Co-Operative Banks Bill [B13-2007]: deliberations and adoption

FINANCE PORTFOLIO COMMITTEE
4 September 2007
CO-OPERATIVE BANKS BILL: DELIBERATIONS AND ADOPTION

Chairperson: Mr N Nene (ANC)

Documents handed out:
Co-Operative Banks Bill [B13-2007]
Department of Finance proposed amendments to the Co- operative Banks Bill

Audio recording of meeting

SUMMARY
Adv Jo-Ann Ferreira (Chief Director, Legislation: National Treasury) briefed the committee on Treasury’s proposed input to the Co-operative Banks Bill. Members raised queries for clarification in respect of clauses 41(3), and a change of wording was agreed. The provision for inclusion of the words "including deposit-taking cooperatives" in the main body of clause 55 was discussed. Subparagraph (g) of Clause 55(1) was now included under 55(2). Some grammatical corrections were made to Clauses 14(e) and 73. The Chairperson then read clause by clause through the Bill. A point of clarity was raised on the definition of cooperative banks and deposit taking institutions. The deletion of the word "market" from Clause 2 had already been agreed upon. Clause 3(2) was amended by substitution of "or" for "and", and the need to support and develop cooperatives against the difficulty of compliance with registration procedures was discussed. For this reason also Members agreed that the requirement that a director must have experience should be retained in Clause 7. Members also agreed that the requirements in Clause 9 were ultimately intended to protect the depositors, but it was agreed that Clause 9(d)(vi) be removed.  It was confirmed that institutions wishing to de-register and re-register under clause 28 would not be covered during the interim period but that assets and liabilities would also be moved. It was confirmed under clause 29 that obligations when banks moved from primary to secondary and tertiary levels would be covered. Concerns raised under Clause 35 were answered with an amendment to Clause 11, that dealt with suspension of registrations. A technical amendment was made to Clause 41(4). Clause 57 would be amended to include reference also to "other printed and electronic media that the agency deems appropriate". Further queries were raised and clarified under clauses 58, 76, and 59 and 62, 63 and 78. IT was agreed that Regulations would be submitted to the Committee outside of the recess periods. Members then voted clause by clause on the Bill. The Bill was adopted.

MINUTES
Cooperative Banks Bill: Input by National Treasury (NT)
Adv Jo-Ann Ferreira, Chief Director, Legislation: National Treasury, briefed the committee on National Treasury’s (NT) proposed changes to the Co-operative Banks Bill (the Bill). She took the Committee through the changes clause by clause, pointing out where the amendments had been made, following input by the stakeholders and points raised by Members at previous meetings.

Discussion
Mr S Marais (DA) asked for clarification on Clause 41(3). He indicated that there might be confusion as to whether the time period referred to one month or four months.

Adv Ferreira said that it was important to draw the line as to when a co-operative fell into the one or the other category,  when there were two supervisors. When a co-operative held funds in excess of R20 million for 3 months, there was also an obligation on the Supervisor to act within one month and to notify the other supervisor.

Mr D Gibson (DA) suggested that the wording be changed to: “if an agency holds an amount in excess of R 20 million for 3 consecutive months, then within one month thereof they shall..:

Adv Ferreira agreed that the wording be changed in line with Mr Gibson’s suggestion.

Mr Marais asked if Treasury’s proposed insertion of “including deposit-taking cooperatives” in Clause 55, line 15, page 24, should not rather be outlined in the definitions section, as opposed to being in the main body of the clause.

Adv Ferreira said that deposit taking was not defined in the Co-operative Banks Act. The Co-operatives Act would describe co-operatives and within this context deposit taking was clearly understood. This was the reason it would have to be dealt with in the body of the Clause, as it was not defined elsewhere.

Ms J Fubbs (ANC) asked for clarification on Clause 55, paragraph (g).

Adv Ferreira indicated that it was better to move paragraph (g) from Clause 55(1) to Clause 55 (2) and renumber it appropriately, as it was more relevant to that clause.
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Mr N Singh (IFP) pointed out a spelling mistake of the word “indorse” which should be “endorse” under Clause 14 (e). 

Mr Gibson requested that a consistent style be maintained. He referred to Clause 73 (1) and (2) where inconsistent style was used.

The Chairperson then proceeded to read Clause for Clause through the Co-operative Banks Bill.

Clause 1
Mr Marais asked for clarification regarding co-operative banks and deposit taking institutions.

Adv Ferreira said that the Bill aimed to register co-operatives which had more than 200 members and which held more than R1 million. Those who did not meet these requirements would remain deposit-taking institutions under the Co-operatives Act. There were other financial services co-operatives, such as stokvels, insurers and deposit taking institutions. Only those deposit taking institutions that met requirements and would start posing a systemic risk, would be registered under the Co-operative Banks Bill.

Clause 2
Ms J Fubbs asked why it was decided to remove the word “market” while it was still reflected in the memorandum.

The Chairperson indicated that National Treasury had informed the Committee of the removal of “market” in response to submissions made, and that the Committee accepted the removal of  this word. In the explanatory memorandum it was necessary to make sure that reference to “market sustainability” was dealt with.

Ms Fubbs asked where in the Act provision was made for exceptional circumstances when co-operative membership might fell below 200, by reason of natural disasters such as floods having resulted in the deaths of some members. She asked what time period was allowed for co-operatives to fulfil requirements.

Adv Ferreira said that there was a provision for suspension until a co-operative could meet the requirements again.

Ms Fubbs suggested that a moratorium over 3 months be used until the co-operative bank returned to normal.

Clause 3
Mr B Mguni (ANC) said that Clause 3 was restrictive because it did not cater for co-operatives that did not meet the requirements of having 200 members and having R 1 million. These requirements for registration would also prevent people who had previously made mistakes, or entrepreneurs who had previously failed, from becoming a co-operative bank.

Mr Nkosana Mashiya, Chief Director, Banking Development and Financial Access, Department of National Treasury, said that comments on the Bill indicated that it would be difficult to reconcile regulation and development, which were cornerstones of the Bill. Clause 55 (1) aimed at supporting and developing co-operatives through the Co-operative Banks Development Agency. Some co-operatives would not want to be registered because of the stringent regulations that applied to registered co-operatives.

Mr Gibson asked if Clause 3 (1) did apply to registered co-operatives, which were deposit-taking institutions, but did not have 200 members. He said that there appeared to be a contradiction, because even if co-operatives did not comply with requirements they had to be encouraged and supported.

Adv Ferreira said that one of the important ways to develop deposit-taking institutions was to support and promote them in terms of Clause 55. The Co-operative Banks Development Agency would enhance banking by supporting deposit-taking institutions.

Mr Gibson suggested that Clause 3(2) needed to be amended, and suggested that “or” should be substituted with “and”.

Ms Ferreira agreed with Mr Gibson’s suggestion and indicated that National Treasury would put this change into the list that the Committee would be voting on.

Clause 7
Mr Mguni referred to Clause 7(c), where it was required that the director had to have experience. He said that many people within co-operatives did not have experience and this would prevent them from registering.

The Chairperson said that it might be better to maintain strict requirements, given the problems being experienced by some village banks. The Co-operative Banks Bill was developed to address problems experienced by village banks, and he would see this as a safeguard.

Mr Mashiya agreed that the requirements were not punitive but enabling. He indicated that difficulties would be faced with implementation, given low literacy levels. People with low literacy within co-operatives would still have to understand essential requirements like the capital adequacy principle.

Clause 9
Mr Mguni referred to Clause 9 (c) where it was stated that the supervisor would determine whether a director or executive officer was considered to be fit and proper, given their previous conduct and activities with regard to business and financial matters. Mr Mguni felt that this requirement was restrictive, given that many entrepreneurs struggled and were failing due to a lack of literacy and financial management skills.

Ms Fubbs referred to people in correctional service facilities within her constituency and she indicated that many convicted offenders resorted back to crime because there were no opportunities for them. She wanted to encourage prisoner societies to try and form co-operatives.

Mr K A Moloto (ANC) supported Mr Mguni’s view about restrictive requirements. He also wanted to establish whether the supervisor would go through all the requirements one by one, or if he would take a balanced view when he assessed whether people were fit and proper to be directors or executive officers.

Mr Gibson felt that requirements regarding fit and proper executives needed to be strict in order to protect the public.

Adv Ferreira said that Treasury would look at Clause 9 again. She said that the intention was not to bar people from being executive officers but to focus on dishonest people who committed fraud. Entrepreneurs should not be disadvantaged by Clause 9. The intention of the Bill was to develop but also to regulate.

Mr Gibson suggested that Clause 9 (d) (vi) be removed from the Bill to ensure that entrepreneurs would not be disadvantaged by this clause.

Ms Ferreira agreed that Clause 9 (d) (vi) should be removed.

Clause 28
The Chairperson referred to Clause 28 and asked for clarity regarding a situation where any other institutions converted to a co-operative bank. Such an institution would have to deregister from its current status, and then would have to register again. He wanted clarity on the interim period between deregistration and the new registration.

Adv Ferreira said that there would be no interim period but that at the moment registration happened, assets and liabilities would also be moved.

Clause 29
Ms Fubbs referred to Clause 29 and said that co-operative banks would move from primary to tertiary and secondary levels, and would become an entity with fresh obligations which did not exist before. She wanted to know if these fresh obligations were covered by Clause 29.

Mr Mashiya said that the majority of liabilities of the primary co-operative banks would be deposits and as the banks would move to the tertiary level their liabilities would be other forms of deposits. Mr Mashiya said that the obligations would be covered by Clause 29.

Clause 35
Ms Fubbs referred to Clause 35 (b) where the agency had to give a representative body less than 20 days but more than 30 days in which to submit grounds for not proceeding with cancellation of registration. Ms Fubbs suggested a moratorium rather than a suspension, or that the matter be left to the discretion of the Agency..

Adv Ferreira said that National Treasury would look also at Clause 11 which dealt with suspension of registrations.

After doing a re-draft during the meeting, Adv Ferreira proposed that a paragraph be inserted into clause 11 to state that the Supervisor may suspend or deregister a bank for a period of three months. This would imply that registration could continue after that period. This would seem to address the concerns raised by Ms Fubbs. 

Clause 41
Adv Ferreira referred to Clause 41 (4), and noted that it should read: “If a primary co-operative bank holds deposits of less than R20 million for a continuous period of more than 3 months, the South African Reserve Bank must, within 1 month from that date, inform the Agency that the primary co-operative bank is subject to its authority.”

Publicity on and in respect of this Bill
Ms Fubbs said that information on co-operative banks would be published in the Government Gazette but she was not sure if people in the villages would get the Government Gazette. She asked if it was possible to use other form of media to communicate information on the Co-operative Banks Bill.

Mr Mashiya said that media coverage could be made wider than just publishing the information on the Co-operative Banks Bill in the Government Gazette.

Mr Mguni said that there was other important legislation passed by the House, and he did not see why it should be necessary to extend publication beyond the Government Gazette specifically for the Co-operative Banks Bill.

Mr Gibson noted that the South African Revenue Services (SARS) were moving beyond only publishing in the Government Gazette, but used radio and other ways to spread information.

Ms Fubbs suggested that the Committee should look towards improving information about legislation to ensure that the information was spread beyond the Government Gazette.

The Chairperson asked National Treasury to come back to the Committee and indicate how they would expand communication beyond the Government Gazette.

After considering the matter during the meeting, Adv Ferreira proposed to add in Clause 57 after the word gazette: “other printed and electronic media that the agency deems appropriate.”

Clause 58 and 76
Mr N Singh (IFP) referred to Clause 58 which dealt with the appointment of board members to the Agency. He also referred to Clause 76 where it was specifically stated what kind of people, like advocates, would constitute an appeal board. He asked what Treasury’s thoughts were on asking the Minister to appoint people from specific sectors to the appeal board.

Adv Ferreira said that it was necessary to have specific expertise within the appeal board. This included a legal person, somebody from a co-operatives background and a financial person.

Clause 59
Ms Fubbs referred to the term of office of members of an Agency as per Clause 59. She asked if there was any consideration for maintaining continuity during establishment.

The Chairperson said that a member of the Agency could only serve two terms consecutively.

Clause 62
Ms Fubbs referred to Clause 62 and she said that there were agencies, including audit committees, which became dysfunctional because they did not met the requirements of two to three meetings per year. She said that there was no clause that enabled agencies to hold their meeting or to take other action if a quorum was not reached consecutively. She asked for Treasury’s input on this issue.

Adv Ferreira said that it was difficult to provide for a situation where there was not a quorum. She said that the Minister may dismiss a member if he or she failed to attend meetings.

Mr S Asiya (ANC) said that one should not be too prescriptive. He suggested that the Agency should inform the Minister to ensure that new members were speedily appointed.

Adv Ferreira said that it was important to ensure that the Agency and the Minister had a good relationship.

Mr Singh wanted more information on the establishment date of the Co-operative Banks Development Agency and the funding required for the Agency.

Ms Olaotse Matshane, Director: Banking Development, National Treasury, said that a business case had been completed and it was estimated that the Agency would have 40 staff members and would cost about R 23 million in its first year of operation.

Clause 63
Ms Fubbs wanted clarification on Clause 63(2) (b). She indicated that Treasury had to look at the situations where people did not recuse themselves in terms of this Clause, but it seemed as if no changes had been made to the Clause.

Adv Ferreira said that there was an obligation on a member to recuse him or herself in situations where there might be conflict, but the possibility of conflict was not in itself a reason why a person could not be appointed to the Board in the first place.

Clause 78
Mr Singh suggested that Clause 78 be simplified because it repeated the wording within the heading.

Adv Ferreira said that headings were not taken into account by the courts, and therefore the existing wording was necessary.

Regulations under the Bill
Mr Asiya requested that the Department should kindly submit all regulations to the Committee while they were in session,  for the Committee to peruse, so that regulations were not introduced during recess periods.

Adv Ferreira said that Mr Asiya’s request was not provided for in this version of the Bill, because it was already tabled as a specific and separate topic, but that she would include his request in the Bill.

Voting on the Co-operative Banks Bill
The Chairperson read the motion of desirability for the Bill and the Committee agreed to approve each clause of the Bill, with the proposed amendments.

The meeting was adjourned.