The National Treasury briefed the Standing Committee on the Banks Amendment Bill. Urgent amendments to the Banks Act were needed to increase options for the curator to resolve a bank unable to meet its obligations. Urgency was required to extend the option to the curatorship of African Bank. The option provided for was the splitting up of a failing bank under curatorship into a Good Bank and a Bad Bank. The intention was that the option would leave no creditor worse off, in contrast to liquidation. It was foreseen that the Bill would meet with resistance from those (mostly creditors) who hoped to get more. The Treasury was keen to minimise losses to creditors and other stakeholders, without resorting to taxpayer bail-out. Investors would have to accept responsibility for losses. Key questions were whether the amendments would leave any creditor or stakeholder worse off than a normal liquidation, and whether it left any creditor or stakeholder worse off than the current Banks Act.
During the discussion that followed, Members asked if consequences were set out for African Bank, in the event of the Bill not being passed. There was concern over more power being granted to curators, and the cost of curator services. The Committee asked if retrospectivity would apply to African Bank. The Committee stated that it would back the constitutionality of the Bill. A policy position would be adopted after the public hearings. Pensioners had to be protected against trustees. A Member warned against unintended consequences, and that the Bill was seen as unfair in many circles.
The National Treasury briefed on the Financial and Fiscal Commission (FFC) Amendment Bill. The main objects of the FFC Bill was to enhance institutional and other governance arrangements as well as the functioning of the FFC; to fully align the FFC Act with the Constitution and the Public Finances Management Act (PFMA); and to introduce procedures for determining the remuneration of FFC members. The functions of chief executive and accounting officer would be shifted to the newly created position of CEO. The functions and nature of the FFC were to be aligned to section 220 of the Constitution. Members would be appointed on a part-time basis. The FFC would be enabled to obtain information from any organ of state or person for the performance of its functions.
In discussion, a presentation on the constitutionality of the Bill was called for, as well as practicalities of implementation. Some constitutional aspects had not been considered. Members suggested that there should be an ongoing review of the powers and functions of the FFC.
The National Treasury briefed on the Auditing Profession Amendment Bill. Currently candidates who successfully completed the Public Practice Examination (PPE) could register with the Independent Regulatory Board for Auditors (IRBA) to become registered auditors. The process would change because of the termination of the PPE. In future, candidates intending to be assessed as Chartered Accountants (CAs) would have to write the Assessment of Professional Competence (APC) of the South African Institute of Chartered Accountants (SICA). The Assessment of Professional Competence (APC) assessed competence required for CA, and did not assess audit competence. The IRBA was replacing the PPE with the Audit Development Programme. The IRBA had to ensure that profession skills and competence were responsive to public needs in a manner that protected the public. The object of the Bill was to provide for the regulation of candidate auditors.
In discussion, a Member submitted that legislation for professional bodies based on international practice clashed with BEE principles. Engineers who passed well struggled to gain recognition by regulatory bodies. Military test pilots failed local psychometric tests, only to pass them elsewhere. Racial factors were operative in regulatory bodies. There was the challenge of professions linked to racial groups. The question was how to ensure that auditors were supplied in numbers.
There was disappointment at the lack of stakeholder submissions. It was asked if there was an association for black auditors. There was a question about intakes.
Briefing by the National Treasury on the Banks Amendment Bill
The Standing Committee was briefed by Mr Ismail Momoniat, National Treasury DDG: Tax and Financial Sector Policy, and Mr Roy Havemann, National Treasury Chief Director: Financial markets and Stability. The Banks Amendment Bill intended urgent amendments to the Banks Act. The object was to increase options for a curator appointed to resolve a bank unable to meet its obligations. It was a matter of urgency because the option was to be extended to the curatorship of African Bank. The option provided for was the splitting up of a failing bank under curatorship into a Good Bank and a Bad Bank. The option was seen as preferable to the option of liquidation, as it would leave no creditor worse off. The option of liquidation left everyone worse off. It was foreseen that the Bill would meet resistance from those who hoped to get more.
Key stakeholders were depositors, senior and subordinated creditors, and shareholders. Depositors were protected, but investors not. The real victims of bank failure were retail and corporate depositors; taxpayers; bank employees; borrowers; creditors of the bank, and pension funds. Many countries had introduced legislation while resolving banks. Banks were treated differently from other companies when facing insolvency. A failing bank posed a systemic risk to the entire banking and financial sector. Since the 2008 global financial crisis, systems and controls were developed to reduce the need for bank bail-outs. The public good was elevated above all else. The proposed amendments made it possible for a curator to transfer liabilities, provided that creditors were treated in an equitable manner, and that due process was followed.
The Treasury was keen to minimise losses to creditors and other stakeholders, without resorting to taxpayer bail-out. However, investors had to accept responsibility for losses. It was foreseen that many legal teams would be involved in the process, each team batting for a specific party or fund. The key question to consider was whether the amendments would leave any creditor or stakeholder worse off than in a normal liquidation; and whether any creditor or stakeholder would be worse off than under the current Banks Act.
Dr D George (DA) asked to what extent the legislation was a response to a crisis. He asked if consequences had been set out for Africa Bank, if the Bill was not passed.
Mr Momoniat responded that the crisis dated back to August 2014. The curator set up the auditing process and would try to maximise what creditors would get. It had to be understood that liquidation would have harder impact. Senior creditors could end up with a “haircut” of 10 percent. There were implications for the fiscus. It had to be avoided that taxpayers had to bear costs. There was not a severe crisis, but options had to be provided for the curator. It had to be avoided that creditors would be worse off.
Dr George asked about problems of fees related to curatorships. There was a lack of reporting on the matter. If more power was to be granted to curators, the question was what the implications would be in terms of service prices.
Mr Momoniat replied that the issue of curator fees was close to the heart of the Treasury. There had to be balanced expertise. Curatorship of a large bank implied a lot of oversight over expenses. Obviously more would be paid to a curator over a longer stretch.
Dr Johann De Jager, a Senior Counselor at the South African Reserve Bank, added that there was an agreement between the Bank Registrar and the curator, regarding the cost of the curatorship.
Mr D Van Rooyen (ANC) asked about prolonged curatorships.
Dr De Jager replied that a prolonged curatorship was clearly to the benefit of the curator. The curator was inder control of the Bank Registrar, who could appoint someone else if necessary. Curatorship could have a life of its own if not controlled.
Mr Momoniat added that the Minister appointed the curator.
Dr George referred to constitutionality. Section 69(2) suggested changes that were not in the Bill.
Mr Momoniat replied that there would be a legal opinion by State law advisers after publication. The Treasury was convinced that amendments were not unconstitutional, but was open to recommendations.
Ms T Tobias (ANC) remarked that she did not trust the State law advisers. Cases were being lost in court. There were suspicions that the legislation could contain elements that were not constitutional. Unintended consequences had to be watched. The legislation was seen to be unfair in many circles. The Committee had to be granted time to browse through it and develop an opinion.
The Chairperson added that documentation had to be supplied about legality. The Parliamentary legal team had to present an opinion.
Mr Momoniat responded that lawyers had come up with a variety of opinions about constitutionality. The Treasury and State law advisers had approached senior counsel. There were two different views on the matter. The Treasury would make sure that it stayed within the Constitution.
Dr George suggested with regard to retrospectivity, that it had to be stated that it applied to African bank.
Mr Havemann replied that in the legal opinion of Budlender and Unterhalter there was no retrospectivity, as African Bank had not yet been transferred. The curator would wait until the Bill was passed, to deal with liabilities. It only applied to curatorship currently under way.
The Chairperson said there had to be an overview of the curatorship of African Bank during the first quarter. The Treasury had stated that changes were not unconstitutional. Constitutionality had to be checked upfront. There were stakeholders that were not convinced about constitutionality, and were unhappy about that. Depositors had to be protected. The ruling party would back the constitutionality of amendments. The ANC could provide a policy framework for technical issues. There was no intention to rush the Bill. The research and legal teams could meet with him. The Bill could be gone through carefully after the public hearings, and a policy position could be taken. Pension trustees could lose out. Pensioners needed protection against trustees.
Mr Momoniat responded that the Treasury appreciated that the Bill ought not to be rushed. The Department had no intention to put pressure on the Standing Committee. The impact on the poor of bailing out banks, had to be considered. Once a curatorship was over, weaknesses could be identified to learn from mistakes. The Twin Peaks example showed structural weakness in the system.
Pensioners had to be protected against trustees who were not up to the job.
Briefing by the National Treasury on the Financial and Fiscal Commission Amendment Bill
Advocate Empie van Schoor, National Treasury Chief Director: Legislation, briefed the Standing Committee. The Amendment Bill had been developed in collaboration with the FFC. The main object of the Bill was to enhance institutional and other governance arrangements and functioning of the FFC; to fully align the FFC Act with the Constitution and the PFMA; and to give effect to section 219(5) of the Constitution by introducing procedures for determining remuneration of FFC members. Functions of chief executive and accounting officer would be shifted from the Chairperson to the newly created administrative position of CEO. The CEO would also be accounting officer and secretary of the FFC. A renewable contract of not more than five years was proposed. Amendments included the alignment of the FFC’s functions and nature to section 220 and other provisions of the Constitution. Members were to be appointed on a part-time basis. Section 219(5) of the Constitution would be given effect to by introducing procedures for determining remuneration. The Minister’s regulation making power would be replaced with rule making, to accord with the FFC’s constitutional status. The FFC would be enabled to obtain information from any organ of state or person required for performance of its functions.
Mr Bongani Khumalo, FFC Acting Chairperson, noted that the only contentious matter that had emerged, was that all Commissioners would be part-time.
The Chairperson said the matter had to be discussed with the Minister.
Ms Tobias said the Chairperson had to engage on behalf of the Committee. The question was what was to be achieved. There had to be a presentation on constitutional aspects. Some constitutional aspects had not been considered, as well as practicalities of implementation.
Adv van Schoor noted that the FFC was the only stakeholder. There was impatience and urgency in the FFC.
The Chairperson said there had to be an ongoing review of the powers and functions of the FFC. There had to be submissions. Yet it was possible to move fast on the current issues.
Briefing by the National Treasury on the Auditing Profession Amendment Bill
Adv van Schoor, briefed the Committee. Currently a candidate who successfully completed the Public Practice Examination (PPE) could register with the Independent Regulatory Board for Auditors (IRBA) to become a registered auditor. The process for becoming a registered auditor would change because of the termination of the PPE. In future, candidates wanting to qualify as Chartered Accountant (CA) would have to write the Assessment of Professional Competence (APC) of the South African Institute of Chartered Accountants (SICA). The IRBA was replacing the PPE with the Audit Development Programme (ADP). The aspiring auditor became a candidate auditor before registration as auditor. The ADP occurred in a more complex learning environment and roles performed were more senior than those currently undertaken in training. The current Act did not regulate candidate auditors. The Bill proposed to authorise IRBA to register candidate authors. Candidate auditors would be defined as individuals who had obtained professional accountant designation from an accredited professional body and had served under the supervision of a registered auditor. Registered candidate auditors would get practical exposure to a wide range of matters faced by registered auditors.
Ms Tobias remarked that legislation for professional bodies that was based on international practices had clashed with BEE principles. There had been engineers who had passed examinations well, but regulatory bodies made it hard for them to gain entrance into the profession. There were military test pilots who had failed psychometric tests locally, only to pass them elsewhere. Regulatory bodies were influenced by racial factors. Opinions were needed. The question was who assessed competence at universities. More information on development programmes was needed. The portfolio of evidence was supposed to empower people. There was the challenge of professions linked to racial groups. There were past challenges and present problems. The question was how to make sure that auditors were supplied in numbers.
Mr Van Rooyen said he was disappointed that there had not been more stakeholder submissions. The System made it difficult for accountants. He asked what the difference was between the PPE and the APC. He asked about measures to ensure quality, and oversight of candidates.
The Chairperson remarked that a way had to be found to meet international standards without precluding previously disadvantaged groups from professions. The Committee had asked for a breakdown of racial groups in professions. It had to be confirmed with black auditors whether there was an association for black auditors.
Ms Laine Katzin, IRBA Director: Education, Training and Professional Development, responded that a five year model was being worked on. There had been extensive consultation. In the past auditing candidates could register automatically. The IRBA checked everyone. The model would be changed and SICA would assess specialised CAs to become business leaders. International models were looked at. There had to be a seamless process. The PPE examination was being replaced with the ADP, on the premise that professional competence was best developed on the job.
Mr Robert Zwane, IRBA Manager: Professional Development and Assessment, added that the auditing mandate was to become public protection. It was found that those who had done well in the PPE examination were sometimes bad on the job, and vice versa. The portfolio of evidence was not to be limiting. Public protection required experience on a broader level. The registered accountant of the future would have managerial experience. There would not be psychometric testing. New opportunities would become available. 1000 auditors were trained over the preceding two years. Partners of auditing firms were saying that necessary skills were often acquired after qualification.
Ms Tobias asked about intakes.
Mr Zwane replied that there were 14 accredited universities. A registered accountant held a much more senior position.
Ms Katzin added that the APC was held by a professional body. IRBA attempted to hold professional bodies to a standard. The IRBA did not get involved in labour relations.
The meeting was adjourned.
- Opinion National Treasury Constitutional Validiity of Draft Banks Amendment Bill
- Nationla Treasury presentation Financial and Fiscal Commission Amendment Bill [B1-2015]
- Nationla Treasury presentation on Banks Amendment Bill
- National Treasury on Auditing Profession Amendment Bill [B15-2014]
- Financial Stability Board presentation
- International Money Fund Country Report No.14/340