BANKS AMENDMENT BILL [B12-2007]
MOTIVATION FOR PROPOSED AMENDMENTS
A. BRIEF SYNOPSIS OF THE BILL
The draft Bill primarily contains amendments to the Banks Act
necessitated by the revised Framework on International Convergence of Capital
Measurement and Capital Standards published by the International Basel
Committee on
In summary the Basel II
amendments aim to create a sufficiently robust regulatory environment that will
enable the Registrar to properly discharge his/her respective roles and
responsibilities in respect of banks, controlling companies and banking groups
on a solo, cross-border or consolidated basis. The Banks Act pertaining to the
supervision of banks and in particular as it relates to the following aspects is
strengthened -
§
regulation of all relevant banks and banking groups
on a consolidated basis;
§
stating the respective roles and responsibilities
of consolidating and host supervisors;
§
providing for cooperation and sharing of
information between supervisors;
§
clarifying the responsibilities of banks, banking
groups, boards of directors of banks and banking groups;
§
increasing the reporting requirements of and
providing comprehensive disclosure requirements for banks and banking groups;
§
facilitating the various options available to banks
and banking groups in calculating minimum capital requirements in respect of
credit risk exposure, market risk exposure and operational risk exposure; and
§
elaborating the supervisory review process in order
to, amongst other things, assess the capital adequacy and control environment
of banks and banking groups.
The
other proposed amendments are largely of a technical nature and include the
following:
§
extending the regulatory authority of the Registrar to divisions and controlling
companies of banks in certain respects where his or her regulatory authority is
currently limited to banks;
§
clarifying and
strengthening the powers of the
Registrar to ensure compliance with the Act. The Registrar is authorised to
issue circulars, guidance notes and directives, request information from
relevant institutions, impose administrative penalties and the like. The power
of the Registrar to object to the appointment of directors and executive
officers is also clarified;
§
imposing an obligation on the Registrar to keep a
register of registered controlling companies, branches, eligible institutions,
representative offices of foreign institutions or the subsidiaries and branches
of banks; and
§
effecting a
number of technical and editorial
amendments such as –
§
correcting
references to Acts repealed since the last amendment to the Act (for instance,
replacing the reference to the Insurance
Act, No 27 of 1943 with a reference to the Long-term Insurance Act, No 52 of
1998);
§
clarifying that a reference to a “bank” includes a reference to a
“branch”; and
§
clarifying the meaning of the term “assets and liabilities” when such is
transferred.
B. DETAILED DISCUSSION: CLAUSE BY CLAUSE
“Allocated capital and reserve funds” - This definition is moved from section 70 to the
definitions in section 1 of the Act.
“chief executive officer” - To reflect the differences in the legal nature of a
bank and a branch of a foreign institution.
· Basel II should
be applied on a consolidated basis to all relevant banks and banking groups;
· Clarifying the
respective roles and responsibilities of consolidating and host supervisors;
· the need for
cooperation between consolidating and host supervisors; and
· the sharing of
information between consolidating and host supervisors.
“deposit” - To correct references to
Acts repealed since the last amendment to the Act. The following references are
corrected:
·
Insurance Act, No 27 of 1943 replaced with Long-term Insurance Act, No 52
of 1998;
·
Insurance Act, No 27 of 1943 replaced with Short-term Insurance Act, No
53 of 1998.
Subparagraph
(vi) is replaced and a new subparagraph (ix) is inserted to give effect to
thereto.
“Division” - To clarify what
constitutes a “division” to facilitate the effective enforcement of section 52
in as far as it relates to the establishment of divisions of a bank in
conjunction with third parties that are not banks.
“Hybrid-debt instrument” - To facilitate the use of the term in the Act
(section 79) and the Regulations.
“primary share capital” - As Basel II provides supervisors with the
discretion to take minority interests into account with the calculation of
primary capital on a consolidated basis, a provision is added to the definition
of “primary capital” enabling the percentage of minority interests that would
qualify as primary capital to be prescribed by regulation.
“primary and secondary unimpaired reserve
funds" - In terms of
international best practice, supervisors, amongst other things, need to keep
the following matters in mind when they conduct consolidated supervision in
respect of a banking group:
· Robust
definitions relating to the elements of qualifying capital and reserve funds
are necessary. One example is that instruments that qualify as capital of an
insurer may not qualify as capital of a bank;
· The suitability,
quality and availability of capital is equally important since, for example, a
subordinated loan in a banking subsidiary may be included in the consolidation
of group capital but may strictly not be available as capital for the group but
only for the banking subsidiary.
Currently the definitions of primary and secondary
unimpaired reserve funds only include references to “a/the bank”. It is
proposed that the definitions also make reference to a controlling company.
Furthermore, recently adopted International Financial
Reporting Standards (IFRS), amongst other things, prescribe the manner in which
entities, including banks and banking groups, have to account for certain fair
value adjustments. It is proposed that the definitions of primary and/or secondary
unimpaired reserve funds include wording such as “… such percentage of a
reserve arising from compliance with financial reporting standards”. The
percentage would then be prescribed in the Regulations.
The definitions exclude a fund required to be maintained
in terms of any other law from qualifying as primary or secondary reserves. It
is, however, possible that in the dynamic environment of banking and
accounting, it might happen that certain statutory funds may qualify as primary
or secondary reserves. In order to accommodate this possibility it is proposed
that the definitions contain an enabler to prescribe such funds by means of
regulation.
“qualifying capital and reserve funds” - This definition is moved from section 70 to the
definitions in section 1 of the Act.
“Securitisation scheme” - To facilitate
the use of the term in the Act and the Regulations.
“tertiary capital” – To align the definition of the term with Basel II
requirements.
The provisions of the Regulations
relating to banks’ Financial Instrument Trading (CAR Regulations) have been
incorporated into the proposed amended Regulations. It is therefore proposed
that the reference to the CAR Regulations be deleted in sections 1 and 70 of
the Act.
Basel
II, amongst other things, clearly states that-
· in order to
reduce the compliance burden and avoid regulatory arbitrage, the methods and
approval processes used by a bank at the group level may be accepted by the
consolidating supervisor at the local level, provided that they adequately meet
the host supervisor’s requirements; and
· whenever possible,
supervisors should avoid performing redundant and uncoordinated approval and
validation work in order to reduce the implementation burden on banks, and
conserve supervisory resources.
Furthermore in terms of the requirements of the
Basel Concordat, before granting consent to the creation of a cross-border
establishment, the host supervisor and the bank’s or banking group’s
consolidating supervisor should each review the allocation of supervisory
responsibilities recommended in Basel II in order to determine whether its
application to the proposed establishment is appropriate.
Sharing of information and cooperation
between supervisors are prerequisites for the effective supervision of a
banking group on a consolidated basis. Sharing of information does not only
relate to sharing of information between bank supervisors but also with
securities or insurance supervisors.
Furthermore Core Principle 24 states that: A key component of consolidated supervision is establishing contact and
information exchange with the various other supervisors involved, primarily
host country supervisory authorities.
It is proposed that the aspects
pertaining to cooperation agreements be explicitly stated in the Act.
Pillar
2 of Basel II deals comprehensively with the supervisory review process.
Based on the requirements of pillar 2 of Basel II,
it is proposed that section 4 of the Act be amended to impose a duty on
the Registrar to implement and maintain a supervisory review process.
In
terms of the requirements of Basel II, supervisors have to assign eligible
external credit assessment institutions’ (“eligible institution”) assessments
to the risk weights available under the standardised risk weighting framework,
that is, deciding which assessment categories correspond to which risk weights.
The
mapping process has to be objective and it should result in a risk weight
assignment consistent with the level of credit risk reflected in the Basel II
Accord and should cover the full spectrum of risk weights. Annexure 2 of Basel
II contains comprehensive information to assist supervisors with the process of
assigning credit assessments to the relevant risk weights.
Based on the requirements of Basel II relating to
the mapping of external ratings, it is proposed that section 4 of the Act be
amended to provide for such mapping process.
Since
Basel II recognises that-
·
the regulation and
supervision of banks or banking groups is not an exact science; and
·
discretionary elements
within the supervisory review process are inevitable,
the new framework contains various items of national
discretion.
Furthermore Basel II requires-
·
supervisors to carry out
their obligations in a transparent and accountable manner; and
·
supervisors to make
publicly available items of national discretion.
Based on the requirements of Basel II relating to
items of national discretion, it is proposed that section 4 of the Act be
amended to provide for the exercise of such discretion, in consultation with
the banks.
Basel II, amongst other things-
· requires supervisors to make
publicly available the criteria to be used in the review of banks’ internal
capital assessments;
· states that when supervisors
choose to set target or trigger ratios or to set categories of capital in
excess of the regulatory minimum, factors that may be considered in doing so
should be publicly available;
· requires the supervisory process for recognising
eligible institutions to be made public in order to avoid unnecessary barriers
to entry; and
· requires supervisors to make
publicly available items of national discretion.
Based on the requirements of Basel II
relating to disclosure of certain information, it is proposed that section 4 of
the Act be amended to provide for such disclosure of information.
Currently section 6(4) of the Act states that “The
Registrar may from time to time by means of a circular furnish banks with
guidelines regarding the application and interpretation of the provisions of
this Act or provide banks with any other information”.
Based on the fact that Basel II clearly makes
provision for-
· eligible external credit assessment institutions;
· external auditors of banks or banking groups, and
to fulfil certain duties, it is
proposed that the ambit of section 6(4) be broadened to also include a
controlling company, an eligible institution (rating agency) and an auditor of
a bank or controlling company;
It is furthermore proposed that the provisions of
section 6(4) clearly distinguish between circulars, guidance notes and
directives:
· Circulars (which are not mandatory) may be issued by
the Registrar to furnish banks with guidelines regarding the application and
interpretation of the provisions of the Act.
· Guidance notes may be issued by the Registrar in
respect of market practices that banks may or may not consider in the conduct
of their business and which are not mandatory for banks to implement but merely
provide banks with further information.
· Directives may be issued by the Registrar, after
consultation with the affected parties, to prescribe certain processes or
procedures to be followed by banks with regard to certain processes or
procedures necessary in the administration of the Act. The legal nature of
directives is that it would be obligatory for banks to comply with its
prescriptions.
The Public
Accountants’ and Auditors’ Act, 1991 (Act No. 80 of 1991) has been repealed by
the Auditing Professions Act, 2005 (Act No. 26 of 2005). It is proposed that
the reference be corrected in this provision.
Section 9: Review of decisions by the Registrar
The Public
Accountants’ and Auditors’ Act, 1991 (Act No. 80 of 1991) has been repealed by
the Auditing Professions Act, 2005 (Act No. 26 of 2005). It is proposed that
the reference be corrected in this provision.
Section 12: Application for authorization to
establish bank
The Public
Accountants’ and Auditors’ Act, 1991 (Act No. 80 of 1991) has been repealed by
the Auditing Professions Act, 2005 (Act No. 26 of 2005). It is proposed that
the reference be corrected in this provision.
Section
18A: Branches of foreign institutions
Although
the legal nature of the structure of a branch differs from that of a bank, most
of the prescriptions of the Act apply equally to banks and branches, with a few
exceptions.
Other
legislation, such as anti-money laundering legislation, only refers to banks.
It is, however, clear those branches are also required to comply with the
prescriptions.
In
order to provide legal certainty to this issue, however, it is necessary to
explicitly provide that a reference to “bank” in the Act or other legislation
includes a reference to a “branch”, unless expressly stated otherwise.
Section 30: Publication of information relating to
banks, branches, controlling companies, eligible institutions and
representative offices of foreign institutions and the keeping of records by
the Registrar
Section 30 of
the Act requires that the Registrar keeps a register of all registered banks,
but does not require the Registrar to also keep a register of registered
controlling companies, branches, eligible institutions, representative offices
of foreign institutions or the subsidiaries and branches of banks.
In the light of
the prescriptions of Basel II on consolidated supervision it is proposed that
branches of foreign institutions, controlling companies and eligible
institutions be included in the section.
Section 37:
Permission for acquisition
of shares in bank or controlling company
Section
37(1) places restrictions on the acquisition of the “…total nominal value of
all the issued shares of the bank or controlling company…”
Since the
Act was promulgated it has become common practice, at least amongst the major
banks, to issue non-redeemable, non-cumulative preference shares comprising up
to 20% of their primary capital and possibly more if non-qualifying shares are
included. These preference shares
usually do not have voting rights similar to those of ordinary shareholders.
In future, various forms
of hybrid instruments (shares with some debt characteristics) will be issued,
further increasing the total nominal value of all the issued shares of a bank
or controlling company. It is therefore now quite possible for a single
shareholder to own less than 15%, 24%, 49%, or 74% of the nominal value of all
the issued shares of the bank or controlling company whilst breaching the thresholds
in respect of the voting rights attached to those shares of the bank or bank
controlling company.
The
practice whereby certain share agreements provide for the transfer of voting
rights from one shareholder to another shareholder is also a factor that has
necessitated the proposed amendment.
It is recommended that this section be amended to also make the
thresholds applicable to the voting rights in respect of the issued shares of a
bank or controlling company that is exercisable by a person.
Section
43: Registration of controlling companies
Section 43(1) of the Act provides that a
public company that desires to
exercise control over a bank, may
apply for registration as a controlling company.
It is proposed to amend the section to
read that a public company that intends to exercise control over a bank shall apply for registration as a
controlling company.
Section
50: Investments by controlling companies
Section 50 of the Act provides that a
controlling company investing money in undertakings other than banks or in
fixed property not being used for the purpose of conducting the business of a
bank shall manage its transactions in such investments in such a way that the
amount of such investments does not at any time exceed 40 per cent of the sum of
its share capital and reserve funds.
It is proposed that the section be amended
to properly reflect the accounting standards in this regard. It is proposed
that the section be amended to provide that the amount of the said investments
does not exceed a percentage as prescribed of the share capital and reserve
funds of the controlling company calculated
on a consolidated basis as prescribed. (The manner of the calculation will then be
provided for in the Regulations).
It is also proposed to apply the similar
provisions to loans and advances by controlling companies.
Section
52: Subsidiaries, branch offices, other interests and representative offices of
banks and controlling companies
The enforcement and administration of
section 52 of the Act have become problematic due to certain interpretation
issues and somewhat unclear wording of the section.
It
is proposed that section 52 of the Act be amended to provide for a prior
approval process if banks or controlling companies wish to establish or acquire
subsidiaries within or outside
It is
furthermore proposed to regulate the establishment of divisions, involving
non-bank third parties, by banks for reasons set out in paragraph 1 above.
Section
54: Compromises, amalgamations, arrangements and affected transactions
As a result of the wording of
section 54 of the Act, and the various legal interpretations assigned to the term
“assets and liabilities”, the
enforcement of its provisions has become somewhat problematic for the Bank
Supervision Department.
Some of the concerns raised
in the interpretation of section 54 of the Act include the following:
·
Technically a bank cannot sell a pool car, fixed
property or any other asset without the Minister's approval.
·
The section refers to the transfer of assets and liabilities. Questions have been
raised as to applicability of this section if and when banks transfer only
assets in the normal course of business.
As a result
of the issues set out above, it is proposed that section 54 of the Act be
amended to address the difficulties in this regard.
Currently section 59 of the Act
prescribes different reporting thresholds for domestic and foreign
shareholders. For example, the name and certain particulars of a foreign
shareholder are not required when the total nominal value of the shares
registered in the name of the shareholder is less than the lower of
R100 000 or one per cent of the total nominal value of all the issued
shares. Although R100 000 may have been a substantial amount for
investment in shares when the Act was written in 1990, it is unlikely to still
be the case and it may be considered to prescribe similar reporting thresholds
for domestic and foreign shareholders, namely a one per cent reporting
threshold.
Furthermore the one per cent
threshold currently relates to “… less than one per cent of the total nominal value of all
the issued shares of …” This means, for example, that the details of a
person that holds 3 per cent of the ordinary shares, that is, shares with
permanent voting rights, but less than one per cent of the total nominal value of all the issued shares, are not required
to be reported.
It is proposed that the detailed provisions be
contained in the Regulations and that section 59 be amended to enable such
prescriptions by Regulations.
Section 60:
Directors of bank or controlling company
Section 60 of the Act was substantially
amended in 2003 to provide the Registrar with powers to object to the
appointment of directors and executive officers.
Since the promulgation of the
amendments to section 60 of the Act and the establishment of a policy and
procedure by the Bank Supervision Department in this regard, it has transpired
that the provisions contain certain deficiencies.
The identified deficiencies in
relation to section 60 of the Act include the following:
· Section 60(5) of the Act provides for two different
procedures for the appointment by a bank of non-executive directors and
executive-directors and executive officers, respectively. The section also
provides for two different processes for the Registrar to object to the
appointment of non-executive directors and executive-directors and executive
officers, respectively. This distinction has proved to be impractical and has
resulted in legal uncertainty in this regard. It is proposed that the processes
and procedures pertaining to the appointment of and the subsequent objection to
the appointment of both non-executive directors and executive directors and
officers be the same.
· Section 60(6) of the Act provides for a procedure of
objection only in relation to executive directors and officers. It is necessary
for the wording to be amended in order to reflect the legal position. The
omission of non-executive directors is clearly a drafting oversight and needs
to be corrected.
Section 63: Functions of auditor in relation to
registrar
The Public
Accountants’ and Auditors’ Act, 1991 (Act No. 80 of 1991) has been repealed by
the Auditing Professions Act, 2005 (Act No. 26 of 2005). It is proposed that
the reference be corrected in this provision.
Currently the provisions of sections 64, 64A and 64B
of the Act only relate to banks.
Based on the fact that -
· the content of the said sections is equally relevant
for a controlling company and banking groups; and
· Basel II clearly states that the scope of application
of the framework will include, on a fully consolidated basis, any holding
company that is the parent entity within a banking group to ensure that it
captures the risk of the whole banking group,
it is necessary to require both a bank and its
controlling company to establish and use the various committees.
It is, however, also necessary that the Registrar be
afforded the power to exempt a bank from establishing such committees in cases
where the Registrar is satisfied that the relevant committee of the controlling
company adequately performs the tasks also in respect of the bank.
As a result of the prescriptions of Basel II
introducing a risk sensitive approach to the management of a bank, requiring
banks to relate risk to capital and requiring banks to maintain a sound capital
management process, it is proposed to change the name of the Risk Committee to
the “Risk and capital management committee” and to add the provisions setting
out the required functions of the said committee.
The Corporate Laws Amendment Bill, 2006
also contains certain provisions relating to Audit Committees. It is proposed
that this Act be amended to reflect the provisions of the said Bill.
Currently section 70 of the Act
provides that, in the calculation of the aggregate amount of capital that a
bank is required to maintain, the sum of the bank’s secondary capital and
secondary unimpaired reserve funds shall be taken into account to an amount not
exceeding the sum of the bank’s allocated and qualifying primary share capital
and allocated and qualifying primary unimpaired reserve funds, that is, the
split may be 50:50.
In order for the legislative
framework to remain in line with international regulatory and supervisory
requirements and developments, it is proposed that section 70 be amended as set out in the Bill.
The current requirements of section
70A of the Act provide that a controlling company has to maintain capital and
reserve funds equal to the sum of the required capital amounts of the
individually regulated entities, as determined by their respective regulators, plus a capital proxy amount in respect
of unregulated entities.
Neither the Act nor the Regulations, however, require
a banking group at any stage to calculate consolidated
or aggregated risk positions or exposures before calculating a capital
requirement for the banking group based on the consolidated or aggregated amount
of risk exposure, not even in respect of a locally incorporated bank and its
foreign branches.
The abovementioned position is, however, not
sufficiently comprehensive since Basel II, amongst other things, clearly
states that-
· the framework will be applied on a consolidated basis to internationally active banks;
· the
consolidating country supervisor is responsible for the oversight of the
implementation of the framework for a banking group on a consolidated basis;
· the scope of application of the framework will
include, on a fully consolidated basis, any holding company that is the parent
entity within a banking group to ensure that it captures the risk of the whole
banking group; and
· the framework will also apply to all internationally
active banks at every tier within a banking group, also on a fully consolidated
basis. A three-year transitional period for applying full sub-consolidation
will be provided for those countries where this is not currently a requirement.
The aforementioned requirements mean
that-
· individual entities within a banking group have to be
adequately capitalised on a stand-alone basis; and
· based on the overall activities and aggregated amount
of risk exposures incurred by entities included in the banking group, the
banking group has to be adequately capitalised.
Based on the aforementioned requirements and the
requirements specified in paragraph 3 above relating to robust definitions
in respect of the elements of qualifying capital and reserve funds, it is
proposed that section 70A of the Act be amended as proposed in the Bill.
Section 73: Large exposures
Currently section 73 of the Act deals comprehensively
with various matters relating to the exposure of a bank, controlling company,
branch or branch of a bank to a single person, including-
· requirements for the board of directors to approve
exposures in excess of certain amounts;
· requirements to maintain additional capital and
reserve funds in respect of certain exposures to a private-sector non-bank
person;
· reporting requirements to the Registrar; and
· comprehensive definitions relating to a “person” and
a “private sector non-bank person”.
However, Basel II clearly states that-
· “… supervisors should assess the extent of a bank’s
credit risk concentrations, how they are managed, and the extent to which the
bank considers them in its internal assessment of capital adequacy under Pillar
2. Such assessments should include reviews of the results of a bank’s stress
tests. Supervisors should take appropriate actions where the risks arising from
a bank’s credit risk concentrations are not adequately addressed by the bank…”;
and
· concentration risk does not only relate to
counterparty exposure but also exposure to an industry, sector or a
geographical area.
Finally, due to the size of certain corporate
conglomerates in relation to banks, the uniqueness of certain corporate
structures and the extent of corporate concentration in South Africa, it may be
considered to also include an enabling provision in section 73 of the Act that
will allow the Registrar, with the approval of the Minister of Finance, to
exempt certain concentrations or exposures from the requirements of the Act or
the Regulations that would otherwise be in force, which exemption will be for
such time and subject to such conditions as may be prescribed by the Minister
or specified in writing by the Registrar.
It is therefore proposed to change the heading of
this section to “Concentration risk” and to add the provisions as set out in
the Bill.
Currently section 74 of the Act only
relates to the failure or inability of a bank to comply with prudential
requirements.
However, due to the requirements of Basel
II that, amongst other things, clearly states that-
· the framework will be applied on a consolidated basis to internationally active banks;
· the scope of application of the framework will
include, on a fully consolidated basis, any holding company that is the parent
entity within a banking group to ensure that it captures the risk of the whole
banking group; and
· the framework will also apply to all internationally
active banks at every tier within a banking group, also on a fully consolidated
basis. A three-year transitional period for applying full sub-consolidation
will be provided for those countries where this is not currently a requirement,
it is proposed that provisions of section
74 of the Act be amended as set out in the Bill.
The Act and the Regulations contain
various references to Statements of Generally Accepted Accounting Practice.
Recently
The latest proposed amendments to the
Companies Act provides for a definition of “financial reporting standards” as
well as the establishment of a “Financial Reporting Standards Council”.
It is therefore proposed that the
terms “Generally Accepted Accounting Practice” be removed from the Act and
replaced with a reference to the financial reporting standards issued by the
Financial Reporting Standards Council as set out in section 440S of the
Companies Act.
Section
76: Restriction on investments in immovable property and shares, and on loans
and advances to certain subsidiaries
The principal Act was amended during
2003 resulting in certain deletions from subsection section 76(1) of the Act.
These deletions were however out of kilter with the provisions of the
regulations in this regard.
It is therefore proposed to amend the
section in order to properly reflect the provisions contained in the
Regulations.
Currently section 79 of the Act only refers to a bank
that needs to obtain approval or comply with certain conditions in respect of
the issue of certain instruments.
However, based on the fact that
Basel II requires consolidating supervisors to also regulate the capital
adequacy of a banking group and a controlling company, it is proposed that the
provisions of section 79 of the Act be amended to also apply to a controlling
company.
Currently section 79(1)(c) of the Act only refers to
negotiable certificates of deposit that may not be issued otherwise than in
accordance with prescribed conditions. Following certain amendments to the
Income Tax Act, banks recently commenced issuing instruments such as promissory
notes instead of negotiable certificates of deposit.
Since instruments such as negotiable certificates of
deposit and promissory notes are instruments of similar characteristics, it is
proposed that the heading of section 79 and the content of section 79(1)(c) of
the Act be amended to include the wording “… negotiable certificates of
deposit, promissory notes or instruments of similar characteristics …”
With the advent of so-called hybrid instruments, it
is necessary to also include such instruments into this provision.
Sections
81-84: Control of certain activities of unregistered persons
One of the main problems and frustrations
in enforcing sections 81 to 84 of the Act is the fact that once inspectors have
been appointed to investigate a person operating an illegal scheme, it
invariably happens that such a person is liquidated or sequestrated. Such a
liquidation or sequestration negates the work done by the inspectors and the
higher fees charged by the appointed liquidator/trustee of the insolvent estate
are to the detriment of depositors in such a scheme.
For various reasons, BSD has been loathe
to become involved in the liquidation process of unregistered persons. Their
experience in the recent past, however, has made it imperative that the
Registrar becomes involved to some degree.
It is proposed that provision is made that
whilst a person operating an illegal scheme is under investigation or
management in terms of the provisions of the Act, such a person may not be
liquidated or sequestrated by any person, save with the leave of the court and
only once the Registrar has been notified of such an application.
It is also proposed that a duly appointed
fund manager should report to the Registrar on the solvency of the person
operating the illegal scheme. When the person is found to be solvent, the
manager may repay depositors as provided for in section 84 of the Act. When a
person is found to be insolvent, the Registrar may apply for the liquidation of
the person and will be able to recommend the liquidator to be appointed as well
as agree to the liquidator’s fee structure in this regard.
In
terms of the requirements of paragraph 90 of Basel II, supervisors are
responsible for determining whether or not an eligible institution meets the
criteria listed in paragraph 91 of Basel II, and as such may be regarded as an
approved eligible institution.
Furthermore-
· the assessments
of eligible institutions may be recognised on a limited basis, that is, by type
of claims or by jurisdiction; and
· Basel II
requires the supervisory process for recognising eligible institutions to be
made public in order to avoid unnecessary barriers to entry.
Based
on the aforementioned requirements of Basel II, it is proposed that section 85A
of the Act be included as a new section in the Act.
In terms of
international best practice, all information submitted in respect of a bank or
controlling company and its foreign branches, subsidiaries or joint ventures to
a consolidating or host supervisor should be verified in one of three ways,
namely:
· by the host supervisory authority;
· by external auditors appointed by either the host or
consolidating supervisory authority; and
· by the consolidating supervisory authority.
It is therefore
proposed that a new section 85B of the Act be inserted to make provision for
the Registrar to request that certain information submitted in respect of a
locally incorporated bank or controlling company and its foreign branches,
subsidiaries or joint ventures be verified in such a manner and at such
intervals as may be prescribed or specified in writing by the Registrar.
The proposed new
section in the Act may also serve as an enabling section for the current
regulation 45 reports submitted to the Registrar by the external auditors of
banks.
Section 89: Furnishing of
information by Registrar
Basel II requires that a duty be placed on supervisors to ensure that
they satisfy themselves that the recipient of information that is furnished by
the supervisor will be able and willing to deal with such information in a
confidential manner.
It is proposed that section 89 of the Act be amended to reflect the
above-mentioned prescription.
Section
91A: Financial penalties and sanctions or fines for non-compliance
Although the Act provides for the
imposition of fines to banks in certain prescribed instances (sections 74 and
91 of the Act), it is clear that the provisions are inadequate with regard to
the application of and the compliance to the Act in general.
It is proposed that the Registrar be
afforded the power to impose substantial fines or sanctions on banks, including
directors and executive officers of banks, for non-compliance to certain
provisions of the Act or in respect of certain directives issued by the
Registrar. In order for such power to be exercised judiciously and fairly, it
is proposed that the decision to impose a fine or sanction be taken only after
affording the bank concerned with an opportunity to make representations to the
Registrar.
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