Banks Amendment Bill: discussion

Meeting report

PORTFOLIO AND SELECT COMMITTEES ON FINANCE
25 August 2000
BANKS AMENDMENT BILL: FORMAL CONSIDERATION

Documents handed out
Banks Amendment Bill
Correspondence from the Foreign Bank Association
Correspondence from the Office of the Banking Adjudicator

SUMMARY
Nobody had applied for oral submissions on the Banks Amendment Bill. The Foreign Bank Association wrote that they accept the principle of an increase in minimum capital to R250m but requested provision for foreign banks to hold such capital in foreign currency to obviate the real cost of Rand currency exposure.

Correspondence received from the Office of the Banking Adjudicator complained of the short notice given for submissions. The Banking Adjudicator raised the issue of curatorship of a bank in financial trouble and the fact that the interests of the customers of the bank have not been adequately safeguarded in the past. The panel pointed out that any aggrieved person could institute an action against the curator

The issue of legal representation when bringing a claim as a creditor against a Bank or as a witness was established as a right. Two amendments were added to Section 4 (8) to ensure that witnesses were assured the right of legal representation but at their own expense.

In answer to members of the Committee questioning the R250m market entry figure for banks in South Africa, it was established by a panel from the Reserve Bank and Finance Ministry that this was in accordance with industry models and not an action to limit entry into the market.

The Committee accepted all the clauses in the Bill.

MINUTES
The Chairperson, Ms B Hogan (ANC), noted that nobody had applied for oral submissions to the Committee on the Banks Amendment Bill. Written correspondence had been received from the Foreign Bank Association who remarked that they accept the principle of an increase in minimum capital to R250m but requested provision for such capital to be held in foreign currency to obviate the real cost of Rand currency exposure. A reply was given by the panel (Mr Blackbeard, Mr Bezuidenhout and Advocate De Jager of the Reserve Bank and Mr Malan from the Ministry of Finance) that this point would be dealt with in the Regulations.

Correspondence received from the Office of the Banking Adjudicator complained of the short notice given for submissions to the Committee. The Banking Adjudicator, Adv Melville, raised the issue of curatorship of a bank in financial trouble and the fact that the interests of the customers of the bank have not been adequately safeguarded in the past and the liquidators have not vigorously followed up their disputed claims.

The panel replied that any aggrieved person could institute an action against the curator while this was not the job of the liquidator. The panel stated that the Insolvency Act and the Companies Act governed the actions of the liquidator.

The Chairperson pointed to the Office of the Banking Adjudicator's suggested amendment of Section 10 (2)(a) of the Bill that creditors can approach the Registrar if they feel aggrieved by the decisions of the curator. The Committee agreed that they would be open to a small amendment of the wording.

The Chairperson raised a further point as to the value of transparency in the Bill. Mr Andrew (DP) said that it was not possible to make the Minister's actions totally transparent and advocated for some sort of balance.

The next point raised was that the Banking Adjudicator had made reference to past controversies relating to claims not being settled by aggrieved creditors when a bank was placed under curatorship. The panel said that it was only aware of one case that had never been settled.

Mr Booi (ANC) stated that controversy and transparency were two separate issues. He stated that Mr Andrew (DP) was correct to remark on transparency as being an important issue. He then inquired whether the Minister needed transparency as regards the appointment of people or when controversy arose.

The Chairperson replied that transparency was required in the process.

Mr Andrew (DP) stated that most people do not know when the Minister makes a decision and there should be a clause inserted that would not be unreasonably onerous on the Minister to be more transparent or to invite public submissions for nominations to capture talent that may be beyond the Minister's knowledge.

Dr Koornhof (UDM) suggested that these requirements not be included in the Bill but in the Regulations.

Dr Davies (ANC) suggested that the addition of any words to the Bill would be open to judicial interpretation. The Chairperson announced that the issue had been settled and that it would be governed by the Regulations.

Section 4 (8)(a-c) "Review of decisions of Registrar"
This was discussed in some detail. Advocate De Jager of the panel stated that in the interest of Administrative Law and natural justice, an individual was entitled to ask for reasons for a particular appointment. He also stated that legal representation was a right guaranteed in the Constitution and that if it had to be said in all Acts it would just amount to repetition. The issue of representation related to bringing a claim against the curator of a bank.

The Chairperson invited other viewpoints. Mr Andrew (DP) said that these points should be clear to somebody who is not a lawyer so that when you read the law you know your entitlements.

Mr Bruwer, the State legal adviser, stated that the accused was entitled to legal representation but clarity was needed on whether a witness had this same entitlement.

Dr Davies (ANC) commented that it was wise not to open too much to judicial interpretation.

Mr Bruwer said that in the particular circumstances that the chairperson should allow each case to be judged on its own merits.

Advocate De Jager felt that entitlement to legal representation existed if an individual felt that an event to his/her detriment was going to occur.

Prof Turok (ANC) was of the opinion that the use of the word "interrogate" in Section 4 (8)(c) was too harsh and inferred a different relationship.

Mr Andrew (DP) commented that it was a pity that better notice had not been given to the Banking Adjudicator as they would then have the opportunity to elaborate on the case where an individual was denied legal representation.

Advocate De Jager suggested the addition of a clause (d) to remedy the confusion.

Dr Davies suggested that the clause be made gender sensitive and refer to "him/her" instead of merely to "him".

The Chairperson, Ms Hogan, voiced the collective sentiment that the protection of the witness was an important factor.

Mr Bezuidenhout, a panelist, stated that it was not the intention of the Bill to implement International Best standards but rather Minimum Best. He said that South Africa had to comply with the Minimum Best, as it was now part of the international community. A further point was made that the International Monetary Fund (IMF) had found South Africa lacking in certain areas and that this may lead to problems of operation in certain jurisdictions. Mr Bezuidenhout went on to say that sufficient capital was needed for a bank to meet the risk that it would be faced with in operation.

The Chairperson inquired about the issue of contagion. To this, Prof Turok (ANC) added the issue of gearing.

Mr Bezuidenhout replied that this was a complex issue and that even the European Union had not decided on this issue. He stated that no document existed that dealt with contagion and gearing.

The Chairperson asked the panel how it was able to arrive at the figure of R250m for entry into the market as a bank.

Mr Bezuidenhout replied that banking was about risk reward and that banks follow models that deal with credit and trading. Coupled with this, the infrastructure needed to set up a bank cost about R25m and it is recognised that this cost should not be more than 10 percent of capital.

Dr Davies (ANC) asked the panel if they were satisfied that this was not a restrictive practice by existing banks to keep out newcomers.

The panel answered that they were satisfied that this was reasonable practice.

Mr Nair (ANC) said the figure of R250m would restrict trade union co-operative banks. The Chairperson pointed out that those types of banks were not subject to this requirement.

Advocate De Jager was provide time to draft an amendment (d) to Section 4 (8).

Some debate ensued as to what the official position was on the gender perspective of an amendment was when the rest of the act was not drafted in a gender sensitive manner. The Chairperson assigned the task to the clerk of the Portfolio Committee to clarify the position.

Advocate De Jager as a matter of clarification stated that the curator replaces the management of the bank and is under the supervision of the Registrar. A creditor may have direct access to the Registrar.

Mr Andrew (DP) suggested that in future somebody from the Banking Adjudicator's Office should be invited to attend these meetings.

The following amendments were accepted:
Section 4 (8)(c) "…and such a person shall be entitled to legal representation" was inserted at the end of the original clause
Section 4 (8)(d) reads "at his own cost"

The Committee accepted all the clauses to the Bill.