, Jacqui-Lyn McIntyre

Received: 25 Nov. 2025; Accepted: 25 June 2026; Published: 31 Aug. 2026

Copyright: © 2026. The Authors. Licensee: AOSIS.
This work is licensed under the Creative Commons Attribution 4.0 International (CC BY 4.0) license (https://creativecommons.org/licenses/by/4.0/).

Abstract

Background: The Twin Peaks Regulatory (TPR) model was adopted by the government to serve as a prudential and market conduct oversight tool for South Africa’s financial sector. Since its implementation, the country has faced challenges in inadequate social cohesion, financial security and inclusion, economic growth and development.

Aim: To assess the validity of the Socio-Economic Impact Assessment System’s (SEIAS) findings and the tool that rationalised regulatory reforms within the financial sector in South Africa.

Setting: The SEIAS findings on the financial sector were used to gain insights into socio-economic impacts in South Africa before regulatory transformation.

Methods: This study used a qualitative research method and adopted a desktop approach to collect secondary data to assess the validity of the Social economic Impact Assessment (SEIA) studies and tool that supported the adoption of the TPR model for the financial sector.

Results: The study revealed that despite a positive SEIAS outcome, which led to the promulgation of the Financial Sector Regulation (FSR) Act of 2017 and the adoption of the TPR model in the financial sector, the reforms have not made a meaningful contribution to alleviating the challenges related to social cohesion, financial security and economic growth in South Africa.

Conclusion: The SEIAS model alone is not sufficient to accurately capture the socio-economic challenges required to support credible policy reforms, as it lacks the depth and analytical accuracy that is needed for socio-economic measurement. The model has failed to accurately predict the impact of financial reforms and the TPR model in South Africa.

Contribution: The findings of this study highlighted the weaknesses of SEIA studies. Although mandatory, this tool alone is not sufficient to predict the socio-economic impact of proposed legislation, policies and regulatory reforms.

Keywords: socio-economic impact; impact; cost-benefit; financial; regulatory; Twin Peaks Regulatory Model; monitoring and evaluation; social justice.

Introduction

Before 2015, South Africa, like member states of the Organisation for Economic Co-operation and Development (OECD), used Regulatory Impact Assessments (RIAs) as a framework for forecasting the potential socio-economic effects of proposed policies, legislation or reforms (Department of Planning, Monitoring and Evaluation [DPME] 2021). The migration from RIA to the Socio-Economic Impact Assessment System (SEIAS) enabled the government to adopt a more inclusive framework that considered the country’s socio-economic context. The SEIAS relies heavily on insights from the theory of change (TOC) to promote public welfare by implementing evidence-based policy and regulatory frameworks or reforms. The TOC is primarily underpinned by interlinked phases, including assumptions, external conditions, inputs, activities, outputs, outcomes and impact (DPME 2017a).

The SEIAS enables the formulation and implementation of policy and regulatory frameworks to effectively assist the government in achieving priority national, regional and international development agendas (National Treasury 2021). The best examples of such initiatives include the 2030 National Development Plan (NDP) and the United Nations Sustainable Development Goals (SDGs) 1, 8, 10 and 16.

In 2016, a Socio-Economic Impact Assessment (SEIA) was conducted to evaluate the potential socio-economic impact of the National Treasury’s proposed Financial Sector Regulation (FSR) Bill. The bill was proposed following recommendations from investigations into the 2008 global financial crisis (GFC) to tackle regulatory weaknesses within the country’s financial sector. The SEIAS findings then led to parliament’s approval of the bill and its promulgation as the FSR Act 9 of 2017. Importantly, the FSR Act enabled the National Treasury to implement regulatory reforms within the financial sector by implementing the Twin Peaks model (National Treasury 2016).

In compliance with the DPME mandate, a two-phased SEIA study was conducted on the proposed FSR Bill of 2015. The SEIA findings resulted in the enactment of the 2017 FSR Act and the adoption of the Twin Peaks model. As the new regulatory model for the country’s financial sector, the prudential and market conduct mandates of the Twin Peaks model were expected to facilitate social cohesion and economic growth in South Africa.

As such, the study reviewed available literature on SEIAS findings conducted before the enactment of the 2017 FSR Act to assess the validity of the SEIAS findings that justified the adoption of the Twin Peaks Regulatory (TPR) model for the financial sector in South Africa.

Literature review

Socio-Economic Impact Assessment System

The SEIAS is an inclusive tool utilised to evaluate the potential socio-economic effects of anticipated policies, legislation and regulations (Adams 2024; DPME 2021). As an ex-ante policy analysis framework, the SEIAS helps government departments prioritise policies, legislation or reforms to alleviate socio-economic challenges faced by marginalised and vulnerable groups in the country (DPME 2021). According to DPME (2021), the aims of the SEIAS are to:

• Facilitate evidence-based decisions by stakeholders with the intention of optimising the benefits of proposed policies and legislation as well as minimising regulatory burden.
• Align policies and legislation with key national and international development initiatives that focus on addressing socio-economic inequalities, poverty, unemployment, among others.
• Adopt measures that can ameliorate risks and unintended consequences linked to the proposed promulgation or reforms of policies and legislation.

According to DPME (2021), SEIAS is conducted in two phases. The first phase is carried out when stakeholders are conceptualising policies, legislation or reforms. The phase identifies problems, causes and affected groups; considers several options for solving identified problems; and weighs risks, pros and cons of proposals and their orientation with key national development agendas. On the other hand, the second phase is conducted after policies and legislation are approved or promulgated. The purpose of this phase is to confirm planned outcomes, stakeholder consultations, risks linked to implementation, and expected budgets and costs related to compliance.

The Socio-Economic Impact Assessment System in South Africa

From 2015, a cabinet memorandum made SEIAS mandatory before the approval of all proposed laws, amendments and policy changes (The Presidency of the Republic of South Africa 2015). As such, the DPME established an SEIAS Unit. The unit is primarily responsible for overseeing impact assessments of policies, laws and regulations across all government departments and ensuring quality control of such assessments (DPME 2017c). To streamline impact assessment procedures, the SEIAS unit provides all departments with a standardised template for information gathering and reporting. The template comprises the following sections:

• Description of the problem (or problems), root causes and at least three suggested options for tackling the problem (or problems).
• Impact assessment describing implementing groups’ costs, benefits to achieve intended objectives, as well as identifying potential beneficiaries and their benefits.
• Management strategies to mitigate potential risks associated with proposed policy and regulatory frameworks or reforms.
• Summarising how policy and regulatory frameworks or reforms affect national development agendas in terms of social cohesion, security, economic growth and development, economic inclusion and environmental sustainability.

The Treasury Department presented the findings of the SEIA studies in 2016 in a prescribed tabular format.

Summary of National Treasury’s findings of studies on the FSR Bill of 2015

In 2016, the National Treasury conducted SEIAs on the proposed 2015 FSR Bill. According to the National Treasury (2016), the assessment focused on five key areas. Outlined below are findings on these key areas:

• Socio-economic problem(s) to be resolved by the proposed bill: Despite suffering minimal impact from the 2008 GFC, South Africa’s financial sector had regulatory weaknesses regarding prudential and market conduct oversight. As such, the sector was highly vulnerable to systemic risks, market failures, information asymmetry, financial crimes, market misconduct and abuses, and financial exclusion of vulnerable and marginalised groups (Godwin, Howse & Ramsey 2017).
• Planned outcomes: The proposed bill will bring about regulatory reforms aimed at improving the stability, soundness, and safety of financial institutions and markets, promoting financial inclusivity, enhancing the protection and fair treatment of consumers of financial products and services, and combating financial crimes within the financial sector (Godwin & Schmulow 2015).
• Beneficiaries: The SEIAs identified groups that stand to derive benefits from the proposed regulatory reforms (National Treasury 2016). Firstly, society stands to benefit from financial stability and protection against systemic failures and crises; increased accessibility, affordability, relevancy of financial products and services; employment opportunities; economic participation; financial literacy; education; and ethical market conduct. Secondly, the reforms will benefit financial consumers through increased financial inclusivity, reinforced consumer protection against market misconduct and exploitation through the Financial Ombuds Office, and protection of deposits in the event of financial services providers’ (FSPs) failures through deposit insurance. Thirdly, the government will no longer be compelled to use taxpayers’ funds to bail out distressed FSPs because of the establishment of the deposit insurance fund. Fourthly, FSPs will benefit from enhanced competitiveness and integrity brought about by compliance with prudential and market conduct standards – prudential oversight aimed at safeguarding against systemic risks and vulnerabilities. Lastly, regulators will leverage holistic and collaborative oversight strategies to make the financial sector stable, safer, more accessible, more inclusive and more aligned with best national and international practices.
• Cost bearers: SEIAS’s findings identified groups that will bear costs on account of enforcement and compliance with prudential and market conduct within the financial sector once the reforms are implemented (National Treasury 2016). Firstly, regulatory entities like the South African Reserve Bank (SARB), the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA) need to secure financial, human and technological resources to establish infrastructure and conduct oversight, supervision and monitoring of FSPs, as well as run the corporation for deposit insurance funds. Secondly, banks and non-banking FSPs will pay mandatory levies to the Twin Peaks system, deposit insurance to the corporation, and budget for internal compliance costs. Thirdly, FSPs’ shareholders will initially experience lower dividends because FSPs must absorb the compliance costs of regulatory changes. Lastly, financial consumers will indirectly bear costs because FSPs are likely to pass on a percentage of the compliance costs to them as fees or charges for using various financial products and services. However, such costs will be mitigated by strengthened market conduct and mechanisms to treat customers fairly.
• Expected behavioural changes: According to the National Treasury (2016), the South African Securities and Exchange Board identified key changes for the successful implementation of proposed financial sector reforms. These include a restructured regulatory framework, well-defined job descriptions for regulators and measures to enhance collaboration among them. The South African Reserve Bank’s Bank Supervision Department will be replaced by the Public Authority, and the Financial Services Board will be shared between the Financial Services Board and the Public Authority. Financial Service Ombuds will be consolidated into a single, dedicated National Financial Ombud Scheme (NFO) to resolve disputes between FSPs and consumers. The government will strengthen collaboration between cabinet members and departments, the Financial System Council of Regulators and the Financial Sector Inter-Ministerial Council, facilitating interdepartmental and interagency collaboration. Financial institutions will be required to comply with restructured regulations and compliance systems. Financial consumers will benefit from increased participation in the financial sector, enforcement of Treating Customers Fairly (TCF) principles, enhanced consumer protection, and promotion of financial education and literacy.

Probable risks associated with proposed regulatory reforms

The National Treasury (2016) indicated that the proposed regulatory reforms were likely to result in the following risks:

• Twin Peaks regulators might come into conflict with the SARB over strategic decisions in achieving different regulatory outcomes.
• Complex regulatory mechanisms can lead to regulatory ambiguities relating to compliance requirements in the financial sector.
• The proposed regulatory model represents an increased compliance burden on the part of FSPs and a rise in the prices of financial products and services.
• Regulatory standards fail to achieve their intended objectives in terms of the prudential soundness of financial institutions and better outcomes for financial consumers.
• The implementation of a new regulatory model might cause short-term disruptions within the country’s financial sector.

Risk management strategies

Several risk management strategies were expected to be put in place to mitigate various risks identified by the SEIAS (National Treasury 2016). Such strategies included the following:

• Adopting measures to enhance collaboration between Twin Peaks regulators and the SARB.
• Adopting a phased approach to implement regulatory reforms to minimise shocks within the financial sector.
• Clearly outlined regulatory organisational structures, roles and responsibilities among all stakeholders within the Twin Peaks model’s landscape.
• Setting up a dedicated financial service Ombuds scheme to mediate and resolve any disputes between consumers of financial products or services and FSPs.
• Ongoing consultations with stakeholders on supplementary prudential and market conduct regulatory reforms required to ensure the achievement of the FSR Act’s outcomes.
• Regular monitoring and evaluation of newly implemented regulatory reforms to identify any regulatory gaps and weaknesses during the implementation phase.
• Capacity building of personnel tasked with running newly established financial regulatory entities.
• Awareness programmes to sensitise FSPs and consumers about rights and responsibilities within the newly adopted regulatory framework.
• Conditional exemptions in the payments of deposit insurance premiums by FSPs as per Clause 13 of the Corporation for Deposit Insurance (CODI) bill.

Probable impact of proposed regulatory reforms

Most importantly, the promulgation of the FSR bill into law would, through the Twin Peaks model, contribute directly and indirectly to several outcomes within and beyond the financial sector (National Treasury 2016). Outlined below are examples of these outcomes:

• Social cohesion: The proposed regulatory reforms were intended to promote social cohesion within the country. A thoroughly regulated financial sector promotes social cohesion by increasing consumers’ and investors’ trust in FSPs, financial inclusion that allows consumers to participate broadly in the country’s economy, consumers’ access to relevant and affordable products and services, and fair conduct of FSPs. As such, this regulatory outcome can directly and indirectly assist in the mitigation of social ills such as unemployment and income inequalities.
• Security: The proposed regulatory reforms were expected to reinforce financial security by enhancing the resilience of FSPs against internal and external systemic shocks and disruptions. Additionally, the proposed regulatory reforms were intended to protect the interests of consumers by improving market conduct standards across the country’s financial sector.
• Economic growth: The proposed regulatory reforms were expected to strengthen the financial sector’s ability to channel people’s savings into fruitful investments and wealth creation, to undertake stringent risk management and to sustain consumer trust in FSPs. The aforementioned regulatory outcomes are underpinned by rigorous prudential and market conduct oversight within the financial sector.
• Environmental sustainability: The proposed regulatory reforms were meant to align the financial sector’s activities with the agenda of environmental sustainability. This theme was supposed to give insight from two perspectives. On the one hand, the SEIAS evaluated how various financial sectors’ activities can be constrained by environmental degradation and climate change. On the other hand, the SEIAs evaluated the impact of the financial sector’s activities on environmental sustainability.

Socio-Economic Impact Assessment’s insights on the above-mentioned were utilised to support decisions for the reforms and changes that have taken place in the South African financial sector with the implementation of the 2017 FSR Act.

Socio-Economic Impact Assessment System challenges

Like other tools used for making predictions, SEIAs have their own set of challenges. If not timeously addressed, these challenges can lead to faulty findings (DPME 2015). The following challenges were identified:

• Inadequate public participation during the SEIAS on the FSR Bill: This often results in insufficient insights into indigenous knowledge and understanding that influence the success of regulatory reforms.
• Dependency on technical and scientific data and analysis: SEIAS often lacks a comprehensive understanding due to reliance on technical and scientific field data and metrics. A thorough study of macro data is crucial in obtaining accurate insights and minimising errors and miscalculations.
• Objectivity of SEIAS: At times, findings can be biased towards certain interest groups such as investors, FSPs, financial regulators and consumers, and thus endanger the well-being of weaker stakeholders.

Theoretical frameworks

Socio-Economic Impact Assessment System (SEIAS) are shaped by insights from contemporary critical, stakeholder, social exchange and sustainable livelihoods theories. Provided below is a brief description of how these theories influence Socio-Economic Impact Assessments.

Contemporary critical theory

Celikates and Flynn (2023) and McKenzie (2014) purport that contemporary critical theory is a moral or ethical attempt to bridge theoretical assumptions with political action through a broader consensus. The theory suggests that a broader consensus increases the validity and acceptance of decisions and actions to advance the welfare of the general public.

Consultations held during the SEIAS were influenced by insights from this theory. The intention was to determine how the majority of beneficiaries would benefit from the proposed FSR Bill with regard to social cohesion, financial security, economic growth and environmental sustainability. The underlying aim of socio-economic assessments is to facilitate legislative enactments or reforms that are agreeable to the majority of beneficiaries (DPME 2015). For instance, the enactment of the 2017 FSR Act and the implementation of the TPR model were intended to optimise the financial sector’s capacity to foster social cohesion and economic growth in this country.

Stakeholder theory

Stakeholder theory maintains that public or private organisations aim to benefit a broad spectrum of stakeholders (Mahajan et al. 2023). Stakeholders, according to Fernando (2024), are individuals or parties who, through their actions or behaviour, can impact an organisation or those that are, in turn, impacted by an organisation. The stakeholder theory recognises two categories of stakeholders: narrow or primary and broader or secondary stakeholders (Freeman 1984). Consequently, organisations mainly prioritise the interests of the more influential primary stakeholders above those of secondary stakeholders.

Insights from this theory guided SEIAS’ consultations on the probable impact of the proposed FSR Bill. For instance, all socio-economic benefits of the FSR Bill – increased social cohesion, financial security, economic growth and environmental sustainability – can only be realised through broader engagement and participation by diverse financial sector stakeholders.

Different stakeholders within the financial sector (regulatory entities, regulated entities and financial consumers) would be affected by the proposed policy and regulatory reforms, such as the adoption of the TPR model in South Africa.

Social exchange theory

Social exchange theory (SET) implies that the nature and quality of linear or non-linear interactions within (or between) organisations, groups and individuals are governed by motives of cost-benefit considerations (Cropanzano et al. 2017; Hwang et al. 2016). Such interactions comprise targets and actors. Targets initiate an interaction or relationship while actors react. The actors’ reactions are outcomes of decisions informed by the expected level or number of rewards (benefits) and punishments (costs). The assumption is that each reaction is a sum of actions, inactions or behaviours that are equivalent to the costs or benefits incurred in the transaction or relationship between targets and actors (Do, Chang & Frederick 2024).

The theory applies to SEIAS conducted on the FSR Bill. For instance, insights from the theory helped determine whether the costs of achieving the outcomes of the Bill would be lower than the expected benefits or vice versa.

Sustainable livelihoods framework

Chambers and Conway (1992) describe a sustainable livelihoods framework (SLF) as any development strategy that combines available capabilities and assets to sustain people’s needs while coping with and mitigating any attendant setbacks over both short and long periods of time across the world (Figure 1). The framework relies on multidisciplinary, flexible, inclusive and consultative strategies to facilitate development initiatives in the 21st century (Natarajan et al. 2022). Most importantly, the framework provides disadvantaged groups with opportunities to access various assets and resources, knowledge, skills and capacities required to attain sustainable development outcomes or mitigate environmental, economic, social and political challenges (Grooten 2023).

FIGURE 1: Nature of sustainable livelihoods frameworks.

Insights from this theory are relevant in the context of SEIAS. These insights guided interrogations of the FSR Bill’s capacity to mitigate constraints on sustainable development, such as the financial exclusion of consumers from marginalised population groups or rural areas in South Africa.

Integration of theoretical concepts

This study integrated four theoretical concepts: contemporary critical theory, stakeholder theory, social exchange theory (SET) and the SLF. The fusion created an integrated lens for interpreting SEIAS expectations and real outcomes of the FSR Act (Celikates & Flynn 2023; Chambers & Conway 1992; Freeman 1984). Firstly, insights from Contemporary Critical Theory serve as benchmarks for evaluating the effectiveness of financial reforms under the FSR Act. In line with guidance from McKenzie (2014) and Celikates and Flynn (2023), the study relied on these insights to assess the level of social cohesion across the country since the adoption of financial regulatory reforms such as the Twin Peaks. Secondly, the Stakeholder Theory was key in the identification of various stakeholders – regulatory entities, FSPs and financial consumers that are impacted by regulatory reforms within the financial sector.

According to Freeman (1984) and Mahajan et al. (2023), insights from this theory influenced decisions on stakeholder consultations during the SEIAS to discuss the potential impact of regulatory reforms on specific stakeholders. Thirdly, the SET highlights the various stakeholders’ responses to regulatory benefits, costs and compliance burden. As such, regulators are advised to take into account stakeholders’ behaviour in response to changes linked to regulatory reforms such as the adoption of the Twin Peaks model. Hwang et al. (2016) noted that market responses are influenced by perceived regulatory benefits and costs as well as compliance burden associated with regulatory reforms. Lastly, insights from the SLF are key in evaluating regulatory impact on inclusivity, resilience and social well-being of vulnerable persons in society (Chambers & Conway 1992; Natarajan et al. 2022). For instance, the study assessed whether regulatory reforms approved by the SEIAS had promoted financial inclusion and consumer protection among low-income households and rural areas across the country.

Besides serving as an interpretation lens, the theories also informed decision-making on the selection of measurement indicators used in the study. These indicators were used to determine the degree to which the FSR Act had achieved various outcomes pertaining to social cohesion, financial security, economic growth and environmental impact across the country.

Research methods and design

Study design and scope

This study employed a qualitative method to assess the validity of the Socio-Economic Impact Assessments System (SEIAS) findings, which rationalised regulatory reforms within the financial sector in South Africa. The study employed a retrospective, descriptive and narrative meta-inference method to compare indicator trajectories before and after the 2017 FSR Act. While this method showed chronological relationships, it does not infer causality (Abadie, Diamond & Hainmueller 2010).

This study essentially does not evaluate how the socio-economic situation would have been like without the Twin Peaks reforms. Instead, all assertions in the study should be viewed as chronological relationships rather than causal effects. Estimating causal effects of a national regulatory reform requires conducting a credible counterfactual analysis involving Synthetic Control Methods (SCM), Difference-in-Differences (DiD) with a valid control group or hybrid Synthetic DiD approaches. All these analytic models depend on collecting panel data from comparable countries or subnational units and are thereby recommended for future empirical studies (Abadie et al. 2010).

In the absence of the aforementioned analyses, the present study’s contribution is to validate SEIAS assumptions, document the observed co-movement of indicators and identify where SEIAS projections deviate from empirical trends.

A desktop approach was employed to validate the SEIA tool that was instrumental in the enactment of the FSR Act of 2017 and the subsequent adoption of the Twin Peaks model. The approach resulted in the structured extraction of secondary data related to SEIAS on the 2015 FSR Bill and 11 longitudinal socio-economic indicators from various credible databases. Secondary data were then subjected to a narrative weaving analysis as outlined by Johansen, Geiger and Wadmann (2025). Guided by Onwuegbuzie and Johnson (2006), the findings were consolidated through meta-inference to facilitate comprehensive conclusions on the effects of regulatory oversight by the Twin Peaks model over 5 years. The consolidation not only highlighted what happened but also provided reasons behind these developments.

This combined methodological approach strengthened the study’s qualitative foundation and the explanatory power of longitudinal socio-economic data, providing a more nuanced perspective on the regulatory landscape after the FSR Act.

Validity and reliability of data

Guided by Leonelli (2014), large amounts of secondary data were filtered to guarantee suitability and quality. The filtering involved data cleaning and preprocessing to rectify errors and inconsistencies. Furthermore, triangulation and peer validation methods were employed and cross-referenced to reinforce data analysis reliability, as discussed by Hussein (2015).

Data sources and outcome measures

The study collected secondary data on the SEIA findings for the 2015 FSR Bill and these socio-economic indicators: gross domestic product (GDP) growth, unemployment rate, Gini coefficient, inflation, fiscal deficit, interest rate, crime index, investment (% of GDP), Financial Action Task Force (FATF)-related indicators and financial inclusion metrics. All indicators were chosen to measure the SEIAS’s focus areas outlined by the DPME and the National Treasury. These focus areas – social cohesion, security, economic growth, inclusion, and environmental sustainability – were supposed to be impacted by the implementation of the TPR model (National Treasury 2016).

Selection of socio-economic indicators

The selection of indicators was determined by three criteria. Firstly, each indicator had to be linked directly to at least one or more SEIAS focus areas. This meant that the indicator or indicators could suitably assess the impact of reforms on these focus areas. Secondly, we are supposed to show data continuity and be provided with credible sources. For instance, longitudinal data on the indicators were extracted from credible databases, thereby facilitating trend analysis and replicability. Thirdly, the priority was to choose indicators that are highly sensitive to changes in regulatory, prudential and market conduct. The aforementioned criteria resulted in the selection of the following set of indicators:

• The Gini coefficient and unemployment rate – for measuring social cohesion driven by financial inclusion, wealth distribution and labour-market dynamics as per the SEIAS focus.
• GDP growth and investment as a share of GDP – for measuring broad economic growth and wealth creation outcomes that are associated with financial stability.
• Financial inclusion metrics – for measuring levels of accessibility to and usage of formal financial products and services.
• Crime indices based on statistics from South African Police Service (SAPS), FATF and SARB – for measuring levels of FSP and consumer protection from threats like market misconduct and institutional vulnerability to financial crimes, money laundering and terror financing.
• Inflation and interest rates, fiscal deficit, household debt and savings – for measuring macroeconomic and household resilience since the implementation of regulatory reforms of the FSR Act.

The results and discussion sections provide a mapping of indicators’ justification in relation to SEIAS’ focus area, theoretical concepts and data source. The mapping ensures transparency and traceability, allowing readers to track SEIAS’ objectives both theoretically and through tangible measurements and data. Furthermore, the mapping explains limitation of inferences, because indicator changes can be driven by other wider macro triggers or implementation gaps rather than regulatory reforms alone.

Indicator mapping and how theory informs interpretation

The selection of all indicators utilised in this study was informed by insights from stakeholder theory, SLF, SET and Critical theory. Theoretical integration thereof is discussed below:

• The Gini coefficient is conceptualised mainly through SLF and Critical Theory because it measures the extent to which regulatory reforms can impact wealth distribution and the promotion of social justice (Statistics South Africa [Stats SA]).
• The unemployment rate is viewed through the lens of SLF and Stakeholder Theory. Financial inclusion is meant to promote broader economic participation, thereby alleviating unemployment (Stats SA).
• GDP growth and investment (% GDP) are underpinned by SLF and Stakeholder Theory. Insights from these theories advocate macro-level outcomes that can facilitate capital allocation, investor confidence and economic growth.
• Financial inclusion metrics incorporate insights from Stakeholder Theory and SET. These insights highlight the correlation between accessibility and the usage of formal financial products and services by consumers.
• Crime indices and FATF-related indicators are underpinned by SET and Critical Theory. In particular, these theories acknowledge that regulatory reforms can enhance financial security and consumer confidence in FSPs.
• Inflation, interest rates and fiscal deficit resonate with insights from the Stakeholder Theory. For instance, changes in these indicators can directly impact the vested interests of various financial consumers.
• Household debt and savings can be understood through the lens of SET and SLF. Insights from these theories emphasise consumer responses to regulatory costs or benefits, as well as resilience to financial shocks.

Data were drawn from official and authoritative sources such as Stats SA, SARB, National Treasury, World Bank (WB) and International Monetary Fund (IMF). Insights from the indicators were used to support qualitative interpretation and analysis. This data is publicly available.

It should be noted that data extracted from online databases are associated with three main disadvantages, namely, fitness, quality and limited knowledge of the data collection procedure (Cheong et al. 2023). The application of diverse research methodologies, therefore, served to counterbalance these inherent limitations while enhancing the dependability and accuracy of the collected data.

Data collection tools

To enhance academic rigour, data collection for this study was restricted to authoritative, curated databases. Examples of internet search engines used were Google Search, Internet Archive and Google Dataset Search for data collection. Each stage of data acquisition was meticulously documented to guarantee the retention of sources that satisfied stringent criteria of authority, completeness, temporal coverage and version control. This methodical approach served to validate source authority, facilitate reproducibility through comprehensive logging and optimise the utilisation of search engines by focussing on academic and archival resources.

Data, presentation, analysis and interpretation

Microsoft Excel was utilised for initial data management and exploratory analysis. This software was pivotal in data organisation, harmonisation, missing-value diagnostics and the conduct of descriptive, comparative, trend, and thematic analyses and interpretations. The initial stages of the analysis included importing data, verifying consistency and conducting preliminary visual assessments. Afterwards, a more advanced inferential analysis was undertaken. Each phase of the analysis was meticulously documented to guarantee clear data lineage, ease of result replication and full transparency for auditing purposes. For instance, all tables and figures, as well as numerical findings were derived directly from this original analytical work.

Ethical considerations

Ethical clearance to conduct this study was obtained from the North-West University, Economic and Management Sciences Research Ethics Committee (NWU-01740-24-A4). As part of research ethics, the study followed established protocols for data archiving and dissemination, upheld intellectual property rights associated with the source datasets, anonymised sensitive information, observed confidentiality obligations and acknowledged the original data owners. Furthermore, the study promoted transparency and reproducibility by documenting data-cleaning decisions and providing analytic scripts.

Results

The findings were presented in two sections: impact areas, as outlined by the SEIA National Treasury report (2016), and 11 socio-economic indicators. Table 1 presents data on the 11 socio-economic indicators used to deepen qualitative insights into the expected outcomes of the impact areas of the FSR Bill of 2015.

Social cohesion

Six indicators were used to determine the level of social cohesion in the country since the enactment of the FSR Act and the adoption of the Twin Peaks Model. The indicators are household debt, Gini coefficient, crime index, unemployment rate, inflation rate and GDP growth rate. According to the National Treasury (2016), regulatory reforms, epitomised by the implementation of the TPR model, were intended to enhance social cohesion within the country by promoting financial stability of financial institutions, financial inclusion, consumer protection, combating financial crimes, economic growth, employment and equitable wealth distribution. Instead, over a 5-year period, 2020–2024, the country has been experiencing a low GDP growth rate with a mean of 0.328% as well as high levels of household indebtedness with a mean of 37.37% of the total GDP, crime index with a mean of 76.12%, unemployment averaging 32.38%, Gini coefficient with a mean of 62% and inflation rate averaging 4.6%. These socio-economic factors essentially weaken social cohesion by increasing vulnerabilities to financial risks and threats and constrain people’s ability to meaningfully participate in various economic and wealth-creation activities (Nutassey et al. 2023).

Considering the statistics discussed above, the implication is that the FSR Act and implementation of the TPR framework have had little effect on enhancing social cohesion in the country. As such, the SEIA’s findings on the 2015 FSR Bill are misaligned with the reality of financial regulation under the Twin Peaks model.

Financial security

The impact area of financial security was evaluated by the following socio-economic indicators: saving index (% of GDP), household debt (% of GDP), crime index, inflation rate, interest rate, unemployment rate, fiscal deficit and FATF status. The study found that over 5 years (2020–2024), the average country saving index was 15.27%, household debt was 37.37%, the crime index was 76.12%, the inflation rate was 4.6%, interest rate was 6.04%, unemployment rate was 32.38% and fiscal deficit was −4.82%. Furthermore, the country was grey-listed by FATF from 2023 to 2025 due to irregularities in Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) protocols.

Considering the aforementioned findings, it can be concluded that the promulgation of the FSR Act and the implementation of the Twin Peaks Model have not fully optimised financial security in the country as per SEIAs’ expected outcomes. High household debt, crime, unemployment, inflation, and interest rates, and a low savings index and the FATF grey listing imply that there are regulatory challenges and gaps in enforcement and compliance with prudential and market conduct regulations under the Twin Peaks Model (Aragaw 2024; De Koker 2024; South African Institute of Financial Markets [SAIFM] 2023). Existing regulatory challenges and gaps contribute to consumers’ vulnerability to systemic risks and shocks, financial crimes and misconduct, limit consumers’ access to asset-creating financial products or services, and erode consumer and investor confidence in FSPs.

Economic growth

The impact of regulatory reforms on the country’s economic growth was evaluated by the following indicators: GDP growth, savings index, Gini coefficient, unemployment rate, fiscal deficit, inflation rate and interest rate. As shown by a 5-year study finding, South Africa experienced an average GDP growth rate of 0.328%, a savings index of 15.27%, a Gini coefficient of 62, an unemployment rate of 32.38%, a fiscal deficit of –4.82%, an inflation rate of 4.6% and an interest rate of 6.04%.

Based on the above findings, it can be inferred that prudential and market conduct regulatory measures under the Twin Peaks model have had minimal impact on the country’s economic growth. Instead, cumulative factors such as a sluggish GDP growth rate, a low savings index, a negative fiscal deficit, a high Gini coefficient, unemployment, inflation and interest rates have a negative impact on economic growth. According to Ejim (2024), these challenges particularly limit drivers of economic growth and activities such as spending, borrowing, investments and capital development within a country. In summary, the findings are contrary to the 2015 SEIAs’ predictions on economic growth.

Environmental sustainability

SEIA’s findings did not expect the proposed financial regulatory reforms to negatively impact environmental sustainability initiatives within the country. Instead, the reforms were expected to stimulate the flow of investments into projects or programmes aimed at increasing environmental awareness, as well as the development of green technologies and innovations (National Treasury 2016). The data on financial sustainability could not be ascertained with accuracy.

Other study findings

Socio-Economic Impact Assessment System studies

Research on SEIAs in South Africa and other countries highlights the interconnectedness of economic policy, financial inclusion and socio-economic outcomes. Below are some of the latest SEIA studies:

• The SARB report (2023) examines the relationship between income, education and employment in influencing financial inclusion in South Africa. Despite improvements in access to financial services, disparities persist, especially among rural and low-income populations. The report reveals that the lack of financial literacy is a significant barrier to financial inclusion, while digital financial services have potential but require improved infrastructure and education.
• Nora Hattar (2023) conducted a study on the socio-economic impact of the coronavirus disease 2019 (COVID-19) pandemic on South Africa’s informal sector, highlighting the vulnerability of informal workers and the limited effectiveness of government assistance initiatives. The study found significant income losses and employment uncertainty. Social subsidies provided temporary comfort but were insufficient for long-term stability.
• The WB (2023) meta-analysis reveals widespread employment losses, higher poverty rates and disproportionate effects on women and underprivileged populations due to the COVID-19 pandemic, highlighting the socio-economic consequences of the pandemic on various nations.
• The IMF (2022) study on the impact of financial inclusion on socio-economic development found a positive correlation between financial inclusion and economic growth, particularly in areas like microfinance and digital banking. Successful case studies include mobile banking in Kenya and microfinance in Bangladesh.

The findings demonstrate the fallibility of using SEIAs as the sole tool for justifying the enactment or reforms of legislation. SEIA’s findings cannot predict all expected benefits or costs related to legislation or reforms thereof.

COVID-19 pandemic impact, confounding factors and implementation lag

The COVID-19 pandemic had a huge exogenous shock to South Africa’s economy and social well-being; therefore, it should be regarded as a critical confounder for any comparisons made after 2020 to be meaningful (IMF 2020; National Treasury 2020). The study thus acknowledges the socio-economic impact of the pandemic shock. The acknowledgement is evident in the descriptions and summaries in the Methods and Results sections, respectively.

Furthermore, the analysis considers the implementation lag period between the promulgation of the FSR Act in 2017 and the implementation of the Twin Peaks model in 2018. To address lag sensitivity, the study examined post-enactment windows (for example, 2020–2024) and evaluated pre-reform trends (2010–2016) to determine whether observed post-2017 movements are continuations of previous trajectories, as shown in Figure 2. Given the scale of the pandemic shock and the duration of the implementation lag, the study regards the FSR Act and the Twin Peaks model as probable drivers of the observed indicator trends, not the only causes.

FIGURE 2: South Africa’s economic performance.

The pandemic, according to Chitiga-Mabugu et al. (2021), worsened a previously weak economy in South Africa characterised by fiscal issues, a depressed labour market and reduced investment flows. The pandemic amplified the already existing structural economic weaknesses in South Africa, which predate the COVID-19 period (IMF 2024). The country entered the pandemic with already constrained economic and fiscal challenges. The pandemic actually exacerbated and further exposed these economic challenges, which continue to exert enormous pressure on the government to this day.

The worsening trend in socio-economic conditions between 2020 and 2024 can be partly attributed to disruptions in economic activity due to lockdown restrictions and a marked diversion of public funds to finance COVID-19 measures aimed at mitigating the economic impact. However, the pandemic should not be considered the sole driver of various socio-economic challenges experienced between 2020 and 2024. Issues like unemployment, socio-economic disparities and eroded investor confidence preceded COVID-19 and the FSR Act of 2017 (IMF 2022; National Treasury 2020; WB Group 2021). As shown in Figure 2, South Africa’s economy has been underperforming for some time, growing at an average of 1.7% annually since the 2010s.

The lag in regulatory reform implementation can affect the achievement of socio-economic outcomes. While the broader economy was already under strain before 2017, delays in executing these regulatory reforms also weakened their ability to mitigate existing vulnerabilities (Olawole & Adeniran 2025). During the financial reform period, the economy of South Africa was already experiencing low growth, high unemployment and rising household indebtedness. The evidence shows that the slow transition to the new regulatory architecture in the Twin Peaks model implementation further constrained the model’s ability to deliver improvements in consumer protection, financial stability and market conduct as envisaged in the SEIAS (National Treasury 2017).

Studies on regulatory reform concur that when implementation is delayed, the intended benefits of new frameworks can be postponed, while existing socio-economic pressures may continue to intensify (Pressman & Wildavsky 1984). South African studies, similarly, have noted that shortages in capacity during the rollout phase and delays in restructuring institutions limited the early effectiveness of the PA and the FSCA, thereby reducing the model’s potential to alleviate economic stress on households and markets (SARB 2020). However, because the South African economy was already facing challenges, the implementation lag independently could not have contributed to weaker socio-economic outcomes by slowing the realisation of the Twin Peaks model on stabilising socio-economic conditions and meeting developmental objectives.

Study limitations

The findings in this paper do not imply definitive cause-and-effect relationships between the 2017 FSR Act and socio-economic outcomes envisaged by the SEIAS. Instead, the paper acknowledges the existence of confounding variables that may have significantly affected socio-economic outcomes in this country. Per se, this paper views the FSR Act as being one among several variables that can impact macroeconomic outcomes such as social cohesion, economic growth, security and development in this country.

Conclusion

SEIAs played a vital role in the development of effective policy and regulatory frameworks in South Africa. These assessments justified the promulgation of the 2017 FSR Act and the adoption of the TPR model for the country’s financial sector. The implementation of the TPR model was characterised by wider-ranging regulatory reforms that would benefit both the financial sector and the country. First of all, the reforms aimed to promote financial stability and inclusion, protect consumers and combat financial crimes in the financial sector. Beyond that, these regulatory reforms were expected to enhance social cohesion, financial security and economic growth.

Undoubtedly, the SEIA’s findings that justified the enactment of the 2017 FSR Act were able to predict some benefits and costs of proposed regulatory reforms within the financial sector and beyond. For instance, the Twin Peaks model has enhanced prudential and market conduct oversight, including FSP stability, increased financial inclusion, consumer protection and the combating of financial crimes.

Nonetheless, the regulatory reforms associated with the FSR Act and the Twin Peaks model have fallen short of achieving the broader outcomes predicted by the 2015 SEIAs’ findings. This study found that several ongoing challenges constrain the achievement of significant social cohesion, financial security and economic growth in the country, as well as the achievement of the 2030 UN SDGs 1, 8, 10 and 16 in the near future. Such constraints include high levels of indebtedness, unemployment, income disparities, fiscal deficits, inflation, interest and crime rates, coupled with low GDP growth, social capital and savings levels. The study also noted that there were insufficient rigorous consultation processes with a broader spectrum of stakeholders and in-depth analysis of data from other nations, such as the Netherlands and Australia, which implemented the Twin Peaks Regulatory model (TPRM) before South Africa.

The 2015 SEIA findings should not have been the only rationale behind decisions that led to the policy and regulatory reforms in the financial sector in 2017. It follows that policy and regulatory frameworks based on faulty findings are likely to create unintended consequences or cause problems that can negatively impact the interests of various stakeholders. For instance, the SEIAs’ findings on the FSR Bill justified adopting a ‘one size fits all’ financial regulatory approach that is also proving to be expensive, stringent and heavy-handed. As such, policy and regulatory reforms within a single sector are inadequate to achieve complex outcomes such as social cohesion, financial security and economic growth in a society rife with past and present socio-economic ills and vulnerabilities.

Although COVID-19 impacted the economy during this review period and worsened South Africa’s short-term economic outcomes, it mainly amplified pre-existing structural weaknesses in economic policies and performance. Therefore, the pandemic alone cannot explain why financial reforms in 2017 did not yield the sustained socio-economic improvements as intended in the SEIA findings by Treasury Department in 2016.

There is a need to modify the scope of SEIAS conducted before the approval of legislative bills or amendments to existing policy and regulatory frameworks. The study recommends broader, in-depth SEIAS, complemented by other methodologies that take into account relevant contextual issues.

Acknowledgements

This article is based on research originally conducted as part of Edward W. Khumalo’s doctoral thesis titled ‘Evaluation of the effectiveness of the Twin Peaks Regulatory model in South Africa’, submitted to the Business School in the Faculty of Economics and Management Sciences, North-West University in 2025. The thesis is currently unpublished and not publicly available. The thesis was supervised by Jan van Romburgh and Jacqui-Lyn McIntyre. The article was reworked, revised and adapted into a journal article for publication. The authors confirm that the content has not been previously published or disseminated and complies with ethical standards for original publication.

The authors declare that they have no financial or personal relationships that may have inappropriately influenced them in writing this article.

Edward W. Khumalo: Conceptualisation, Data curation, Formal analysis, Investigation, Methodology, Resources, Visualisation, Writing – original draft, Writing – review & editing. Jan van Romburgh: Supervision, Writing – review & editing. Jacqui-Lyn McIntyre: Supervision, Writing – review & editing. All authors reviewed the article, contributed to the discussion of results, approved the final version for submission and publication, and take responsibility for the integrity of its findings.

This research received no specific grant from any funding agency in the public, commercial or not-for-profit sectors.

The data that support the findings of this study are not openly available due to reasons of sensitivity and are available from the corresponding author, Edward W. Khumalo, upon reasonable request.

The views and opinions expressed in this article are those of the authors and are the product of professional research. They do not necessarily reflect the official policy or position of any affiliated institution, funder, agency or publisher. The authors are responsible for the article’s results, findings and content.

References