National Treasury

From: Ismail Momoniat: Deputy Director-General: Tax and Financial Sector Policy 

To: Mr I Vadi: Chairperson: Portfolio Committee on Communications Parliament of the Republic of South Africa

Dear Chairperson,

DRAFT COMMENTS ON THE SOUTH AFRICAN POST OFFICE BILL (BILL B2 OF 2010), AND THE SOUTH AFRICAN POSTBANK BILL (BILL B14 OF 2009)

In response to the request from the Portfolio Committee on Communications, please find attached National Treasury draft comments in respect of the South African Post Office Bill and the South African Postbank Bill, for the consideration of the Committee.

The National Treasury thanks the Committee for the opportunity to comment on the Bills, and we trust that these comments will prove useful in your deliberations.

Please note that the comments are draft comments at this stage, and the National Treasury will engage with the State Law Advisors to develop finalized comments and proposed amendments to the Bills arising out of those finalised comments.

Kind Regards,

Ismail Momoniat: Deputy Director-General: Tax and Financial Sector Policy

Date:

NATIONAL TREASURY DRAFT COMMENTS ON THE SOUTH AFRICAN POST OFFICE BILL (BILL B2 OF 2010), AND THE SOUTH AFRICAN POSTBANK BILL (BILL B14 OF 2009)

1. PURPOSE

To provide draft comments to the Portfolio Committee on Communications ("the Committee" regarding the South African Post Office Bill (Bill B2 of 2010) ("the Post Office Bill"), and the South African Postbank Bill (Bill B14 of 2009) ("the Postbank Bill"). The National Treasury will engage with the State Law Advisors to develop finalized comments and proposed amendments in respect of the Bills.

2. GENERAL COMMENTS

2.1. The National Treasury supports the initiatives of the Bills, to enable the Postbank. To provide deposit-taking services, in order to expand access to banking services.

2.2. It is a fundamental principle that al deposit-taking institutions must be regulated by the banking regulator.

2.3. It is important to ensure that no provision in these Bills is inconsistent with the Public Finance Management Act, 1999 (Act NO.1 of 1999) ("the PFMA"), or which unnecessarily duplicates provisions of the PFMA or the Treasury Regulations. The National Treasury has scrutinized both Bills to determine if there are any provisions which are inconsistent with or duplicates provisions contained in the PFMA. Such provisions are identified and discussed in the specific comments regarding each of the Bills below. It could be included at the commencement of the definition sections of the Bills, that any term that is used in the Bills, which is defined in the PFMA bears the same meaning as contained in the PFMA.

2.4. It is recommended that there not be unnecessary duplication of provisions of the PFMA and the Treasury Regulations in these Bills. Any provisions in the Bills which are duplicating provisions of the PFMA and the Treasury Regulations should be deleted.

2.5. In both Bills, the definition of "Companies Act" should be amended to refer to the Companies Act, 2008, (Act No. 71 of 2008), which will be coming into operation later this year. Similarly, it should be examined whether certain terminology referred to in the Companies Act, 1973, (Act No. 61 of 1973), may need to be amended in order to refer to the terminology contained in the Companies Act, 2008. For example, the reference to the memorandum and articles of association of a Company may need to be amended to refer to the memorandum of incorporation which companies will now have in terms of the Companies Act, 2008.

Comments on the Post Office Bill

2.6. The term "financial statement" is already defined in the PFMA, and the term should not be defined differently in the Post Office Bill.

2.7. The reference to "memorandum and articles of association" in clause 1(3)-(5), should be carefully considered. as under the Companies Act, 2008, companies will no longer have a memorandum and articles of association, they will have a memorandum of incorporation.

2.8. Clause 7, which provides for the Post Office to annually conclude a performance agreement with the Minister of Communications, duplicates Treasury Regulation 29.2, and it is therefore unnecessary to include this clause in the Bill.

2.9. In respect of clause 8(4). it is proposed that the clause could be rephrased to provide that the Post Office may only borrow money-

2.9.1. within the framework of the PFMA; and

2.9.2. with the prior written approval of the Minister of Communications and the Minister of Finance.

2.10. Clause 14(5)(c) provides that Board members "...must attend all meetings". It is submitted that this may not be practically possible, and that perhaps the clause should be rephrased to specify a more realistic requirement, such as not being absent from a meeting without the approval of the Chairperson.

2.11. Clause 17 could be amended to provide that the appointment of the Chief Financial Officer must be in accordance with the requirements of the PFMA and Treasury Regulation 2.1.

2.12. In dealing with the conditions of appointment of the Chief Executive Officer, and the Chief Operating Officer, clause 18 specifies a maximum term of appointment for these incumbents. It is submitted that there is no need for the terms of the Chief Financial Officer and the Chief Operating Officer to be limited for five years. Moreover, these incumbents are currently appointed on a full-time basis.

2.13. Clause 22(2) requires the involvement of the Minister of Communications, Finance, and Public Service and Administration in the approval of a human resource policy of the Port Office. It is submitted that the approval of a human resources policy is the responsibility of the Board, and that Ministerial involvement is unnecessary.

2.14. It is recommended that clauses 23(2) and (3) be deleted, as the requirements contained in those provisions are already contained in provisions in the PFMA. In particular, it is submitted that it is undesirable to specifically emphasise compliance with the requirements of section 52 of the PFMA, as it creates an impression that the requirements contained in section 52 are more important than other requirements of the PFMA. It would be preferable to simply require the Board to ensure that the requirements of the PFMA are complied with.

2.15. It is recommended that a conflict of laws provision be inserted into the Bill, to provide that in the event of a conflict between any provision in the Bill and a provision in the PFMA, the provision in the PFMA would prevail. This could be inserted after clause 23(1), which provides that the Post Office is subject to the PFMA.

2.16. It is submitted that since the investigation of the Post office referred to in clause 24 is into the affairs or financial position of the Post Office, that the fees and disbursements incurred in such an investigation of the Post Office should be determined by the Minister of Communications with the concurrence of the Minister of Finance.

2.17. In respect of clause 25, which empowers the Minister of Communications to issue directives and potentially appoint an administrator, it is submitted that if a directive is to be issued in a situation where the Post Office is in financial difficulty or is being mismanaged, that the Minister of Communications should advise the Minister of Finance regarding the situation, and that such a directive should be issued by the Minister of Communications with the concurrence of the Minister of Finance. Similarly, if such a directive is not adhered to, and an administrator is to be appointed to manage the Post Office as a result of the poor financial management or the poor state of financial affairs of the Post Office, it would be important for the Minister of Finance to be advised of the situation, and that a curator be appointed with the concurrence of the Minister of Finance.

Comments on the Postbank Bill

2.18. The recent global financial crisis has reinforced the need for adequate supervision and regulation of financial institutions. Weak institutions can potentially destabilise the financial system. The National Treasury is strongly of the view that any financial institution must be registered in terms of financial regulatory legislation under the Minister of Finance. If a financial institution is to engage in deposit-taking, it must be done in accordance with appropriate banking legislation. The Post Office should not in any respect be treated separately or differently from other deposit-taking institutions.

2.19. It is important to note that the banking regulator would be the primary regulator in respect of the Postbank, but there are other non-banking regulators, such as the payments regulator (PASA) and the anti-money laundering regulator (the FIC), which would also have regulatory authority in respect of the Postbank. It needs to be ensured that the legislation in respect of which these non-banking regulators operate is also carefully examined, to ensure that there is no potential conflicts between the Postbank Bill and the legislation in terms of which those legislators operate.

2.20. Regulation and licencing of the Postbank will assist to ensure that, amongst other things, the business that the Postbank will be carrying on is in fact the appropriate business of a bank, that the Postbank will be conduct its business in a prudent manner, that the establishment and functioning of the Postbank will be in the public interest, that the Postbank has the capacity to successfully establish itself and operate as a bank, and that there are sufficient financial resources available for the Postbank to comply with the requirements of the applicable banking legislation. Therefore, it is very important that Postbank is appropriately licenced and regulated.

2.21. The purpose of the Postbank Bill is to give effect to an internal restructuring of the Post Office, by converting a division of the Post Office into a corporate entity. The business of the Postbank will be to take deposits, provide facilities for money transfers, and third party payments. Potentially, the business of the Postbank might be expanded to include lending, within specified limits. This potential function of the Postbank is discussed further below.

2.22. Provision is currently made in clause 4 for the Postbank to apply for a licence to operate as a Bank. In respect of clause 4, it is proposed that the Post Office should be regulated in terms of the forthcoming Dedicated Banks Bill, which will establish a new type of Dedicated Banks. The Postbank should not be empowered to undertake the full scope of banking functions provided for in the Banks Act, 1990 (Act No. 94 of 1990). It is important that it be provided that the Registrar would determine the type of licence that should be issued, and the conditions subject to which the licence should be issued.

2.23. It is important to note that various regulatory approvals would be required from the banking and other relevant non-banking regulators. It is important to be careful that any Ministerial approvals which are required in terms of this Act, to not have an effect of undermining the operational independence of the regulators. It is, therefore, recommended that all requirements f9r Ministerial approvals in the Bill be carefully scrutinized, to consider whether they are in fact necessary to include, and to determine whether or not they may potentially have an unintended consequence of undermining the operational independence of the regulators. If it is determined that Ministerial approval should not really be necessary in respect of a certain matter, then that requirement could be dispensed with. If it is determined that the provision may potentially undermine the operational independence of the regulators, then it should be considered how the provision should be amended, in order to avoid or minimise that potential effect.

In respect of clause 10, which deals with the appointment of the Board of the Postbank, it is submitted that the Board of the Postbank should be approved by the Registrar of Banks, in accordance with the applicable requirements set out in the Banks Act or the Dedicated Banks Act (depending upon the decision that is made as to which legislation the Postbank should be registered under). It is also relevant to note, that if the Post Office wishes to register as a holding company of the Post Bank in terms of the Banks Act or the Dedicated Banks Act, then the Registrar of Banks should also approve the appointment of the Board of the Post Office.

2.25. Clauses 11(a) and (b) are already provided for in sections 52 and 49(2)(a) of .the PFMA, respectively, and could therefore be deleted.

2.26. In respect of clause 14, which deals with the appointment of the Board, it should be noted that the banking regulator would need to approve the appointment of the Board.

2.27. Regarding resignation or removal from office, which is dealt with in clause 15; it is submitted that the banking regulator should be empowered to remove a Board member.

2.28. Similar to clause 14(5)(c) of the Post Office Bill, section 16(10(e)(ii) of the Postbank Bill requires Board members to attend all meetings. As noted above, it may not be practically feasible to require such a standard, and the provision could be amended to provide for a more realistic standard.

2.29. It is recommended that the determination of conditions of service, remuneration, and service benefits of employees referred to in clause 20(2) should be the responsibility of the Board, without the need for the concurrence of the Minister of Finance. It is anticipated that the determination of executive salaries will be consistent with the framework for executive remuneration as developed by the Ministry of Public Enterprises.

2.30. Section 21 requires the submission of the annual report to be done not later than six months after the end of the financial year. This is in contradiction with section 55(1 )(d) of the PFMA, which requires that the annual report be submitted within five months of the end of the financial year. It is recommended that this clause be deleted, and that the provisions of the PFMA must apply.

2.31. In relation to clause 24, it is submitted that the Postbank should largely be regulated by the banking legislation in terms of which it is registered. In order to provide for appropriate regulation in terms of the banking legislation, it is recommended that provisions be included in the Postbank Bill to provide for some flexibility in respect of the application of the PFMA to the Postbank. A provision similar to clause 27 of the Post Office Bill might be included, in respect of the Application of the PFMA to the Postbank. A provision similar in form to clause 28 of the Post Office Bill could be inserted, to empower the Minister of Finance to declare any provision of the PFMA not to be applicable to the Postbank. Such an exemption, however, would need to be published in the Gazette, and must only be granted with good reason.

2.32. In relation to clause 25, it is proposed that it should be provided that the Minister has the power to make regulations, after consultation with the banking regulator.

2.33. It is recommended that a conflict of laws clause be included in the Bill, to the effect that if there is any conflict between the Bill and a provision of the applicable banking legislation (the Banks Act or the Dedicated Banks Act, as may be determined), the provision of the applicable banking legislation would take precedence.

2.34. The reference made in clause 26(b) to "section 25" should actually read "section 27".

2.35. It is not clear what provision clause 27(4) is referring to, and that should be clarified.

2.36. It would be appropriate to include a provision that circumscribes the Postbank's powers to lend. It could potentially be stipulated in a provision in the Bill that the Postbank may only lend from its deposits, to the extent approved by the Registrar of Banks. Any additional funding provided to the Postbank should only be able to be lent with the approval of the Minister of Finance. Alternatively, if the Postbank is to be registered in terms of the Dedicated Banks Bill, its lending powers could be aligned with the requirements and prescribed limits that would be set out in the Dedicated Banks Bill and regulations.

3. RECOMMENDATION

It is recommended that the Committee take into account the contents of this memorandum in its deliberations.

4. CONCLUSION

The National Treasury thanks the Committee for the opportunity to present comments on the Bills. It should be noted that these are draft comments at this stage, and the National Treasury will engage with the State Law Advisors to develop finalized comments and proposed amendments to the Bills arising out of those finalised comments.