Banks Amendment Bill [B43-12]: National Treasury briefing; Parliamentary Budget Office Task Team draft report: briefing

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Finance Standing Committee

18 March 2013
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

The National Treasury and the Deputy Registrar of Banks briefed Members on the Banks Amendment Bill [B43-2012]. The global financial crisis had demonstrated the strength of South Africa regulatory system, particularly the banking system. This strength during the crisis was in no small part due to tough decisions before the crisis, for example, the introduction of Basel II, and ongoing improvements to South Africa's regulations and legislation. The Banks Act was last amended in 2007. The amendment became effective on 01 January 2008. These comprehensive amendments were compliant with Basel II prescriptions. This latest Amendment Bill was in line with National Treasury policy to subject each major piece of legislation to rolling five-year reviews. A number of developments had informed the review, including the Basel Committee on Banking Supervision core principles, assessments by the International Monetary Fund (IMF), the World Bank and the Financial Action Task Force, and the Companies Act 2008. The IMF assessments had highlighted some small gaps in South Africa's legislation and regulatory framework. The proposed amendments were the result of a process in the statutory Standing Committee on the Revision of the Banks Act (SCORBA). There had been extensive consultation with industry through SCORBA.

The Bill was gazetted on 16 November 2012. The Bill was arranged sequentially in order of Sections to be amended. For purposes of explanation, National Treasury presented a matrix in which the amendments were arranged by category, with particular reference to the new definitions arising from Basel III. The most extensive set of changes was a result of the new Companies Act (No. 71 of 2008) which had come into effect in May 2010. There were also proposed amendments to reflect updating of other legislation, tidy up existing provisions, and proposed amendments to provide for existing practices. National Treasury noted that the law had not really provided for obtaining information from foreign supervisors for foreign banks. The Deputy Registrar of Banks, Bank Supervision Department, South African Reserve Bank (SARB), explained further. National Treasury noted the IMF's concern during its 2010 assessment at South Africa's existing provision that the Regulator must obtain written consent from the CEO before putting a bank under curatorship. The Deputy Registrar of Banks explained the new Section 52 proposals around the expansion of banks outside South Africa. National Treasury noted that one of the most interesting things that had emerged from the global financial crisis was the concept that the bonus structures of banks could actually drive the wrong types of behaviour. Therefore the Registrar of Banks had put in place an extensive system to ensure that the way in which bankers' bonuses were paid was in line with good practice in preventing risk. However, this required National Treasury to insert a new Section 64C, which established a remuneration committee. An amended Section 84 introduced small changes to deal with the inspection of unregistered persons. This was important in view of scams and ponzi schemes. The Deputy Registrar of Banks said that it was therefore important not to allow other firms not registered as banks to conduct banking business.

A COPE Member asked if the Basel III new categories of capital, would change the operations of banks. He also asked if there was any court process in establishing curatorship of a bank. National Treasury replied that there had never been a court process. The Deputy Registrar of Banks added that this was because a bank was 'a different company'. An ANC Member also questioned the concept that the Registrar could give a directive to a bank without having to obtain the prior written approval of the bank's CEO or management. A DA Member expressed concern. National Treasury said that curatorship sought to enable the bank to continue functioning. Curatorship was different from nationalisation or winding up a bank. The Deputy Registrar of Banks said that the IMF had identified a potential situation where a CEO or management might refuse to enter in a curatorship, as the curatorship might replace the management. An ANC Member asked for more information on the inspection of unregistered persons and replacing the manager with a payment administrator, and on the duties of the payment administrator. The Deputy Registrar of Banks explained the position of the payment administrator, currently called the manager who was appointed to manage the repayment of deposits process. This was a statutory appointment in terms of Section 84 of the Banks Act. Obviously if the managers did not comply, they would face liability. All the substituted Section 88 did was to provide that if the managers were doing their job correctly, then they should not face liability (Clause 44). It was not a blanket limitation of liability. There was a list of duties stated in the Banks Act. The Chairperson said that the next step would be the public hearings.

The Chairperson read the draft report of the Task Team on the Parliamentary Budget Office. Members briefly discussed the report and recommended the appointment of Prof Mohammed Jahed, currently seconded from the Development Bank of Southern Africa (DBSA), who had demonstrated that he was eminently qualified for the position, as Director of the Parliamentary Budget Office

 

Meeting report

Banks Amendment Bill [B43-2012]: National Treasury briefing
Introductory points
Mr Roy Havermann, National Treasury Chief Director: Financial Markets and Stability, explained that the global financial crisis demonstrated the strength of South Africa regulatory system, particularly the banking system. This strength doing the crisis was in no small part due to tough decisions before the crisis, for example, the introduction of Basel II, and ongoing improvements to South Africa's regulations and legislation. The Banks Act was last amended in 2007. The amendment became effective on 01 January 2008. These comprehensive amendments were compliant with Basel II prescriptions.

This Amendment Bill was in line with National Treasury policy to subject each major piece of legislation to rolling five-year reviews. A number of external developments had informed the review: the Basel Committee on Banking Supervision core principles, Basel 2.5 and Basel III implementation, assessments by the International Monetary Fund (IMF), the World Bank and the Financial Action Task Force, the securitisation review, the Review Board findings, King III corporate governance proposals, the financial crisis and the Group of 20 countries (G20) and Financial stability Board recommendations, and the Companies Act 2008.

Mr Havermann noted that the IMF was very impressed by the quality of South Africa's financial supervision. Moreover, South Africa was one of only three or four G20 countries that did not have a financial crisis. However, the IMF assessments had highlighted some small gaps in South Africa's legislation and regulatory framework.

The proposed amendments were the result of a process in the statutory Standing Committee on the Revision of the Banks Act (SCORBA) which met four times a year. He explained its composition. Adv Blackbeard had provided that Committee with high-level briefings. On 26 April 2010 Draft 1 and Comments were submitted to that Committee. He gave dates of the submissions of subsequent Drafts and Comments (see page 1).

Drafts of various proposed amendments were submitted to the Minister of Finance and to the National Treasury doing 2011 and 2012. On 24 August 2011 Draft 6 was submitted. On 27 March 2012 there was notification of further amendments (Basel III). On 24 April 2012 Draft 7 was submitted. On 16 May 2012 Draft 8 was submitted. There was been extensive consultation with industry through SCORBA. The Bill was gazetted on 16 November 2012. (See page 2).

Matrix original Section of the Banks Act: proposed amendment: motivation for amendment
Mr Havermann then explained that the Bill was arranged sequentially in order of Sections to be amended. He presented a matrix in which he had reorganised the amendments and categorised them by type, as National Treasury had done with the Financial Services General Laws Amendment Bill. He took Members through each category and highlighted the relevant Sections of the Banks Act 1990 that the Bill proposed to amend. Reference was made to the original Section of the Banks Act 1990 (column 1, on the left), the proposed amendment (column 2), and the motivation for the amendment (column 3).

He explained new definitions arising from Basel III together with the affected Sections. This was because Basel III changed certain types of capital requirements for banks. (See page 3)

The most extensive set of changes was a result of the new Companies Act (No. 71 of 2008) which had come into effect in May 2010. (See pages 3-7)

He noted that a remarkably contentious change was that the Companies Act 2008 prohibited reference to 'a director' unless the person was actually on the board of directors. Unfortunately the Bill now had to make that illegal, and some people as a result had lost their 'director' titles and were now to be called 'general managers'.

There were also some issues around the audit committee.

He gave details of proposed amendments to reflect updating of other legislation (see page 7).

Mr Havermann said that the current draft of the Bill still referred to the Securities Services Act, as it was tabled before the Financial Markets Act was passed. However, National Treasury would make the necessary changes.

He gave details of amendments that tidied up existing provisions (see pages 7-8) and details of proposed amendments to provide for existing practices (see pages 8-9).

He noted that the law had not really provided for obtaining information from foreign supervisors for foreign banks.

Adv Michael Blackbeard, Deputy Registrar of Banks, Bank Supervision Department, South African Reserve Bank (SARB), explained the two ways in which a foreign bank could do business in South Africa. One was through the registration of a branch. The other was to incorporate as a company. The branch regulations provided a whole list of items of information that this foreign bank had to provide. However, there was a gap when it came in an as incorporated company. This amendment was to close that gap.

Mr Havermann gave details of proposed amendments in respect of the Financial Action Task Force (FATF) Review, with reference to the Financial Intelligence Centre Act (No. 38 of 2011) (see pages 9-10). He gave details of proposed amendments in respect of International Monetary Fund (IMF)/World Bank assessments (see page 10) and of proposed amendments in respect of industry developments (see pages 10-11).

He noted the IMF's concern during its 2010 assessment at South Africa's existing provision that the Regulator must obtain written consent from the CEO before putting a bank under curatorship.

Adv Blackbeard explained the new Section 52 proposals around the expansion of banks outside South Africa. There were certain instances where banks acquired certain offshore companies as securities for loans granted. When those loans were not repaid, suddenly they [the banks] had 'that security came onto their structure'. In those cases one believed that they [the banks] could notify the SARB, only that a proper 'ratification' prior to that acquisition was not required. This provision was to enable the Registrar to issue a directive to say in which circumstances a mere notification would be sufficient and not a prior written application.

Mr Havermann said that one of the most interesting things that had emerged from the global financial crisis was the concept that the bonus structures of banks could actually drive the wrong types of behaviour. Former President Nicolas Sarkozy of France had made it an election platform to bring down bankers' bonuses. It was still an issue. The concern was that the structure of how bankers were paid could have the unintended consequence of encouraging them to indulge in risky short-term behaviour. Many banks had incentive structures that were obviously performance based so over the last few years the Registrar had put in place an extensive system to ensure that the way in which bankers' bonuses were paid was in line with good practices in terms of preventing risk. However, this required National Treasury to insert a new Section into the law namely Section 64C, which established a remuneration committee.

Section 84 introduced small changes to deal with the inspection of unregistered persons. This was important in view of scams and ponzi schemes.

Adv Blackbeard said that a system of registration came at considerable cost. It was therefore important not to allow other firms not registered as banks to conduct banking business. In order to control illegal activities, the SARB reacted to complaints and appointed inspectors to investigate whether a scheme was illegal deposit taking. If it was satisfied that it was, it closed the scheme. It directed that scheme to repay whatever funds were available, and in order for the SARB to have comfort, it appointed 'all those persons managers', but this had created confusion, as members of the public seemed to think that those managers were now managing that company or that scheme. However, in reality, these managers were just managing the repayment process. Therefore the SARB thought that a change of name, from 'manager' to 'repayment administrator' would probably alleviate that confusion. The only thing that the Registrar might do, once he or she was satisfied that a scheme contravened the Banks Act, was to direct that scheme to repay the funds. In the recent past one had come across certain proposals to have an alternative way of repayment such as a business rescue scheme or arrangement. It was now proposed to provide in the legislation for such discretion, so that in deserving cases the Registrar might provide a reasonable time to provide an alternative repayment scheme such as a business rescue.

Mr Havermann said that these were quite important provisions in the context of discussions that National Treasury had had on ponzi schemes and the closing down of illegal schemes. The Banks Act was actually a very useful piece of legislation and had been quite successful in assisting National Treasury and the Financial Services Board (FSB) in dealing with such schemes.

The final amendment was to introduce a limitation of liability trust.

Discussion
Ms Z Dlamini-Dubazana (ANC) asked if, in the proposed amendment of Section 10, there had been a deletion of '14 days after the receipt of such report'. If there were such a deletion, it would make it appear as if the Minister was not bound by time frames. (Clause 4)

Mr Havermann replied that, fortunately or unfortunately for the Minister, the National Treasury was not changing the 14 days requirement. The Minister would still be required to table the report within 14 days of its being given to him. This was a very important requirement of ensuring that the Minister remained accountable to the Committee and to the House.

Ms Dlamini-Dubazana, with reference to the amended Section 13(I)(ii), did not understand 'accept'. Was it the acceptance of the pronouncement that had been made by the Basel Committee or was it to accept the provision of the Act? What did that 'accept' stand for? Did it stand for accepting the pronouncement by the Basel Committee or acceptance of the provision of the Act? (Clause 5)

Mr Havermann replied that the intention of this Section was to ensure that if a foreign bank operated in a South African jurisdiction, it would be regulated in a way similar to that in which South Africa's banks were regulated. The intention was to ensure that banks that operated in South Africa were Basel-compliant. This was quite an important issue, firstly because, if a bank was not Basel-compliant, then it could bring risk into South Africa's system. Secondly if the bank was not Basel-compliant, then there was this really odd incentive for banks to incorporate in jurisdictions where there was little regulation and to create arms of their banks in jurisdictions like South Africa, in which case one had no way of saying in the law that one was unhappy with the jurisdiction in which the bank was incorporated. Thus this Section was trying to articulate that if a bank was a foreign institution and wanted to operate in South Africa it should at least comply with what was proposed by the Basel Committee. He did understand that the language was a little odd. What one was trying to say was that the banks should try as far as possible to align with all the components of the Basel Committee, its guidelines, its proposals, and its pronouncements, and that they should be committed to implementing them in a similar way to the way that South Africa's own banks were committed to implementing them and that they should basically comply with the regulations.

Adv Blackbeard added that amended Section 13 really related to what the Registrar should be satisfied with, if the Registrar received an application for a new bank. If the applicant was a foreign bank, then the Registrar should also be satisfied that the foreign regulator accepted and was committed to Basel. This was for the Registrar to be satisfied.

Ms Dlamini-Dubazana said that the word 'committed' did not put whoever was supposed to submit the information to the Registrar under compulsion, as he or she would submit only if he or she had a commitment to do so. Ms Dlamini-Dubazana wanted to make it compulsory to give such information, or any material information regarding the financial soundness of the foreign institution, rather than saying that this person should have the commitment to do so. (Clause 5)

Mr Havermann said that this question related to the commitment to keeping the Registrar informed of any material information regarding the financial soundness. Here Ms Dlamini-Dubazana had a good point that the provision might be a little too soft. National Treasury could perhaps reply in a subsequent formal response.

Ms Dlamini-Dubazana referred to the amendment of Section 23. She quoted the deleted words 'removed with the consent of' and the insertion 'with the consent of the Minister'. It seemed to her that one was giving more powers to the Registrar, rather than to the Minister. The Registrar would consult with the Minister. However, she could not see the powers of the Minister in relation to the cancellation or suspension of licensing in respect of this foreign institution. She suggested that the Committee apply its mind to letting the Registrar consult with the Minister, but letting the Minister do the cancellation or suspension of licensing. (Clause 11)

Mr Havermann replied that this had been quite a topic of discussion between National Treasury and the SARB. The IMF had proposed that even curatorship should be solely the responsibility of the registrar of banks. However, he felt that the Minister should be involved in a decision of such magnitude. However, de-registration or suspension of a bank was a slightly different process. It was not clear that the Minister had to be involved in all aspects of the de-registration. Perhaps National Treasury could return with a proposed new approach. While wanting to involve the Minister, it was also desirable to give the Registrar some flexibility to take decisions under what were very difficult circumstances. For Section 68 and 69 there had been no change to the Minister's role.

Mr N Koornhof (COPE) asked if the Basel III introductions, the new categories of capital, would change the operations of banks.

Mr Havermann replied that South African banks were very well capitalised, much better so that some of their European counterparts. The change in types of capital would have very little implication.

Adv Blackbeard added that it would not change the operations, except that there were some individual banks that would need to come up with more capital when these requirements came into force. Already Basel III had been implemented to set up regulations that had been promulgated or approved by the Minister last year and which came into effect on 01 January 2013. However, some of the liquidity provisions would come into effect only in 2015. Some would come into effect only in 2019. Some would come into effect in 2022. The only discourse which one had had with the Act and the regulations related to those definitions of capital and liquid assets.

Mr Koornhof asked, with regard to the amended Section 30, what the foreign banks had preferred - to have a branch or to have an incorporated company and why? He asked if the new Section 30 would be more unfriendly to foreign banks which wanted to come to South Africa. (Clause 30)

Mr Havermann replied that he did not deal with bank supervision, so he referred the question to Adv Blackbeard.

Adv Blackbeard said that this was a Basel II requirement that placed an obligation on the Registrar to makes sure that whenever a bank applied for a licence to operate in South Africa, wherever it came from, the Registrar had to make sure that the regulator in the bank's home country had accepted Basel requirements, was committed to them, and enforced them.

Mr T Harris (DA) was concerned, with reference to the amended Section 69, that a curatorship would now be established simply by notification of the CEO of the bank, rather than working with the bank to establish the curatorship. The previous day the Cyprus government had effectively taken a chunk out of every bank account holder's deposit. This had raised serious concerns in Europe about the strength of individual banks.(Clause 36)

Mr Havermann replied that this had been a major subject of discussion between National Treasury and the Bank Supervision. He referred to Cyprus which was effectively bankrupt and its system was broken. This however, was a separate set of problems from those which National Treasury was trying to address in this amendment. The aim was not to give the Minister or the Registrar more powers but to ensure that the process ran more smoothly, and that one could effect a curatorship, in the unlikely event of a South African bank getting into trouble, more quickly. This was one of the key lessons of the crisis. One did not want to get to the point where one had to nationalise a bank. He explained the process of curatorship, which sought to enable the bank to continue functioning. If the management of the bank had done its job badly, it was unlikely, however, that it would enter into a curatorship willingly, therefore it was not appropriate to have to obtain the management's written consent. He emphasised that curatorship was different from nationalisation or winding up a bank.

Adv Blackbeard said that the IMF had identified a potential situation where a CEO or management might refuse to enter in a curatorship, as the curatorship might replace the management.

Mr Harris was concerned with the Act’s Section 52 where National Treasury was amending the requirements for a bank to acquire a security that might have to lodge with it from a foreign operation. He did not understand the potential risk to the South African banking sector if a South African bank had to call in some security from another market. Why did the bank have to go to the Registrar for permission? The calling in of a verifiable security would not raise a question over the soundness of the local bank. (Clause 22)

Adv Blackbeard said that as Section 52 now stood, it was very rigid. It said that any interest that the bank acquired offshore, it had to have prior written approval. However, it had been found impracticable to obtain p prior written approval. This provision now afforded the Registrar the power in a directive to set out certain circumstances in which prior written approval was not required and where mere notification would be sufficient. The notification was to keep track of what was happening.

Mr Havermann pointed out that the global crisis was the result of banks taking on risks such as completely fabricated mortgage-backed securities from the American mid-West, bringing enormous risk to the banking system, in Germany and the United Kingdom (UK) in particular. It was important that the Registrar at least knew where these risks were evident, particularly as the banking system got bigger. However, to issue approval on every occasion might be expensive.

Mr Harris asked with reference to Clause 33 providing for the remuneration committee. Could not one go further. Surely the real power of making sure that pay was linked to performance was in the reporting requirements to be established, and in boosting the influence of shareholders over the pay of bankers. He could understand what National Treasury was trying to do by way of that Clause, but unless one added the requirement that reporting was boosted and that shareholders had more influence, he was concerned that this amendment would be relatively toothless. How did the amendment relate to the reporting requirements and the remuneration provisions in general in the Companies Act? Did the relevant Sections in the Companies Act apply to banks? (Clause 33)

Mr Havermann replied that National Treasury would refer to the Companies Act and return to the Committee with proposals to strengthen the role of shareholders.

Mr Harris was not surprised to see the limitation of liability amendment to the Act’s Section 88. More and more bills which came to the Committee extended more limitation of liability to regulators than to the Ministry or the National Treasury. He wanted a better justification for extending that limitation of liability. As the National Treasury knew, this Committee was concerned with it in general, and had already requested an opinion from the State Law Advisers, to help it understand whether this extension of immunity to the actions of regulators was actually justified. (Clause 88)

Mr Havermann replied that it would be better to wait for the report from the State Law Advisers on the liability provision, so as to ensure that the changes in the Banks Act were done in a way that was consistent with what was being done in the Financial Services General Laws Amendment Bill, so at least there was a consistent set of liability provisions across different regulators. There was no fundamental change, however.

Adv Blackbeard added that this had emanated from appointed inspectors and managers becoming increasingly the targets of lawsuits or threats.

Mr Harris asked what the deadlines for Basel III were.

Mr Havermann replied that the end of 2012 was the international deadline for the implementation of Basel III. However, not everything could be implemented all at once, as indicated earlier.

Ms Dlamini-Dubazana questioned the concept that the Registrar could give a directive to a bank with a head office outside South Africa without having to obtain the prior written approval of the bank's CEO or management.

Mr Havermann replied that there had been the same problem with the Credit Rating Services Bill. There was also a similar problem in almost all regulation, which was often that risks that were introduced were not within the powers of the domestic regulators. However, there was a considerable procedure to be followed before a foreign institution could operate as a bank in South Africa, whether as a branch, a representative office or as a subsidiary. Each of those categories brought certain responsibilities to the Registrar.

Ms J Tshabalala (ANC) asked for more information on the inspection of unregistered persons and replacing the manager with an administrator, with discretion to consider alternative plans to repay investors. She understood therefore that repayment was part of the duties of the administrator. She wanted to be sure who was responsible specifically for repayment, who specifically had discretion? Was it the Registrar, the remuneration committee, or the administrator? To whom did the administrator refer regarding repayments? How did one hold the administrator liable? This was probably an issue related to limitation of liability. (Clause 41)

Adv Blackbeard explained the position of the payment administrator, currently called the manager. Once a complaint was received, inspectors were appointed who reported on the scheme. The scheme was instructed to repay investors. Simultaneously managers were appointed to manage that repayment process. This was a statutory appointment in terms of Section 84 of the Banks Act. Obviously if the managers did not comply, they would face liability. All the substituted Section 88 was saying was that if the managers were doing their job correctly, then they should not face liability (Clause 44). It was not a blanket limitation of liability. There was a list of duties stated in the Banks Act.

Mr Harris said that the existing provision in the law that one needed the written consent of the CEO was, in general, a good provision with regard to significant interventions into the affairs of a bank, because this provision tended to secure the depositors' and investors' interests.

Mr Havermann explained that often the investors and the management ended up having very different objectives. Sometimes the managers even stole the money of the depositors. There was need for a process in which the Registrar could take action without having to have prior written approval of the management. It would, however, be possible to add words to the effect that the Registrar could take action without prior written approval of the management if it was in the interests of the depositors or investors not to obtain such prior written approval.

Adv Blackbeard said that there had never been an outright refusal from a CEO or management to give written approval, but such permission had been granted only under duress. However, the IMF had seen South Africa's current legislative provision requiring prior written approval as a potential problem.

Mr Havermann said that this problem had never actually happened in South African banking, but it had certainly occurred in other parts of the financial sector.

Mr Harris said that the change from written approval to notification in the case of foreign acquisitions was a step in the right direction. However, why did one need even notification? It was too difficult for South Africa's banks, which were world class, to operate in the rest of the continent. This was an unwanted regulatory burden. The benefits of South African banks' expansion into the rest of Africa would be significant.

Adv Blackbeard explained that the amended Section 52 stated that the rule had not changed, that if a bank in South Africa wished to acquire an interest offshore it needed prior written approval. He had heard that this might stifle development, but the rule had stood South Africa in good stead. However, they had complained that in some cases it was just not possible to obtain prior written approval, as, for example, in having a subsidiary as security for a loan granted. So an enabler had been proposed in such specific circumstances, to enable the Registrar not to require prior written approval. (Clause 52)

Mr Havermann said that it had been useful to deal with two questions at the same time – those of Ms Dlamini-Dubazana and Mr Harris, who had different views. He gave further examples. In the Budget National Treasury had announced a whole new set of reforms to make it easier for South African financial services firms and other firms to operate in Africa, and the Registrar would, he would assume, probably be very enthusiastic about such an acquisition as it would make a South African bank more profitable. It would also have long term economic benefits to South Africa. However, to protect the South African banking system, it was necessary to have some system of oversight to enable the South African Regulator to ensure that a South African bank's acquisition of an interest abroad did not bring substantial risk to the South African banking system.

Mr Koornhof asked if there was no court process whatsoever when the Registrar would notify the bank of a curatorship.

Mr Havermann replied that there had never been a court process.

Adv Blackbeard added that this was because a bank was 'a different company'. It worked on a very finely balanced premise. 'If the trust is gone, the money's gone.'

The Chairperson said that the next step would be the public hearings. He concluded this part of the meeting.

Parliamentary Budget Office Task Team draft report
The Chairperson said that Members would recall that on 24 May 2012 the National Assembly, citing technical challenges that had become apparent during the implementation of the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009) passed a resolution instructing the Finance Standing Committee to review the Act and in particular to suggest amendments pertaining especially to time frames. The second aspect of the Act was the establishment of the Parliamentary Budget Office and the appointment of a Director. In terms of Section 15 of the Act, the Parliamentary Budget Office must be headed by a Director, and the Act prescribed that the Director must be appointed on the recommendations of the National Assembly and National Council of Provinces (NCOP) Committees on Finance and Appropriations, and the process must be conducted in an open and transparent manner. The Presiding Officers, in looking into the actualisation of this Act, together with the Chairpersons of the four respective Committees, both in the National Assembly and in the NCOP, constituted a task team, chaired by the Chairpersons of both Houses to look into the practical implementation of effecting changes in the Act but also running a parallel process of how to actually achieve the establishment of the Parliamentary Budget Office. In terms of content, in looking at the technical amendments, Adv Frank Jenkins, Senior Parliamentary Legal Advisor, was heading a task team that was examining the actual amendments. The Chairperson believed that when Members returned from the constituency period, this would be one of the first items on the Committee's agenda, as the Committee really needed to make progress in terms of the content and the technical amendment.

In terms of the establishment of the Parliamentary Budget Office, the Task Team, together with the Presiding Officers, realised the need for somebody to run with the process from the beginning, and after examining the internal capacity of Parliament, the Task Team could not find a suitable person to do this work. The Task Team then asked, through the Presiding Officers, the Development Bank of Southern Africa (DBSA) to second Professor Mohammed Jahed, who had undertaken study tours to different parts of the country and different parts of the world, to conduct research on how parliamentary budget offices worked, and how they were actually established. The DBSA seconded Prof Jahed from May 2012.

The Task Team thought that he had done extremely good work in laying the foundations for the Budget Office to come into existence. Several parties, in their respective formations in Parliament, had had interactions with Prof Jahed. To this date, the project led by Prof Jahed had been able to outline and clarify the scope and functions of the Parliamentary Budget Office, design an operational structure, and also establish networks with external stakeholders. The project had also engaged political parties and relevant committees.

The Task Team, constituted by the House Chairpersons and the Chairpersons of the four Committees, was satisfied with the work done and accomplished in a very short space of time, and had reached a conclusion that it was important to ensure continuity and stability in the work of the Parliamentary Budget Office and to ensure that the work was not interrupted or stopped.

The Task Team then thought it important to come to the Committee to brief it and make suggestions on the way forward. To ensure continuity, and given the challenges and that the secondment of Prof Jahed would soon come to an end because of the restructuring taking place at the DBSA, and that to find someone else to continue this work would be very difficult, the Task Team recommended to this Committee and to other Committees that Prof Jahed be considered by the Finance and Appropriations Committees of both Houses to be appointed as the Director of the Parliamentary Budget Office so that he could continue the good work that he had been doing of Parliament for the past nine months.

Ms J Tshabalala (ANC) said that, given Prof Jahed's calibre and experience, and his good work in producing a framework for the Parliamentary Budget Office and getting the Office launched, and establishing the functions and networks, she supported expressing confidence in Prof Jahed by confirming his appointment as Director. However, she asked in which financial year the Committee was being asked to recommend the appointment of Prof Jahed as Director. Was it this financial year or the next? Also what would be the funding model of the structure itself? Prof Jahed's appointment should be aligned to that process.

Mr Koornhof asked if this was not supposed to be a joint report of the Finance and Appropriations Committees? A joint report would be more powerful.

Also, the last sentence of the opening paragraph was a concern. What was the meaning of 'in an open and transparent manner'? Would there not be advertisements and interviews? Perhaps Adv Jenkins could assist?

Dr Luyenge said that the Committee needed to lead by example. This Committee's recommendation would supersede that of every person who came as an individual or of any other institution as the Committee was providing guidance that Parliament must be grateful that Prof Jahed had accepted an appointment and had decided to stay with Parliament for almost a year. The Committee was representative of the public. Furthermore, Members of the Committee had full confidence in the leadership shown in the initiation of all these processes. This the fourth democratic Parliament was implementing the decision taken a long time ago. The previous Parliament had not managed to implement this. The Parliamentary Budget Office would be a legacy of this the fourth democratic Parliament.

Mr Harris personally did not have a serious concern about open, transparent process requirements, as he was sure the Chairperson or the Senior Parliamentary Legal Adviser had answers. He understood Mr Koornhof's suggestion about the value of a joint report but did not believe that if each Committee submitted a separate report it would be in breach of the law. He personally, and his party, supported fully the appointment of Prof Jahed as Director, as Prof Jahed was an 'excellent candidate'.

Ms Dlamini-Dubazana proposed that the Committee should take it further. It should recommend Prof Jahed as the proper and fit candidate for the Directorship, but make a recommendation on the length of the contract five or ten years. She recommended five years as proper, since parliamentarians had a term of five years.

Mr Koornhof had consulted his colleague [Mr L Ramatlakane (COPE)] in the Appropriations Committee, who had just replied by short message service (SMS) text message that the Appropriations Committee had decided to follow the Act. 'I don't know what that means.' Maybe one should find out exactly what the Act said. He feared a conflict between the two Committees in terms of a decision.

Dr Luyenge wanted to raise a point of order. He did not know if that particular Member had been mandated to relay that information. He would understand if Mr Koornhof were saying that his party was of a particular opinion, but for it to be relayed as the position of a committee was a problem. It might be the case, but it might not be. If that Committee had wanted to relay its decision, it could have done so officially.

Mr E Mthethwa (ANC) proposed that Members of the Finance Standing Committee should move this appointment. The question around transparent manner could be clarified later.

The Chairperson said that everyone should take into consideration that this was a new situation. One should not lose sight of the fact that Parliament had already started building capacity through this secondment from the DBSA. Even if an alternative process were followed, it was most likely that Prof Jahed would emerge as the best candidate. An open and transparent process did not exclude the possibility head hunting. It was a convention that was accepted. The idea of a joint report of the Appropriations and Finance Standing Committees was something that the Committee should examine, but he thought that this Committee should have its own deliberations and reach its own conclusion. He believed that the Committee had followed the right direction. The presentation from which he had read would be the same as that for other Committees.
In the current budget and the coming budget, Parliament had set aside funds for the Parliamentary Budget Office. The conditions of employment three, four or five years should be left as a process of engagement between Prof Jahed and the Presiding Officers, and the report would come back to this Committee. The principle was to have a Director appointed so that all other things could follow.

Adv Jenkins said that, comparing the Act with other legislation that required short-listing and calling for nominations, he did not see anything wrong in the way that Parliament was proceeding. All parliamentary committees were open in terms of the Constitution and the present process complied. There were other ways of having an open and transparent process, but presenting it in a Committee like this one and discussing it complied, in his view, with the Act, which did require that conditions of service should come as a recommendation from the Committee. At this point in time one did not know how it would look after the Act was amended. However, this did not make the Committee's present recommendation any less valid. This recommendation was the first step to get the Director appointed. Thereafter one could proceed to the conditions of service, period of service, and other matters. From a legal point of view, or from any other point of view, he had no concerns.

The Chairperson adjourned the meeting.

[Apologies received from Mr Ismail Momoniat, Deputy Director-General (DDG): Tax and Financial Sector Policy, who was on his way to speak at a conference in Beijing.]

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