South African Reserve Bank Amendment Bill [B10-2010]: Reserve Bank & National Treasury briefings

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Finance Standing Committee

03 June 2010
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

The South African Reserve Bank (SARB) and National Treasury (NT) briefed the Committee on their responses to submissions made during public hearings on the South African Reserve Bank Amendment Bill [B10-2010]. Firstly, the role and function of the SARB were clarified, and it was noted that the SARB held reserves in a fiduciary position, was not governed by the Public Finance Management Act or the Companies Act, but by the South African Reserve Bank Act and Section 225 of the Constitution. The purpose of the SARB was to maintain the value of currency, in the interests of sustainable growth and development, and serve the public interest, while maintaining a stable macro-economic environment. It should not be maximizing profit for shareholders, and could not be regarded as akin to a private company, since shareholders had a participatory and not an ownership role. The SARB agreed that there had seemingly been a mismatch between fact and shareholders’ expectations, and divulged the attempts by some shareholders to manipulate monetary policy. The Board of the SARB was a governance and not a policy board. SARB stressed that the purpose of the amendment Bill was to limit the voting power, rather than the shareholding, of shareholders, in order to prevent voting blocs, that the appointment of an additional board member would replace the Governor’s casting vote in the event of a numerical vote deadlock, and that the Bill addressed the election of non-executive directors. The Bill was in fact legislating for what was already a matter of practice. The comments also addressed the fact that the Governor of the SARB would not sit on the Remuneration Committee when the Governor’s remuneration was under discussion, but was not prevented from doing so on other occasions. The allegations that the shareholders’ roll was inaccurate were untrue, and it was clarified that shareholders’ rights were limited and were set out clearly in the governing legislation. Allegations of discrimination against foreigners were also unfounded, and the limitation on those living outside the country from casting a vote was fully explained. Neither SARB nor National Treasury believed that any purpose would be served in granting an extension of time for submissions as nothing new was likely to emerge, and due process had been followed. SARB agreed that letters circulated by some shareholders attempting to exercise undue influence on other shareholders would be furnished to the Committee.

Members were satisfied with the clarification provided by both National Treasury and the SARB. They raised questions on share prices, and questioned the allegations made around poor corporate governance, and whether skills levels of Board members should be specified. They also asked for comment on a submission that Parliament should play a role in board selection, and whether Parliament’s role should be spelled out in the legislation. They also questioned the shareholding, the independence of the SARB board members, and commented that some petty matters were raised and that some shareholders seemed not to be acting as honourably as they should.

Meeting report

South African Reserve Bank Amendment Bill (B10-2010): Presentation by National Treasury (NT) and the South African Reserve Bank (SARB)
Mr Ismail Momoniat, Acting Director-General, National Treasury, noted that National Treasury (NT) and the South African Reserve Bank (SARB) had spent substantial time examining all the submissions made on the South African Reserve Bank Amendment Bill (the Bill), and would outline its broad response to the Committee.

Government set policy goals, whilst the SARB had operational independence in implementation of the goals. The country’s reserves were not owned, but were held in trust by the SARB. As such, the SARB exercised responsibility in the broader public interest. The SARB was not a private company and, in answer to some of the submissions, it was not governed by the Public Finance Management Act (PFMA) of 1999 or the Companies Act (CA) of 1973. Instead, it was governed by the South African Reserve Bank Act (SARBA) of 1989 and by Section 225 of the Constitution. In terms of monetary policy, the SARB was now much more transparent, with governors acting through committees. The governor of the Reserve Bank was appointed by the President to carry out monetary policy, but was not told what monetary policy was. The purpose of the SARB was to maintain the value of the currency, in the interests of sustainable growth and development, and thus serve the public interest. It was also responsible for ensuring a stable macro-economic environment in the country. The purpose of the SARB was not to maximise profit for shareholders. Due to the functions of the bank, it could not and should not be a private company.

Ms Gill Marcus, Governor, SARB, stated that the bank board was a governance board and not a policy board. The Bill emphasised this point. She noted that opinions had been expressed that the Governor of the SARB should not sit on the Remuneration Committee (REMCO) when it considered the Governor’s remuneration, although it seemed that there were no objections to the governor sitting on this committee when any other matters were being discussed.

The amendment Bill spelt out the election of non-executive directors in a fit and proper manner, stating the fiduciary duties they owed to the bank. There had been a submission around shareholder representation, but she responded that this did not change how a board member should act. The institution came first and the board was unitary, despite how people were appointed to the board. Election to the board was not a mandated position, and board members were elected on the basis of their knowledge. The question of knowledge versus representation entrenched independence and accountability.

She noted that one allegation that the shareholder roll was inaccurate was untrue. The SARB wanted to enhance shareholder representation, but this would be done by allowing wider sectors of society to have a say as to who were appointed as board members. She indicated that the SARB was supposed to represent the interests of the people in general, and should not have a body of shareholders holding a block of shares. The additional board member proposed in the Bill would enhance cohesion in respect of the Governor’s casting vote.

With regards to shareholding, she reiterated that SARB was not a private company, and shareholders’ rights, which were limited, were set out clearly in the SARBA. The intention was not to have a block of opinion and for this reason ownership of shares was limited, to prevent interested parties from colluding to get certain members onto the board in order that undue influence could be exercised. The fixed return dividend confirmed the public interest role of the SARB. Profit and loss occurred in the course of public duty and external conditions, unlike a business. As the extraneous factors were not linked to the SARB’s determination, profit should not be shared with shareholders. If this was the case, then it would be expected that shareholders should also be responsible for losses, rather than government picking up this responsibility. The SARB’s function was not to turn a profit, and shareholding in the bank did not amount to ownership.

Ms Marcus said that allegations about the SARB being discriminatory against foreigners were unfounded, as the rules allowed any shareholder residing within South Africa to cast a vote, irrespective of nationality. This was done because those residing overseas were not affected by internal conditions in the country, and thus it was considered that they should not have a say unless they were actually experiencing the effects.

The role of the Governor was an administrative role, and that person did not choose any person in the SARB.

She commented on the submissions around timeframes. She noted that the timeframes was considered adequate, and substantial comments had been submitted. Due process had occurred. She said that the comments around corporate governance from Ratings Afrika were surprising, since in the last seven years there had not been any interaction from or engagement by Ratings Afrika around the alleged discrepancies which it had mentioned in its submission.

The Chairperson noted that the full responses from NT and the SARB provided a platform to synthesize the submissions put forward by other parties.

Mr M Swart (DA) asked to what SARB ascribed the high share price, given the limitations of shares and the fixed dividend.

Ms Marcus replied that shares were issued at a nominal price of R1 and that the price when they were sold on had been in a wide range but the higher price had made them more exclusive. This should not be the case. The issue was participation, not ownership. Price mattered because it limited shareholding to people who had wealth. The current share price traded around R12,50 because of expectations and supposed speculations. The shares had been valued according to expectations based on speculation around the disbursement of profit, which was incorrect.

Mr M Motimele (ANC) asked how the SARB managed accountability, considering it was not governed by the PFMA or Companies Act. He noted that none of the submissions received were at odds with the notion that Parliament must play a major role in the SARB and that the bank should not be a private company.  He asked whether the responses by the SARB’s Governor adequately covered the legalities of the Bill.

Mr Momoniat replied that the SARB was governed by the SARBA, which dealt with how the bank was accountable. It was accountable to Parliament and its shareholders through the Annual General Meeting. Its finances were also governed by the SARBA.

Ms Marcus added that the SARB was accountable to Parliament, its shareholders and the public. The SARB tabled its Annual Report and Annual Financial Statements to Parliament each year. It could be summoned at any time to Parliament to account. There was very real and thorough public accountability. The role of the citizen was centred on participation, and she pointed out that participation could take other forms besides shareholding. The SARB had tried to deal with monetary policy through live public broadcasts, and had also held monetary policy forums around the country.

Mr D Van Rooyen (ANC) said that Clause 22 of the Bill dealt with shareholders and that most of the submissions had suggested that this amendment disregarded Constitutional provisions. With regard to aspects of good governance, some submissions said that more powers were now vested with the Governor’s office. He noted that when mentioning the need to have skilled people from different sectors on the board, no level of skill was specified. Submissions also focused on the difference of terms of office between the Governor, Deputy Governor and the directors. He asked why this was so.

Ms Marcus replied that there had been a great deal said about corporate governance and that she would like to know exactly why it was alleged that the SARB’s corporate governance was poor. Within the confines of its responsibility the SARB tried to meet corporate governance guidelines. The King III Report had now come out, and SARB was trying to assess whether there were any gaps that needed to be addressed, or cases where it could not comply with the precepts because of the nature of its work. In the latter case, full explanations for non-compliance would be furnished by SARB. The powers invested in the Governor of the SARB were linked to the nature of the board, so there was not power in the usual sense because the board had a governance role, not a policy role. There was an appropriate framework so that board members could not act in their own interest. The governance board prevented a conflict of interest. There were certain limitations on who could serve; for instance persons who sat on commercial bank boards were disallowed from serving on the SARB board, due to their possible conflict of interest. The Bill was to formalise the practice that was already in place.

Dr D George (DA) said that it was clear that there was an expectation mismatch between the shareholders and the SARB, and asked how this would be resolved. It was very clear that shareholders wished to influence monetary policy. He asked whether the legislation was sufficient to prevent this happening. He also asked whether Parliament’s role should be spelled out in the legislation.

Ms Marcus replied that there was no discrimination against shareholders. Shareholders were simply prevented from acting in concert to exercise undue influence. There was limitation of their rights, but this was done to prevent abuse and manipulation of the SARB away from its mandate. Shareholders could hold as many shares as they liked, but could only exercise a vote in respect of 10 000 shares. There was definitely a mismatch of expectations, despite repeated explanations by SARB of what it was and its role. The incorrect expectations persisted because many shareholders assumed there was a “pot of gold”. She hoped the Bill would be passed without any amendments. She was willing to clarify any queries by shareholders. She believed that there could not and should not be any changes to the Bill or to the monetary system. Shareholders were entitled to answers, but the objective of the Bill was to prevent the risk of a hindrance to the objectives of the SARB.

Ms Marcus said that Parliament had an oversight role. It was assumed that the National Economic Development and Labour Council (NEDLAC) was appropriate for the other roles. The SARB had no issue with being called into Parliament for oversight, but was concerned that in giving Parliament the job of Board selection, which had been delegated to NEDLAC, would be putting unnecessary work before the legislature.

Mr Momoniat added that National Treasury was very concerned with having high standards of governance, so the reputation and integrity of the SARB was critical. The spreading of unsubstantiated allegations by shareholders was a dangerous game.

Mr E Mthethwa (ANC) asked for comment whether the Committee should extend the time for submissions, asking if Ms Marcus thought that anything new would arise, or if an extension would simply result in repetition of the same issues.

Ms Marcus replied that she was doubtful that anything new would emerge. She stated that the SARB and National Treasury had received submissions from a very small group of shareholders. She had also received letters from other parties, which were positive and commended the bill.

Mr Mthethwa asked how shareholders would go about influencing monetary policy if they were allowed to, and whether more than 50% of shareholders owned more than 10 000 shares.

Ms Marcus said that the prevention of shareholder influence on manipulating monetary policy was a crucial benefit in the Bill.

Mr Johann De Jager, General Counsel, SARB, replied that when reference was made to close family members, there were eight “blocks” of inter-related people who owned more than 10 000 shares. They respectively owned 100 000, 50 000, 40 000, 25 000, 30 000, 16 000, 30 000 and 40 000 shares each.

Mr N Koornhof (COPE) said that the submission by Institute for Democracy in South Africa (IDASA) was good, and that this submission expressed concern that there was not sufficient role for Parliament. It made the point that having eight Presidential appointees eroded the independence of the SARB.

Ms Marcus replied that the emphasis on who was responsible for appointments in the past created a false impression. She stressed that the board was unitary, and members of that board had a duty of care and skill, irrespective of how they were appointed. The appointment of an additional board member also allowed for the removal of the governor’s deciding vote, should there be a numerical deadlock in board voting. She commented on the misperception that independence implied being in opposition to government. This was not necessarily the case since independence of mind was the key factor. Parliament’s role was dependant on what Parliament envisaged itself doing. SARB welcomed Parliament’s oversight in whatever way it saw fit. It was felt that NEDLAC was an appropriate reporting body to deal with everyday and administrative oversight, while Parliament handled high level matters. However, if Parliament wished to change this, it had the prerogative to do so. She added that she did not think that the IDASA submission was implying that Parliament needed to elect the board.

Mr Van Rooyen said that the shareholders’ register was not a public document and he was worried that the previous meeting’s disclosure of it may have constituted a breach of privacy.

Ms Marcus replied that it was not a question of this being leaked or a secret, but that the illustration was used in an explanation to the Committee in a public hearing. It was not in violation of the SARBA. Parliament was privy to such documents. While not being made explicitly public, the shareholders’ register was also not a secret. Certain shareholders had even published it online.

The Chairperson said that as far as he was concerned, Parliament could summon anyone and ask for any information it deemed necessary. He added that those letters referred to, which allegedly showed that shareholders were trying to manipulate their status in the SARB by getting people to sell them all their shares, should also be given to the Committee. He would not allow the citizens of the country to be hoodwinked by shareholders trying to act with undue influence. 

Mr Chris Moraitis, Independent legal advisor to the SARB, clarified that Section 33 of the SARBA only applied to the board employees and directors, not to other people. Section 33 stated that a director may not breach confidentiality, but also noted that where an employee, in the execution of his or her duties, divulged information, that would not be considered to be a breach. This was in fact no problem. The letters referred to by the Chairperson were open letters which were already circulating in the public domain, were not considered confidential or secret and would be given to the Committee.

Dr George stated that it was obvious that Parliament needed certain information, and to allege that it could not receive certain information merely highlighted the pettiness and mischief that the Committee had to deal with from some shareholders. He added that if shareholders were engaged in any untoward behaviour, the Committee would need to examine the matter fully.

Ms Marcus replied that she would ask her legal Counsel to furnish the Committee with the letters.

The Chairperson stated that he believed that the timeframes allocated for submissions was adequate, and that there was not a real possibility that extending it would result in further information being submitted. The Committee could not be seized with the matter ad infinitum. Key issues in the proposed amendment had been clarified, around the issues of participation versus ownership and governance versus policy. It was also indicated how profit motives could undermine the objectives of the SARB. He asked whether SARB or NT had any other amendments that they wished to add to the Bill.

Mr Momoniat replied that National Treasury was happy with the Bill as it stood.

Ms Marcus agreed with Mr Momoniat.

The Chairperson replied that he would not ask Members to comment at the moment, as they needed time to reflect on the matters. He had the sense that SARB and NT had spent a very long time on the matter. Dr George had correctly highlighted that some petty matters were raised and that some shareholders seemed not to be acting as honourably as they should.

The meeting was adjourned.


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