22 February 2006

 

Dear Sir,

 

COMMENTS ON THE MEMORANDUM ON THE OBJECTS OF THE BANKS AMENDMENT BILL AND THE BANKS AMENDMENT BILL

 

In response to your request for comments on the Memorandum on the Objects of the Banks Amendment Bill and the Banks Amendment uj Bill attached please find the comment letter prepared by the South African Institute of Chartered Accountants (SAICA). 

 

We thank you for the opportunity to provide comments on this document. 

 

Please do not hesitate to contact us should you wish to discuss any of our comments.

 

Yours sincerely

 

 

Thingle Pather

Project Director – Auditing

 

 

cc:        Tom Winterboer (Chairman of the SAICA Banking Project Group)

           

 

 

General comments

 

The following serves as a summary of our observation regarding the amendments to the Banks Act which we have highlighted for your attention:

 

  1. Page 2 – second last paragraph states:

Other amendments that have been necessitated by changing supervisory policy …

It was questioned whether or not the matter of on- or off-site supervision by the regulator would be dealt with under the regulations, since this would play an important role for the auditor. It was noted that the on-site supervision model was favoured since the regulator was ultimately responsible for bank supervision and that Basel II required the regulator to perform on-site supervision.

 

  1. Page 7, section 5.3 – the relationship between the host and home regulator has not been clearly defined.

 

  1. Page 7, section 5.1 – it was noted that in order to facilitate the sharing of information relating to securities and insurance supervisors, the regulator would need to enter into a memorandum of understanding with the Financial Services Board.

 

Specific comments

 

These comments relate to the wording contained in the Memorandum on the Object of the Banks Amendment Bill, 2006 and the Banks Amendment Bill, 2006. For ease of reference we have used the exact page numbering and section numbering as used in these documents. Where possible we have included suggested wording.

 

Memorandum on the Objects of the Banks Amendment Bill, 2006

 

  1. Page 4, section 1.3 – the definition of deposit needs to made clearer in order to include reference to …(Amman please complete)

 

  1. Page 4, section 1.4 – the definition of division needs to be made clearer in order to include reference to …(Amman please complete)

 

  1. Page 4, section 1.9.5 – Pieter to provide comments.

 

  1. Page 10, section 10.3 – it was noted that the memorandum of understanding made it clearer to understand the levels and authority of circulars, guidance notes and directives compared to the amendments to the Act. Therefore the amendments would need to be clarified. Concern was expressed regarding the use of the word circulars since this would be associated with the previous Banks Act circulars. It was also noted that since the two tiers of documents namely, circulars and directives would be mandatory that there should be adequate levels of authority built into the approval process before these documents are released. Lastly it was suggested that where any of the three tiers of documents related to auditors, that wording should be built in to ensure that this was done in consultation with the auditing profession through SAICA.

 

  1. Page 10, section 11.1 – it was noted that whilst the flow of information was necessary, more guidance was needed relating to what type of information was included.

 

  1. Page 13, section 15.3 – it was noted that off-balance sheet exposure should also be included.

 

  1. Page 16, section 21.3 – it was noted that average balances were favoured rather than month-end balances which could be easily manipulated. If the current wording was retained then consideration should be given to requiring a comparison between month-end balances and average balances.

 

  1. Page 17, section 23.1 – the definition of a person  needs to be made clearer in order to include reference to …(Amman please complete)

 

  1. Page 20, section 27.4 – the inclusion of the wording  similar characteristics was seen as problematic and it was suggested that the registrar provide guidance relating to new instruments.

 

  1. Page 20, section 28.2 – it was suggested that consideration be given to the establishment of a dual system with the Financial Services Board relating to the Financial Advisory and Intermediary Services legislation.

 

Banks Amendment Bill, 2006

 

  1. Page 5, section 1(i) – it was noted that the or at the beginning of the underlined section should be an and instead.

 

  1. Page 6, section 1(j)(c) – Pieter to provide wording.

 

  1. Page 7, section 4(b) – a related entity should be defined since it could be interpreted as being very wide.

 

  1. Page 8, section 6(e) – it was questioned whether this provision included access to working papers, and if so, this could be in conflict with the auditing firms internal policies. The reason for the access was also questioned since the evaluation of the quality of the audit was the responsibility of the Public Accountants’ and Auditors’ Board.

 

  1. Page 8, section 9 – it was noted that the word may should be amended to must in order to ensure transparency.

 

  1. Page 10, section 7(1) (a)(i) to (iii) – it was noted that reference was made to material impact and that since this was different from audit materiality that it should be defined.

 

  1. Page 24, section 14(1) – it was noted that whilst consideration had been given to non-executive directors there was no reference to independent non-executive directors.

 

  1. Page 27, section 2(j) – it was noted that the reference to material risks needed to be defined in order to provide clarity as to what would be included.  

 

  1. Page 27, section 2(m) – it was noted that this requirement was in conflict with the mandate of the Audit Committee.

 

  1. Page 43, section 27 – it was noted that verification involving an auditor should be agreed on through consultation with the auditing profession through SAICA.

 

 

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