South African Reserve Bank Amendment Bill [B10-2010] Public Hearings Day 1

This premium content has been made freely available

Finance Standing Committee

31 May 2010
Chairperson: Mr T Mufamadi (ANC)
Share this page:

Meeting Summary

Committee heard public submissions on the South African Reserve Bank Amendment Bill (the Bill). Mr Mario Pretorius opposed the amendment, as he believed that parts were in contravention of the Constitution of South Africa, and were not in keeping with the principles of corporate governance and the Companies Act. He also thought that parts of the proposed amendment were completely unnecessary as the South African Reserve Bank (SARB) Regulations made allowances for the SARB to regulate matters that needed changing. He said that the proposed amendment had raised questions around the function and existence of the SARB, and believed that its sole mission was to protect the value of currency. He thought that the proposed amendments impacted negatively on the independence of the SARB because government had a majority vote on the Board, and proposed changes to the Board. He also believed that urgent clarification was needed from the Minister of Finance whether SARB was exempted from the provisions of the Companies Act 71 of 2008. He also commented on the short space of time allowed or submissions. Members asked some questions of clarity, questioned whether there had not been an expectation mismatch and asked what Mr Pretorius would suggest to increase transparency.

Mr Nicolas Lang noted that the main objective of the Bill was to stop shareholders of SARB from circumventing the Act's current limitation on a maximum of 10 000 shares to be held per shareholder. He believed that no changes were needed to enforce this. He referred to the panic around the old R200 note, and events at the South African Bank Note Company. He was concerned that the Bill would affect any meaningful role that shareholders might play, was concerned about the requirement that additional shares must be sold and commented that when shareholders made suggestions at Annual General Meetings or questioned the running of the Bank, they did so legitimately and should not be vilified. Members asked how Mr Lang was suggesting that the SARB could promote eradication of poverty.

Institute for Democracy in South Africa (IDASA) addressed the role of the South African Reserve Bank, its perspective on the proposed changes and recommendations. Noting the vital position of the central bank in the whole economic cycle, IDASA urged Parliament to be mindful of the importance of both operational independence as well as goal independence at the SARB, and also commented on the importance of job growth. Suggestions were made in relation to Clauses 1 to 8, including the reduction of the number of directors, a broader base for nominations, requirements to be met by nominees and vetting of all nominations by Parliament. Members expressed their appreciation for the presentation

Mr Michael Duerr differentiated between main issues of corporate governance and monetary policy, and submitted that whilst corporate governance was a legitimate and pressing demand from shareholders to support the independence of the SARB, monetary policy had become politically charged, and changes were needed. He claimed that there had been a corporate governance crisis, and that it was necessary to look into the history to dissect questions about private shareholding and ownership. He cited reasons why SARB should be regarded as a company. Members asked for comments about expectation mismatches, asked what role Mr Duerr felt that Parliament could play, and asked how private interest could be monitored so it did not supercede public interest. 


Meeting report

South African Reserve Bank Amendment Bill [B10-2010]: Public hearings
Mr Mario Pretorius Submission

Mario Pretorius tabled a submission on the South African Reserve Bank (SARB) Amendment Bill (the Bill), noting his opposition on various grounds. He believed that parts of the amendment ran contrary to the Constitution of South Africa, or were not in line with principles of corporate governance and the Companies Act. Mr Pretorius was also of the view that parts of the proposed amendment were completely unnecessary, as the South African Reserve Bank (SARB) Regulations made allowances for the SARB to regulate matters that needed changing.

He clarified his views that the amendment ran contrary to those sections of the Constitution that pertained to the supremacy of the Constitution, the property rights, freedom of religion, belief and opinion and freedom of expression (Section 16).

He also believed that the proposed amendment imposed upon the independence of the SARB, as it proposed that the government had a majority vote on the SARB Board. He proposed that the South African Reserve Bank Act be modified so that the Board was comprised of both Executives and Non-Executives.

He said that urgent clarification by the Minister of Finance was necessary to identify whether the SARB was exempted from the provisions of the Companies Act 71 of 2008. He believed that the proposed amendment failed to rectify the breach of the Bilateral Investment Treaty and that the amendment was in “shrill shocking contrast” to the provisions of the King III Report, which took effect on 1 March 2010. Mr Pretorius tabled proposals to the Joint Committee. Proposals related to all directors of all financial institutions.

Mr Pretorius divulged his stance on nationalisation and higher returns to the Joint Committee (see relevant document for details)

He found it disconcerting that the amendment was tabled leaving such a short space of time for public participation and suggested that more time was needed.

Mr Pretorius also said that the proposed amendment had raised the question of the function and existence of the SARB. He said that the SARB's single mission was for the protection of the value of the currency.

Discussion
Dr Z Luyenge (ANC) wanted clarity as to what clause Mr Pretorius had quoted, prior to his references to Clause 35.

Mr Pretorius referred to page three of the proposed amendment.

Dr Luyenge was concerned about the mechanisms that would be employed to ensure transparency, pointing out that Parliament was the cornerstone for democracy.

Dr D George was concerned that there had been an expectation mismatch. He wanted to know why Mr Pretorius had bought his shares and was concerned if Mr Pretorius had been aware of the limitations.

Mr Pretorius said that he had very basic expectations and agreed that there had been a mismatch. He said that he wanted further engagement regarding mismatches.

Dr M Oriani-Ambrosini (IFP) thanked Mr Pretorius for a compelling presentation and wanted to know what Mr Pretorius would suggest to increase the level of transparency at management.

Mr N Koornhof (COPE) wanted to know if Mr Pretorius had been aware of any other shareholders and displayed concern towards circumvention.

Mr Pretorius said that he was also concerned as to why certain banks were allowed to function as they had not been listed at the Companies and Intellectual Property Registrations Office (CIPRO).

Mr Pretorius said that he did not think that anyone would want to circumvent the law as there was a penalty that could be imposed.

Dr Oriani-Ambrosini referred to the “black box”, and asked for comment.

Mr Pretorius added that the day to day management would simply erode those provisions.

Mr Nicolas Lang Submission
Nicolas Lang stated that he was concerned about the proposed Bill's main objective, to stop shareholders of the South African Reserve Bank from circumventing the Act's current limitation for a maximum of 10 000 shares to be held per shareholder. He believed that the current South African Reserve Bank Act did not need any changes, and that it was already, as it stood, adequate to prevent any breaches of the Act.

Mr Lang briefly described how he and his family had become shareholders of the South African Reserve Bank.

He also made reference to the current panic around the old series of R200 notes, which were due to be withdrawn by the end of May 2010. He further referred to the “racism saga” at the South African Bank Note Company (Pty) Ltd, which SARB effectively owned.

Mr Lang thought that the Bill was a ploy to achieve the total eradication of any meaningful role shareholders might play. He was not happy about shareholders having to sell off their excess shares if and when they did not register as an association. He regarded this as tantamount to the confiscation of property. He noted that shareholders were not the enemy of the South African Reserve Bank and that when shareholders made an indication that something was wrong at the bank, that they should be thanked for their interest shown and not vilified. Often, when shareholders often asked legitimate questions of management and the Board at the Annual General Meeting (AGM), they did so out in order to establish what was best for the SARB and South Africa.

Discussion
Mr C De Beer (ANC, Northern Cape) said that Mr Lang's submission could have been simplified if he had made his submissions in point form.

The Committee wanted to know how Mr Lang was suggesting that the SARB could promote the eradication of poverty.

Mr Lang said that the SARB could do this by making allowances for non-interest loans.

Institute for Democracy in South Africa (IDASA) submission
Nancy Dubosse, Head of Research: Economic Governance Programme, Institute for Democracy in South Africa, tabled the su, which addressed the role of the South African Reserve Bank, IDASA's perspective on the proposed changes and recommendations.

Dr Dubosse said that South Africa's central bank was vital to the economy in general, as it undertook a number of actions that gave life to the whole economic system, thus allowing it to reinforce other sectors of the economy.

She urged Parliament to be mindful of the importance of both operational independence as well as goal independence at the SARB. She also noted that job growth was particularly important when considering the role of the Bank.

She then commented on Clauses 1 to 8 of the Bill and set out the perspective of IDASA in relation to each of those clauses. Recommendations were made for revisions. These related to the reduction of the number of directors on the Board of the SARB. She suggested that nominations to fill positions on the Board of Directors should come from all segments in South African society, including the National Economic Development and Labour Council (NEDLAC) and the President. She also recommended that all nominees should also meet the minimum qualifications as set out in Clause 2 of the Amendment Bill. She finally recommended that all nominations to the Board of Directors of the SARB should be vetted and confirmed by the South African Parliament.

Dr Dubosse submitted an IDASA economic governance programme for the Joint Committees' perusal.

Response by the Committee
Dr D George (DA) commended IDASA for an unusual and interesting submission.

Mr C De Beer also commended IDASA for a well structured and concise submission. He noted that the Committees would examine the recommendations and revert to IDASA on them.

Mr Michael Duerr submission
Michael Duerr began his submission by detailing the history of his own shareholding in the SARB.

The Chairperson asked that Mr Duerr should focus on challenges that he saw with the proposed amendments to the Bill, as opposed to setting out his own history with SARB.

Duerr said that he felt inclined to clarify the matters raised by the Minister of Finance and the SARB Governor in recent weeks and months. He said there was a need to differentiate between two main SARB issues of corporate governance and monetary policy. Corporate governance was a legitimate and pressing demand from the shareholders to realise and support the independence of the functions of the Central Bank as enshrined in the Constitution’s Section 224(2). Monetary policy, on the other hand, involved political discussion. Some shareholders were involved in as private persons. They had been convinced that a change was necessary to what he described as the current fraudulent money system.

Duerr said that in the main his written submission dealt exclusively with the corporate governance crisis that had been perpetuated for years within the SARB. In order to dissect the questions raised about private shareholding and ownership of the Central Bank of South Africa, it was necessary to go back to the creation of this juristic person by the Currency and Banking Act of 1920, and then the creation of a public limited company in 1921. He said that the SARB only existed because of the equity contributed by private persons, commercial banks and the National Treasury, each of whom initially owned about one third of the equity. The initial capital injection of 1 million South African pounds remained equal to the share capital of R2 million today. All of the currentassets of the SARB had been built on the initial capital and the retained earnings in the reserves.

Mr Duerr said that the clarification about the company status had been given by the then-Governor WH Clegg at the Annual General Meeting on 11 June 1926 (cited at Page 8 of the Annual Report), who had said: “I think we may fairly say that we are the only company (sic) in South Africa doing business ...". The next legal proof of the company status was that shareholders, since the inception of the Stamp Duty Act, had been obliged to pay stamp duty on the change of share ownership, which was a requirement of companies. In addition, shareholders had also appointed the majority of the Directors on the SARB Board until the second and latest change of the SARB Act in 1989.

Discussion
Dr George referred to Mr Duerr's comments about monetary policy. He wanted to know if Mr Duerr wanted to maximise the expectation mismatch.

Dr Luyenge wanted to know if Mr Duerr felt there was any role that Parliament could play in the activities of the SARB.

Dr Oriani-Ambrosini displayed concern towards the divide between private and public interest, and asked how private interest could be monitored so that it would not supercede public interest. He wanted to know if Mr Duerr thought that there was any suggestion of involvement of an international community of bankers.

Mr Duerr said that he was not part of a conspiracy theory and that he had no financial motivation whatsoever, as he was retired.

Mr Duerr said that currently the SARB was serving as a custodian for the commercial banks and that he believed that the Committee needed to play a role in monitoring.

The meeting was adjourned.


Share this page: