SA’s financial services sector is panicking over the impact that a potential collapse of the national electricity grid could have on the country’s financial and monetary system.
Business Day understands that companies in the asset management, insurance and banking sector have been scenario planning how an Eskom grid collapse could disrupt everything from the execution and settlement of trades on the JSE to money transfers and salary payments. The main fears appear to centre on potential social unrest and a likely plunge in financial market asset prices due to panic selling once the power grid is up and running again after the failure.
The SA Reserve Bank effectively acknowledged the concerns of the financial sector on Tuesday when it released a statement saying its Financial Sector Contingency Forum (FSCF), a unit instituted by former governor Tito Mboweni after the 9/11 terror attacks, had been preparing response plans for a national or regional grid failure since at least 2015. The FSCF has also been formally constituted under the Financial Sector Regulation Act.
“One of the platforms through which such crisis preparedness plans are compiled is the FSCF,” the Bank said. “The FSCF is tasked with assisting authorities to identify and mitigate risks that could threaten the functioning and stability of the financial system. Such risks include the possibility of terror attacks, disruptive cyberattacks, pandemics such as Covid-19 and interruptions of physical infrastructure such as water, telecommunications and electricity.”
The FSCF is chaired by deputy Bank governor Kuben Naidoo. Its members include the National Treasury, the Financial Sector Conduct Authority, the Association for Savings and Investment SA, the Banking Association SA, the Financial Intelligence Centre and relevant financial market infrastructures such as the JSE and other industry bodies and regulated institutions.
“It is in this context that work regarding a response to a prolonged electricity outage, which may necessitate an orderly closing and reopening of markets, should be viewed.”
As part of its preparations the FSCF has been in regular contact with Eskom, the petroleum industry and the telecommunications industry. It also conducts periodic crisis simulations exercises to test the financial sector’s ability to respond to shocks based on different scenarios.
The Bank says the FSCF’s 2006 simulation focused on business continuity amid a natural disaster, while in 2013 the effectiveness of the body’s escalation, co-ordination and communication arrangements amid a systemic crisis were tested.
In 2017 the exercise, which formed part of a two-day workshop facilitated by the World Bank, focused on a cyber crisis. In 2022, the FSCF also commissioned a report on the lessons learnt from Covid-19.
“The FSCF helps to test and enhance the financial system’s resilience to respond to any such shocks,” the Bank said.
While the Bank did not reveal whether it has conducted any simulation exercises so far in 2023 regarding an Eskom grid collapse, Business Day has been reliably informed that companies in the financial services sector have held meetings on the impact such a scenario could have on the financial system.
“Crisis management plans are typically based on a range of likely but low-probability scenarios, and the fact that a crisis management plan exists should not be interpreted as a signal that the [Bank] is anticipating any specific scenario to materialise,” the Bank said in its statement.
The Bank’s “financial stability mandate requires it to assess potential systemic risks and to mitigate such risks”.
This responsibility requires it to “compile and test crisis management plans as part of its ongoing functions”.
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