Banks Amendment Bill: public hearings; Auditing Profession Amendment Bill: deliberations

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Finance Standing Committee

04 February 2015
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Standing Committee on Finance held public hearings on the Banks Amendment Bill and deliberations on the Auditing Profession Amendment Bill. Thirteen written submissions had been made on the Banks Amendment Bill, but only four of the entities who had made submissions gave oral presentations. These were Investec Asset Management, the Tier Two Debt Holders Committee, Webber Wentzel (Johannesburg) and African Bank Limited Senior Creditor Coordinating Committee. The curators all agreed that there was a need for the Bill, not only for African Bank, but for future situations. However the terms of the Bill as they currently stood needed to be revised.

Members raised several questions and concerns. They argued that the problems experienced by African Bank were caused by the bank itself, so who should therefore be paying for the problems? Taxpayers should not be the ones paying for them. The curators had mentioned that there were other solutions to the African Bank problem which had not been explored, one being that a market-based solution had to be explored. What was the experience of other countries? Did the Minister of Finance have the latitude that was provided in the Bill? What were the other options to not adopting the amendments in the Bill? What did it mean that a curator would be appointed “in the public interest?”

The issue of constitutionality was raised, and Members asked what the link between Section 155 of the Companies Act and the Banks Amendment Bill was. Were the amendments in the Banks Bill contravening Section 155 of the Companies Act? What were the actual legal issues which could impact Parliament or the government in the future? What early warning signals could be put in place to assess risk? At what juncture should government intervene?

With regard to the Auditing Profession Amendment Bill, a concern was raised that only 8% of qualified auditors in the country were black, which was unacceptable. Females in the profession had increased from 14% to 23%, but this was still not satisfactory. The Committee indicated that these matters would be raised in the Committee’s report to Parliament.

The Auditing Professions Amendment Bill was read through clause by clause, with the National Treasury and the Independent Regulatory Board for Auditors (IRBA) in attendance. The Bill had not yet been voted on. Voting would occur in the following week.

In deliberations, the IRBA was urged to transform the auditing profession, to make it more African. Ethnocentric standards had to be addressed, and the profession had to be opened up to women. There were questions about de-registration and re-registration, and minimum qualifications.

Deliberations on the Financial and Fiscal Commission Amendment Bill referred to a briefing on the Bill by the National Treasury the previous day. The Financial and Fiscal Commission (FFC) had been in attendance.

In deliberations, the National Treasury was asked about remuneration. The alignment of the functions and nature of the FFC to section 220 and other provisions of the Constitution, received considerable attention. The role of the FFC in terms of advice and recommendations had to be more clearly defined. The FFC’s role in the supervision of organs of the State was questioned. The shift of functions of chief executive and accounting officer from the Chairperson to the newly created CEO position, was discussed. Part-time and full-time appointments received attention. There would be a clause by clause read-through on the following day.

Meeting report

Chairperson’s opening remarks

The Chairperson welcomed Members to the meeting, together with the representatives from all four entities who would be making their oral presentations to the Committee. He reminded the Committee that 13 submissions had been made, but only four of the entities would be giving oral submissions. He emphasised that the Bill was quite complex and challenging. The Auditing Profession Amendment Bill would be more immediate, but the Committee would not be plunging into finalising the rest of the other Bills.

Presentation: Investec Asset Management

Ms Nazmeera Moola, Economist and Strategist: Investments, Investec Asset Management, explained that during the global financial crisis several governments were forced to use taxpayers’ money to bail out banks that had over-borrowed, and had in turn made bad loans. In a bid to keep the system stable, they had avoided putting banks into liquidation by injecting capital, thus preventing creditors from experiencing any loss. The resulting concern was that debt-holders were inadequately assessing the risks of a bank, as they expected governments to bail out such institutions if they got into trouble.

Basel Three regulations sought to prevent such a recurrence. However, the old style sub-ordinated debt, known as “Tier 2 debt”, was not equivalent to the new style debt. Curatorship was not equivalent to liquidation. The Banks Amendment Bill was attempting to nullify the rights of the old-style debt-holders and removing their right to payment outside of liquidation. The result would be that pensioners would lose out greatly. Investec therefore supported National Treasury’s aim of ensuring a sound financial system, with minimum potential costs to the average taxpayer.

Mr Chris Stewart, Head of Financials, Investec, spoke to the Banks Amendment Bill and said there were solutions to the African Bank situation. The Bill was necessary to adjust the Banks Act for Basel Three regimes, but there were disagreements over the opinion that not passing the Bill could lead to liquidation. The bailout of African Bank could not be made at the expense of the taxpayer, especially because it was mostly pensioners who were exposed to African Bank debt, rather than tax payers, and they would therefore lose more.

A lot of information had been put out with regard to the nature of subordinated debt, which was issued with the same rights as senior debt holders unless in an event of insolvency, and this was not currently the case. As a consequence, Investec did not believe that the subordinated debt holders should be stripped of their rights by legislation. This would create a dangerous precedent. Banks were one of the country’s most prized assets. The ultimate loser would be the borrowers at African Bank. He reiterated that Investec fundamentally disagreed with the opinion that not passing the Bill would lead to liquidation. There were various other options which should be explored.

Presentation: Tier 2 Debt Holders Committee

Mr Thea Hartman, Legal Advisor, Investec Asset Management indicated that his submission focused on the current state of the Banks Act, curatorship, the memorandum attached to Bill and the fact that the Debt Holders Committee rejected the Bill in its current form. He read out the proposed amendments to Section 69(2C) of the Banks Act and to Section 69 (3)(i) (see submission document).

Presentation: Webber Wentzel

Mr Steven Budlender, Advocate: Johannesburg Bar, said the amendments to the Bill were in response to the crisis experienced by African Bank in 2014. As a curator of African Bank, the curator had to balance the interests of the banking sector as a whole in a manner which sought to resolve the crisis. He explained that R10 million had been underwritten to support the bank, but the only way to resolve the bank’s problems was to expose African Bank’s good assets. If this did not take place, the bank could face liquidation. Section 69(2C) constrained the curator’s powers in adopting this approach. The current limitations were not consistent and they were unnecessarily constraining, and future curators could also be affected.

However, he disagreed with the opinion that the Bill was inconsistent and unconstitutional. He proposed that the following submissions be considered:

First, that no curator was suggesting that the Bill should not be passed. There was definitely agreement that the Bill was necessary, but not in its current form. The terms of the Bill needed to be revised.

Secondly, many of the proposals made sought to strengthen their own financial position.

Mr D van Rooyen (ANC) raised a point of order, saying that the curator was dealing with the presentations of other parties at the expense of his own presentation. This was not the way to approach the hearings -- the hearings were not an opportunity to respond to other presentations.

The Chairperson replied that dialogue was encouraged and Members would be given an opportunity to respond to what the curators had said. A representation had already been prepared by the Committee research staff, but the documents were only for Members of the Committee and staff. He did not see any problem with the way the curator was approaching the hearing.

Dr D George (DA) said he was happy with how the hearing was going. The presentation was enriching and should therefore continue.

Ms T Tobias (ANC) said presenters were encouraged to engage each other’s views, and the presentation was therefore acceptable.

The Chairperson said there was no law on what style the hearings should follow.

Mr Budlender said decisions taken needed to be consistent with the Promotion of Administrative Justice Act (PAJA) and with Section 69 (18) of the Constitution. There were currently two solutions -- either the Bill was passed, or that it was enacted in a way which constrained the powers of the curators, in which case African Bank would be forced into liquidation. He argued that it was not good when banks failed, but these dangers were no reason for the Bill not to be passed. The Committee needed to adopt the Bill with the necessary changes. 

Presentation: African Bank Ltd Senior Creditor Coordinating Committee

Mr Tom Winterboer, Curator of African Bank Limited, thanked the Committee for an opportunity to submit comments on the Banks Amendment Bill. He supported the contents of the Bill. The submission was divided into two parts. The first part explained why the proposed amendments in the Bill were essential to African Bank and without which African Bank would probably be put into liquidation. The second part of the submission went through the specific proposed amendments contained in the Bill and explained the reasons for supporting them.

He said the submission focused on the curatorship of African Bank and it introduced amendments to the Banks Act which were essential for the curatorship of all failing banks. The Bill reflected elements of international best practices for rescuing failing banks. The amendment Bill was essential to the curatorship of African Bank. In August 2014, African Bank experienced a serious crisis. Its liabilities exceeded its assets and there were real concerns as to whether it would be able to pay its debts as and when they were due. The Minister had intervened and placed African Bank under curatorship in terms of section 69 of the Banks Act.

The Chairperson asked that those curators who thought that the Bill was unconstitutional provide legal opinion to support that case. He said in the previous day’s meeting, the Committee had agreed to ask Parliament to look into the constitutionality of all the clauses.


Dr George asked Investec about the retrospective changes mentioned in their presentation. Had Investec seen the opinion by Steven Budlender? If not, he suggested that Investec had a look at it. On the issue of the Minister of Finance having excessive power, he agreed that the changes being made to the Bill needed to be thought of as long term. He shared the concern around the Minister having too much power. Seeing that the curators suggested that there were other alternatives to not passing the Bill; what were these alternatives and had they been put forward to National Treasury. He asked the Debt Holders Committee who the debt holders were. The problem within African Bank was caused by the bank -- who would be paying for it? Taxpayers should not be the ones paying for it. He thanked Mr Budlender for the presentation and said it had been very useful. He asked if his opinion would change if the proposals he had submitted were not included in the Bill.

Ms Tobias said in a market economy, business would not want government to intervene. The fundamental contradiction between classes would always be there between those who wanted to make a profit and those who were at the receiving end. Government’s role was therefore to facilitate fairness in a very difficult environment. The South African government was one which pursued democracy and would therefore always play a regulatory role in the market. Government had a responsibility to intervene where the market had failed. In this context, if African Bank had not experienced its current challenges, the legislative proposals would have been necessary. The bank had failed at the expense of taxpayers. The debates had not given any factual evidence on how the problems at African Bank could be resolved without involving the Minister of Finance. There had been no clear proposals on what should have been the role of the curator. Government had to intervene by amending the Banks Act to avoid similar challenges in the future.

Mr Van Rooyen said the amendments to the Bill were mainly necessitated by the problems which came forth from African Bank. He asked whether the curators were opposed to all the amendments being made, or whether there were some which were being welcomed. The presentations were very broad. He asked the Debt Holders Committee about the alternative routes mentioned in the presentation -- what were these alternative routes being proposed, specifically on Section 69 2(c), which dealt with the transfer of assets and liabilities?

The Chairperson said most Members were still coming to terms with the nature of the Bill, and did not have decisive views on the Bill yet. The Committee needed to “beef up” its research capacity. He indicated that the Committee during the previous day’s meeting had indicated that a work in progress report was needed from National Treasury and the curator about where things were with African Bank’s recovery. What were some of the lessons which could be taken from the African Bank situation? While the Bill was partly prompted by the issues at African Bank, it was also necessary to update South Africa’s legislation and to make it more consistent with global events. The Finance and Stability Board had indicated that South African needed to fill in the gaps in legislation. He asked National Treasury what the experience of other countries was, and did the Minister of Finance have the latitude that was provided in the Bill? Did they have as much discretionary power? What were the other options to not adopting the amendments in the Bill? What did it mean that a curator would be appointed in the public interest? On the issue of consultation, he said stakeholders had made representations to the Executive, but when these had been rejected they were brought to Parliament. The quality of consultations with National Treasury needed to be improved. He argued that taxpayers should not carry the burden of the private sector.

Ms Bridgette Diutlwileng, Committee Researcher, Standing Committee on Finance, Parliament, said the submissions had all alluded to the need for equal treatment of all parties, but equal treatment did not mean that the external outcomes would be fair. The curator had a responsibility of balancing out the interests of all parties during the consultation process. One of the things that had come up was the constitutionality issue. Where did this come from? She asked for an explanation about what the link between Section 155 of the Companies Act and the Banks Amendment Bill was? Were the amendments in the Banks Bill contravening Section 155 of the Companies Act? What were the actual legal issues which could impact Parliament or the government in the future?

The Chairperson agreed that there might be some problems with the Bill, and these needed to be addressed between now and its final adoption. National Treasury was also free to engage further with all stakeholders to discuss any contentious issues. People had a right to disagree, but issues needed to be addressed through proper engagements rather than taking matters straight to court. Parliament would ultimately decide on the outcome of the Bill.

Ms Moola responded to the question on who would be affected by the situation at African bank, and said the investors in African Bank’s debt were mainly pensioners. The rough estimate was that there were between six and seven million pensioners involved, which was more than the number of taxpayers in South Africa. On resolving future crises, she said the country needed to assess whether it still wanted to deploy pension grants into banks. There were ramifications for this, which would strengthen the economy as a whole. On the other hand, the failure of African Bank was somewhat a market failure, and there needed to be changes to address this, some of which would be addressed by the new style of tier two capital and the new clauses attached to this. There were some changes which were needed in the Banks Act in order to get to a final resolution. It was, however, concerning that new constraints were being placed on the curator. This should not be done, and was an area of concern. She agreed that banks required some special treatment, but where would the line be drawn? The amendments needed to be necessary ones only.

Mr Stewart said, with regard to the retrospective nature, risks involved in an investment were assessed, and the asset being bought was priced accordingly. Subordinated debt was not historically a massive risk and should not be viewed as such. He said Investec was in agreement that there were some amendments to the Banks Act which were necessary to meet global standards.

Ms Tobias said banks looked at their own interests in terms of portfolio investments which could be risky at times. Government would not be able to look at every portfolio investment of every bank or financial institution. Peer review therefore seemed more feasible. At what point could government know that an investment was risky? There were always unintended consequences when an investment portfolio was made. What early warning signals could be put in place to assess risk? At what juncture should government intervene?

The Chairperson said the discussions on the Bill were precisely to avoid a recurrence of the African Bank situation in the future.

Ms Moola clarified that she did not think the amendments were needed only for African Bank. They were needed in general to make curatorship more functional in the future. It could not be disputed that some amendments were required in the case of African Bank, but more importantly for future situations. There needed to be checks and balances in place. The amendments proposed were wide ranging and the curator needed to be allowed broader powers, but not blanket powers.

Mr Stewart gave a market’s perspective of some of the issues and said financial markets were risky by nature and banks carried large amounts of debt in their balance sheet, and were therefore prone to failure. An appropriate resolution regime was therefore in no doubt needed, because failures in the future were guaranteed as a result of the change in which capital was being thought of globally. Investing in markets was therefore a matter of being aware of the risks involved, pricing the risks and making a decision.

Mr Lionel Shawe, Attorney: Bowman Gilfillan, said there was consensus that the Bill in its current form should not be passed. The Tier 2 Committee understood that some form of legislation was desirable, in line with national trends in the banking sphere. However, the Bill was designed only to deal with African Bank as it currently stood. It was likely that if the legislation were to be adopted, it would be short lived. The question was, did one need to introduce it at this point? On the question on what the alternatives were, he said there were viable options to the resolution of African Bank, one of the key attributes being that there should be an incentive for a market-based solution through credibility. Currently there was no market-based solution that had been explored, and stakeholders had not been engaged. From a legislative point of view, the alternatives to producing a successful outcome to the curatorship were to introduce some form of collective framework from the banking sector.

The Chairperson asked what exactly the alternatives were.

Mr Shawe responded that these would include introducing some kind of collective decision making framework, and to allow creditors who were impacted to have a say in the legislative process, taking their individual interests into account.

Ms Tobias said there was a view that once collective solutions were spoken about, there was a monopoly of solutions taken by conglomerates who decided on specific ways of doing things. What were the checks and balances which could be put in place to prevent a repetition of the problem in the future?

The Chairperson said the Committee would not start with looking at the Bill clause by clause until the progress report from National Treasury had been made available to the Committee. The curators could be given two weeks to further make presentations to the Committee on any other burning issues pertaining to the Bill. He acknowledged that the presenters would not necessarily be able to respond to all the issues raised during the meeting, and some concerns raised required more time to think through.

Mr Hartman responded that in the context of African Bank, it was necessary to amend the current Banks Act, but this needed to be done in accordance with international best practice, and these provisions should be included in the amendments. The Tier 2 Debt Holder Committee was encouraged by the fact that the curator did not have powers to change terms of liabilities. This encouraged senior creditors. The Debt Holder Committee was also encouraged by the Chairperson’s statement that there should be better engagements between National Treasury, the curator and all the interested parties involved.

Mr Budlender responded to the question on whether the opinion given would change if the amendments were not included. The answer to this was no. The amendments were not necessary to achieve constitutionality, but they were necessary to give effect to the Bill. On the question of the progress report, he said there was a two-weekly report to the South African Revenue Services, and going forward there would be two-weekly meetings and progress reports. It would therefore be possible to give the Committee these reports, but given the sensitivity of the information, engagement with the Committee would need to be in a closed session. On the question on whether the Bill was necessary only because of African Bank or whether it was necessary for future events, he said the Bill was indeed necessary. Banks’ failures were likely to occur in the future. On public interest, he said it was not possible for the curator to adopt only one side, as the views of all interested parties needed to be considered.

He did not suggest that there were only two options for dealing with African Bank. What he was trying to say was that at the current stage there were only two options. The main aim of the amendments was to allow the curator broader powers, but the curator needed to follow processes, which included hearing submissions from all interested parties. It was therefore correct to say that there was more than one way to deal with the African Bank situation. He explained that the amendments sought did not in any way preclude a market based solution, or a non-market based solution. The amendments did not constrain the curator’s powers -- they enabled the curator to adopt the proposals if necessary. With regard to Section 155 of the Companies Act, he said the question was around whether the creditors should have a say, or whether they should have a veto. Section 155(6) read that 75% of the creditors needed to endorse an agreement. The Companies Act governed everything, including banks. In the current process, creditors were not given a say, they were given a veto.

The Chairperson said any person who wanted to reply to any presentation should reply in writing, within two weeks. He suggested that National Treasury, the curator and the Committee should meet in a closed workshop in an attempt to seek more consensus. The Committee’s research team had been asked to put together all submissions made on the Bill in a table. The Committee would look at these and decide how to proceed.

Auditing Profession Amendment Bill

Mr Ismail Momoniat, Deputy Director General: Tax and Financial Sector Policy, National Treasury, said National Treasury decided to introduce the Auditing Development Programme, which focused on developing competency to best protect the public.

The Chairperson asked what the different types of chartered accountants were.

Mr Momoniat responded that there were five routes to becoming a chartered accountant, each one being a specialised route, and auditing was one of the routes. The other four were financial reporting, internal audit, taxation and financial accounting.

The Chairperson asked how long it took to become a chartered accountant.

Mr Momoniat said it could take about seven years. Firstly, one needed to attain a three year degree. Then in the fourth year, one did an honours degree equivalent. In the case of an auditor, one would also need to serve three years completing articles. With the Audit Development Programme, an individual was also given an opportunity to specialise further.

The Chairperson said the Bill must be in the Chamber during the first sitting after the State of the Nation Address (SONA), after which the Bill needed to go to the National Council of Provinces. How would the parliamentary process affect the plans of the National Treasury? How long was the period of specialisation by professional accountants?

Mr Momoniat responded that the candidates could be registered retrospectively if the Bill was passed after the end of March. The period for specialization was about 18 months.

The Chairperson said the Committee had received one submission from the South African Institute of Professional Accountants (SAIPA). Even though the submission had been received late, the Committee decided to entertain it.

Dr Dumisani Jantjies, Financial Analyst, Parliamentary Budget Office, said the submission indicated that the use of the term “Professional Accountant” was confusing, as SAIPA also used “professional accountant.”

The Chairperson asked what the recommendation made in that regard was.

Mr Momoniat said “Professional Accountant” was a generic term. The fact that SAIPA used it as a qualification was not a problem, because the international federation of accountants, of which SAIPA was a member, also used the term. Anybody could use the term.

The Chairperson asked whether National Treasury engaged with SAIPA.

Mr Momoniat said they did, and SAIPA was on their list of consultants.

Mr George asked whether there had been any engagements with the South African Institute of Chartered Accountants (SAICA), and if they supported the Bill entirely.

The Chairperson said it was a serious concern that currently only 8% of qualified auditors were blacks. This was astonishingly low. In its report to Parliament, the Committee needed to include this information. Improving this was not the responsibility of National Treasury alone -- Parliament, universities and various institutions had a responsibility to work towards this. Females in the profession had increased from 14% to 23%, but this was still not satisfactory. Members also needed to suggest how greater representation could be made within the auditing profession

Deliberations on the Auditing Profession Amendment Bill

The Chairperson read the Bill through clause by clause, with comments by Members and questions posed to the National Treasury and the Independent Regulatory Board for Auditors (IRBA).

The Chairperson referred to the substitution of section 6 of Act 26 of 2005. Section 6 [(1)] (a) referred to minimum qualifications. There had to be a periodic review of minimum qualifications. He asked for a comment from the IRBA.

Mr Bernard Agulhas, CEO of IRBA, responded that IRBA was responsible for saying what the minimum qualifications were, but it could also impose additional qualifications for foreigners.

The Chairperson remarked that it was imperative that IRBA transform the profession, to make it more African. There had to be mutual reinforcement. The protection of public interest was an ANC preoccupation, but there had to be an advance to achieve transformation goals. It had to be decided how qualifications were to be engaged with. There were specialist professions, such as cardiologists, for which the net had to be cast wider than among the previously disadvantaged. However, there was ethnocentrism in some professions. Some were gender sensitive. It was significant that a curator was always referred to as “he” in discussion. It did not happen only in South Africa. Qualifications were predisposed towards men. Culture, colour and race influenced professions. The Standing Committee had to deal in its report with how fair the minimum qualifications were, and whether everybody stood a chance.

Mr Agulhas responded that the IRBA supported transformation away from male dominance. The IRBA could influence transformation through the Audit Development Programme (ADP). Transformation was one of the four IRBA pillars. All stakeholders would have a role.

The Chairperson said that Parliamentary oversight was necessary. It was not because the IRBA was not trusted. A breakdown of the number of blacks and women in auditing was needed. The Committee wished to encourage people to become auditors.

The Chairperson referred to minimum requirements for the renewal of registration, under 6. [(1)] (g).

Mr Agulhas responded that when an auditor de-registered from the IRBA and then decided to come back, he/she had to re-register.

The Chairperson referred to the canceling of registration, under 39.(1).

Adv Empie van Schoor, Chief Director: Legislation, National Treasury, replied that this applied not only to individual candidate auditors, but also to firms.

The Chairperson asked where the notice of cancellation or removal of a registered auditor was to be published, as mentioned in 39.(8).

Mr Agulhas replied that it would be published through the IRBA newsletter and website.

The Chairperson asked that the secretary and research team study the Bill. Members had until Friday, 13 February, to comment.

Deliberations on the Financial and Fiscal Commission Amendment Bill

The deliberations referred to a briefing by the National Treasury on 3 February 2015.

The Chairperson asked how remuneration was currently determined.

Adv van Schoor replied that this was done by the President. A list of factors was taken into account.

The Chairperson asked if the remuneration commission made proposals.

Mr Bongani Khumalo, Chairperson of the Financial and Fiscal Commission (FFC), replied that there was an oversight unit in the Treasury that looked at public enterprises.

The Chairperson asked how it had come about that the roles of CEO and Chairperson were combined.

Mr Khumalo replied that he did not know. The rest of the commissioners would also be brought into the process. There were a large number of part-time appointments. There used to be 20, but currently there were nine. It was complicated to manage.

The Chairperson agreed that part-time commissioners had to be encouraged to participate.

Ms T Tobias (ANC) asked about the alignment of the FFC’s nature and functions to section 220 and other provisions of the Constitution.

Adv Van Schoor said that the FFC had to make recommendations. The FFC Act stated that the Commission had to act as a consultative body. It had to recommend also to provincial and local spheres on finance. However, that was not stated in the Constitution.

Ms Tobias noted that the FFC had to recommend to national and provincial legislatures, but not to organs of state.

Adv Van Schoor responded that it was organs of state in the sense of being contained in government, but not the executive.

The Chairperson remarked that there had been differences about the role of the FFC over the preceding ten years. It was advisable to get the executive to resolve issues during the current term. The issue of part-time and full-time appointments was being discussed without a clear idea of what the FFC had to do in the current term. The question was what the law was saying about what the FFC had to do. He asked how the amendments would help the FFC.

Adv Van Schoor replied that provinces were defined too narrowly in the FFC Act. The Commission had to give advice to Parliament and provincial government. Provisions in the Constitution could define functions.

The Chairperson advised that the Treasury and the FFC should look carefully at the legislation until they were ready to assume a position.

Dr D George (DA) expressed concern about delivery. There was an opportunity to consider what the FFC was doing, and the quality of work delivered.

The Chairperson remarked that the Minister had not set out a vision. The question was whether the legislation was perhaps diluting the effect. More weight could be given to recommendations.

Adv Van Schoor responded that the focus on organs of state in the legislatures narrowed down the definition.

Ms Tobias said that the problem was the use of the term “in”, with reference to the national, provincial and local legislatures. It was limiting. Section 220 of the Constitution was very broad. She suggested that discussion be postponed.

The Chairperson suggested that the Standing Committee report urge the executive to look at the issue within the following two years, and come back with a proposal.

Mr Khumalo responded that the issue had been grappled with in the past. The Constitution prescribed that the FFC had to act in terms of an Act of Parliament. The Constitution defined the matter of FFC recommendations broadly. Situating recommendations to organs of state “in” the legislatures implied that different Ministers could interpret FFC recommendations differently. Discussion was needed to break the matter down. There was a whole range of matters that were subject to interpretation.

Ms Tobias remarked that when government departments misinterpreted their mandates, it was not an issue of interpretation. Mischief was involved. The FFC mandate could not be explained in terms of the legislation. Any institution not subject to FFC recommendations was mischievous. There were challenges related to institutions that the FFC engaged with. It was a matter of adherence to the Constitution. History would judge government on how it dealt with the Constitution.

Ms Tobias said that combining the positions of Chairperson and CEO in one person created an impossible workload. The FFC was a small organisation with a huge mandate. There could be unintended consequences. There were Acts of Parliament that had to be reviewed. Legislation had to be sustained over a long time. If the Constitution prescribed certain things that the FFC had to do, those things had to be done.

The Chairperson remarked that the role of the FFC was defined in law. The Constitution prescribed a bigger role for the FFC. It was a contentious issue. Cooperative Government and Traditional Affairs (CoGTA) had worked on it for ten years, and that work was gathering dust on the shelves. The FFC provided a scientific basis for rational decision making. He asked about the appointment of a full-time Chairperson and CEO.

Adv Van Schoor responded that the Act did not stipulate the basis of appointment. The President had the say on the matter. There was only a full-time deputy Chairperson acting as CEO and Accounting Officer (AO). There had previously been a full-time Chairperson and CEO.

Mr Khumalo noted that he had been appointed full-time as deputy Chairperson in 2010, but had acted as Chairperson and CEO.

The Chairperson asked what the Act prescribed.

Adv Van Schoor replied that the current Act was silent on whether the President could say if an appointment was to be full-time or part-time.

The Chairperson asked why appointments were part-time.

Adv Van Schoor replied that if the CEO and AO were full-time, there was no need for a full-time Chairperson.

The Chairperson remarked that it had to be decided what the role of the FFC had to be over the long term. It was clear that the FFC had to recommend, but the question was how. There were questions around frequency and scope, and dependence on full-time staff. He asked why there could not be a provision that the President or Minister had to decide about full-time or part-time appointments. Members could think the matter over until the following week.

Mr Khumalo responded that a legal submission was being finalised. The FFC and the Treasury did not think it wise to make all Commissioners and the Chairperson part-time appointments. Lawyers were working on the submission. If all appointments were part-time, the FFC would be given to the secretariat. There was no sense in a Chairperson who was also AO, to account to himself. It was better for the Chairperson and deputy to be full-time.

Ms Tobias remarked that political authority was within the FFC itself. The FFC had to oversee state institutions. There was a turf war in boards for more authority over the AO. There was some purely administrative work that the Commission had to do. Care had to be taken not to legislate a “monster” into being. There were administrative issues additional to issues of accountability. There were frustrations, because not enough people were available for day to day administration. Legislation had to be open ended.

The Chairperson remarked that if the CEO was full-time and the board not, it meant that the CEO would be the executive authority accountable to Parliament. A full-time CEO could interfere in management decisions. He suggested that a full-time appointment could be made for a period of two years, with the situation reviewed thereafter.

The meeting was adjourned.

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