NATIONAL TREASURY’S RESPONSE TO COMMENTS ON THE BANKS AMENDMENT BILL, 2007

COMMENT	RESPONSE
SAICA
Section 17 – Audit committee
Expressed concern about the requirement that only non-executives may serve on the audit committee. SAICA is of the view that there are too few skilled candidates available and that skilled executives must be allowed to serve on these committees.	The proposed requirement is consistent with international standards and best practice.
Banking Association
Section 33 – Power of the Registrar to impose penalty
Expressed concern about the amount of the maximum penalty that may be imposed and the remedies available to an aggrieved party.	A R10 million maximum penalty is appropriate given the financial position of banks. It should be remembered that this is an absolute maximum. Sufficient remedies are available to an aggrieved party in the form of due process, appeal to the Minister and review by the Courts.
NEDLAC
General concerns related to the impact on access to finance and affordability. These factors were assessed as part of a study on the economic impact of Basel II. It was found that Basel II is not expected to have a significant impact on bank pricing decisions or access to finance; the latter being governed by the Financial Sector Charter commitments. Furthermore, specific risk mitigating factors are allowed for in terms of National Discretion Items contained in regulations.
STANDARD BANK
Section 26 – Abolition of par value shares and nominal value in Companies Bill
Abolition of par value shares and nominal value in Companies Bill The Companies Bill abolishes the concept of par value shares and nominal value (although transitional provisions continue for existing par value shares for as long as they are extant). If this principle is eventually passed and becomes part of our corporate law, then it will be in direct conflict with section 79 (1) (a) of the Banks Act which states that "A bank shall not issue shares of no par value. . . ".	It needs to be noted that the Companies Bill referred to is still in draft form and subject to amendment and public comment. The DTI has indicated that it is envisaged that the draft Bill will be tabled in 2008 only. Once the draft Bill has been enacted, amendments to the Banks Act will be proposed to facilitate alignment with the Companies Act.
Section 17 – Audit Committee
The Banks Amendment Bill requires that all members (at least 3) of the audit committee shall be persons who are not employees of the controlling company nor any of its subsidiaries, the bank in respect of which it is the controlling company or any subsidiary of the bank. The Corporate Act requires that the audit committee must consist only of non-executive directors of the company, each of whom must "act independently". The Companies Bill requirement is phrased slightly differently and requires that the audit committee must have at least two members, each of whom must act independently. In the Companies Bill it can therefore be interpreted that two of the members of the audit committee must act independently, implying that there may be other non-independent members on the audit committee. The non-executive requirement in both the Corporate Act and Companies Bill is more stringent than the Banks Bill as it states that "a director is a non-executive if the director is not involved in the day-to-day management of the business, is not a full-time salaried employee of the company or the group in the last 3 financial years". In addition, the Corporate Act takes the composition of the audit committee a step further by requiring that the non-executive directors must act independently and the Companies Bill requires that at least two of the members of an audit committee must act independently. In the South African context, taking into account the lack of skills and pool of candidates available, it is a harsh reality that the Corporate Act and the Companies Bill requirements may prove to be unfeasible. This is particularly relevant for the audit committee of a bank or controlling company, where the membership should have some reference to competency and not just independence.	It needs to be noted that the Companies Bill referred to is still in draft form and subject to amendment and public comment. The DTI has indicated that it is envisaged that the draft Bill will be tabled in 2008 only. Once the draft Bill has been enacted, amendments to the Banks Act will be proposed to facilitate alignment with the Companies Act.
Section 17 – Director’s Affairs Committee
The section states that the function of the directors' affairs committee shall be to assist the board of directors "in ensuring that the bank or controlling company, as the case may be, is at all times in compliance with all applicable laws, regulations and codes of conduct and practices . The scope of duties of the directors' affairs committee, in particular the highlighted portion, needs to be limited to ensure that there is no overlap with the responsibilities of the other board committees such as the audit and risk committees as it leads to confusion regarding responsibilities.	The comment is not understood. There is no overlap with sections 17 (Audit Committee) and 18 (Risk and Capital Management Committee) as the amendment refers specifically to “applicable” laws.
Liquid assets as it relates to gold coin and bullion
It is a requirement of Section 72(1) of the Act that a bank ".. shall hold in the Republic liquid assets .." and gold coin and bullion are included in the definition of securities that constitute "liquid assets". With the continued growth in banks' balance sheets, and the consequent increase in liquid asset requirements, a continuous review of the utilisation of the various qualifying liquid asset classes has become necessary from a financial efficiency viewpoint. The increased use of gold as a qualifying liquid asset has become an alternative proposition for banks. However, owing to security considerations and the ability to transact efficiently through the London market, bullion holdings must be kept in London under the custodial services of major banks in OECD countries such as HSBC, JP Morgan, UBS and Bank of New York. Moreover, it is an internationally accepted legal practice for ownership of assets to be evidenced by documents of title, and for the location of these documents of title to determine associated jurisdictional issues. This principle is established in the legislative jurisdictions of OECD countries, and therefore the physical location of the gold bullion is of little consequence given that each bar is specifically identified through a serial number and registered in the name of the account holder. Also, these holdings can be verified by the South African banks' external auditors or their offshore offices.	The tabled amendment Bill does not propose an amendment to section 72 of the Banks Act. The National Treasury and the Registrar of Banks are reviewing all aspects relating to liquid assets and the outcomes of the review will inform possible future amendments to be proposed to the Banks Act.
References to other Acts
References to other legislation may soon be redundant (Companies Bill and Co-operative Banks Bill) and current references to “Land Bank” and “Public Investment Commissioners Act” should be amended. Date of which is yet to be proclaimed.	All references to legislation were amended where appropriate. References to proposed legislation are inappropriate at this stage. Other references corrected where a section of the Banks Act was amended and the correction of a reference was incidental thereto.
SPECIFIC ISSUES RAISED BY THE PORTFOLIO COMMITTEE ON FINANCE
Gold held with the Reserve Bank
There are no legal provisions that require banks to hold a percentage of their assets in gold. Where banks own gold, they may keep it wherever they deem appropriate. Banks are required to hold and maintain a minimum amount of cash as a deposit with the SARB equal to 2½ times its total liabilities.
Link between liquidations & reckless lending by Banks
The Basel II provisions introduced through amendments to the Banks Act will not directly impact on bank lending practises. Lending practises and controls on reckless lending are addressed in the National Credit Act (although it should be noted that the NCA only covers lending to individuals not companies). However, indirectly, the Basel II provisions should assist in reducing reckless lending in that it will introduce more risk-sensitive capital charges and possibly pricing behaviour. Statistics on liquidations are not reported to the Registrar og Banks, but to the Master of the High Court. Attempts to obtain these statistics from the Masters Offoce were not successful in the time available, but will be forwarded to the Committee members once obtained.