NATIONAL TREASURY’S
RESPONSE TO COMMENTS MADE TO PARLIAMENT ON THE CO-OPERATIVE BANKS BILL
AUGUST 2007
Institutions |
Submission |
Answers and Comments |
Business
Parliamentary Office (BUSA & CHAMSA) Banking
Association |
Regulations
diluting - good governance and accountability measures Financial
Intelligence Centre Act (FICA) Financial
Intermediary AND Advisory Services Act (FIAS) National
Credit Act (NCA) Taxation
status of cooperative banks Progressive
build up vs. rapid uptake |
The
regulations will not undermine the stringent requirements already in the
Bill. The Minister will only be able to act within the legislative mandate
afforded to him in the Bill which is limited. Co-operatives
banks will become accountable institutions in terms of Schedule 1of FICA.
Specifics of compliance are being discussed with the FIC. FIAS will
apply if a co-op bank renders financial services as defined in the Act
however NT will propose appropriate exemptions if necessary. Co-op
banks will be subject to the NCA according to the prescribed thresholds. See
separate response on taxation. The
Agency will provide support to Co-op banks and deposit-taking financial
services co-operatives (FSCs) to ensure that any progressive build up or
rapid uptake happens in a sustainable manner. It is recommended that Section
55 be amended to strengthen the above. |
COSATU/Nehawu |
1.
The relationship between the co-op banks and the general co-op sector
is not clear. 2.
Provide definition of a “member” in the definition section. 3.
In the phrase “sustainable market conditions” remove the word
“market”. 4.
Appointment of an executive officer. This officer should be elected by
the members and not by the board, and the officer should be a member of the
co-op bank. 5.
Stokvels and village banks not meeting the criteria of s3.1(a) and (b)
will not be able to register and will be deprived of assistance that comes
with registering. This provision is not encouraging the nurturing and
consolidation of these bodies. 6.
S13 should set up an internally democratic way for the co-op bank to
operate. 7.
S28 should also provide for the conversion of a primary into a secondary
bank, and a secondary into a tertiary bank (will provide a development
process on adding activities as the bank expands). 8.
(a) A representative body
doesn’t have to be a co-operative.
(b) There also [shouldn’t] be an application fee, if the fee is there,
it should be low. (c) Also, what benefit and support would a
representative body be entitled to? Should be in the Bill. 9.
Support organizations: comments are same as in 8 (b) and (c) above. 10.
The Bill as a whole and the Agency role should include “the promotion
of relationships/integration between co-op banking and the rest of the
co-operative sector”. 11.
Appointment of the board. The criteria of appointment should include
representivity from registered representative organizations (to ensure that
the direct voice of the co-op banking sector is heard in the decisions that
directly affect them). 12.
Provision of the tax regime? Be put in the Bill and then elaboration
in the subsequent regulations. 13.
Co-operative Banks should be able to deduct from payrolls. |
It is recommended that the definition of a
primary co-operative bank be amended to allow co-operatives to be members
thereof. There is
no need for a definition as the co-operatives Act is clear that only natural
persons may become members of co-operatives. The extension of membership to
include co-operatives is mooted above. Supported.
It is recommended that the phrase “market” be deleted wherever it appears in
the Bill. It is
recommended that the definition of Executive Officer be amended to clarify
that the Executive Officers are employees of a co-operative bank reporting
directly to the Managing Director (MD). They should be appointed and not
elected. The
Agency will provide support to co-operative banks and deposit -taking
financial services co-operatives (FSCs) to ensure that any progressive build
up or rapid uptake happens in a sustainable manner. It is recommended that
Section 55 be amended to strengthen the above. This Bill
builds on the provision of the Co-operatives Act as set out in Section 14 and
33 of the Co-operatives Act sets out the democratic way in which co-operatives
must operate. It
appears that the concept of secondary and tertiary co-operative banks has
been misunderstood – Secondary co-o-operative banks are formed by two or more
primary co-operative banks, in accordance with the definition of secondary
co-operative as provided for in the Co-operatives Act. Supported.
It is recommended that this requirement for registration be removed. The fee
will be linked to the administrative costs of processing an application. There is
a no benefit to the representative body as the intention of the provision is
to create protection to the co-operatives banks represented. The fee
will be linked to the administrative costs of processing the application. An
accredited Support organization is eligible to be appointed as a service
provider (the implementation of the functions of the Agency) to assist with e.g.
training. This objective
falls outside the scope of the legislation. Although this is an ideal outcome
– it cannot be not achieved through this Bill. Section
58 (4)(a)&(b) - provides for the
Minister to appoint members from nominations received from the public. See
separate response on taxation. As Government,
we do not support the payroll deductions – because this has been abused in
the past. In terms of this Bill, we promote responsible risk management
policies as opposed to easy collection methods. |
SACCOL |
1.
The definition of “executive officer” be removed from the definitions
and in all places where it applies. Its definition of “appointed” contradicts
s13(1)(a) as well as the principle of co-operatives to ‘elect members”. 2.
In relation to s3.1(a) and (b), what becomes of the status of stokvels
and savings groups and how are they to be regulated? And also, 3.
What is the status of start up groups that apply for registration but
do not meet the threshold? 4.
One of the intensions of the Bill should be to encourage stokvels and
savings groups to consolidate and merge within a defined geographic area so
that as they become eligible to receive support to convert to co-operative
banks. 5.
The registrar of co-operative banks, in conjunction with the support
organizations, should create a definition of a “study group/provisional
registration” that would register with the Support organisation and receive
support from the Agency toward meeting the requirements of registration
within a prescribed period of time. 6.
The appointment of an audit committee be substituted with “the
election of a supervisory committee’ or vice versa. 7.
Add the clause that reads “or members share statement or other receipt
shall constitute a certificate of share holdings, unless it is proved
otherwise” at the end of the sentence of s13(2)(e). This is because the registration costs of each certificate
can cause more than the share itself, as well as being an administrative
burden. 8.
S14 (3) and s14(4) makes no provision for secondary and tertiary co-op
banks to access and participate in the services provided by access to the
National payments system; therefore, add under these sections “any products
and services as become available through access to the national payments
system”. 9.
In relation to s20(1)(a), the Bill should stipulate how shares are to
be treated in a co-operative bank towards meeting the capital requirements as
required by the regulation; essentially, Notification of the treatment of shares with any
limitations should be stipulated in the Bill so as to prevent any
misrepresentation of shares as capital in a co-operative bank. 10.
In relation to s23(1)(a) relating to large exposures, it should be
worded to clearly indicate its intent or be deleted completely. Also, The wording ‘make or receive investments with any
person or institution or loans collectively …” be added in sections 23(1)(a)
if not deleted and in (b). 11.
Also add, 23(3)(4) for purposes of subsection (1) the following
deposits must be regards as a single deposit or investment into co-operative
bank, also Add 23(3)(4)(a) shares, deposits, savings or loans from a
member into the co-operative bank. Alternatively, provide for a section that will address
investment exposure into the co-operative bank. 12.
S24 and 25 should state: 24(1) Primary, secondary and tertiary
co-operative banks (a) pay the deposit insurance contributions as prescribed
by the Minister to the Fund as referred to in section 26. The rest be
deleted, because its duplication. 13.
The distinction between a representative body and a support organisation
is not always distinct. Therefore, the Bill should: -
clarify how it related to organizations who happen to perform both
functions, such as SACCOL -
clarify how it relates to Representative and Support organizations in
terms of functions of said organizations -
provide clarity as to what the relationship between the Development
Agency and representative and support organisations is.
That it is a criminal offence for employers to reject the
provision of payroll deductions to co-operative banks. |
See
response under para. 4 of the COSATU submission. In addition, the term
appointed is consistent with the principle of co-operatives as stipulated in
the Co-operatives Act. The FSCs
who wish to apply but do not qualify for a cooperative bank license must
apply to the Agency to assist them in meeting the minimum requirements. Stokvels and savings groups are informal
groupings, who’s existence and activities are not covered in the policy
intentions of this Bill. However, if
they want to become a cooperative bank, they would also have to meet the
minimum requirements and apply for registration See above
(2). We believe
this is an ideal outcome, but need not be provided for in the Bill. Support
for and development of co-operative bank is a specific function of the Agency. Our
comment above proposes a different policy stance to the one proposed
here. Provisional registration as
suggested becomes irrelevant. We
propose that we include an oversight of prudential regulations in the
functions of the “audit committee”. We
also propose that the supervisory committee be renamed “governance committee”
and fulfill the governance oversight functions. 13(2)(e)
says share certificates must be issued, not necessarily registered. Deposit
books can serve the purpose. We accept
proposed amendments to the NPS Act as suggested by NPS department in their
submission. It stipulates that all
tiers of cooperative banks may participate fully in the NPS. This
matter will be dealt with in the regulations.
Shares will be treated as capital, and normal withdrawal limitations
of bank capital will apply. Supported.
It is recommended that S23(1)(a) be deleted.
It is not
necessary to protect the bank from large investors as the principle of one
person one vote applies. In addition,
the supervisor can stop capital withdrawals that may threaten the stability
of the bank. See
comment under para. 10 above. Supported. Support
organizations which are accredited as such by the Agency entitle them to be
service providers in implementing the capacity-building programmes of the
Agency. It should be noted though that
the Agency can also utilize other service providers to fulfill this function.
See s55(1)(j). This may
be limiting in practice, as in some areas you may only have few primary
cooperative banks. There are stringent
requirements for registration of representative bodies and support
organizations (see s31, 32, 36 and 37).
These should avoid the proliferation argument. Not
Supported. All regulation in this Bill
is activity based, not rule based. The
R20m threshold is purely used to delineate systemic banks from non-systemic
ones in terms of (1) the banking activity allowed by the license, and (2)
relative size of the bank in relation the average size. See
comment under 15 above. See
comment under 15 above. See
comment under 15 above. Since
this is an ideal situation, it is a single regulator argument which cannot be
made in this legislation. The Bill does however, require the 2 supervisors to
co-ordinate and integrate its activities as well as to build relationships
with other regulators – see s42 and s53 of the Bill. The
practical difficulty with this suggestion is that there is currently only one
representative body that may be accredited as a support organization. Even so, it may have limited capacity in
providing the support programmes that the Agency would need to implement for
the existing number of banks to meet the minimum requirements of this Bill in
any sensible amount of time period. It
is also not advisable to have a proprietary solution to an industry-wide
problem. We are
not certain what the word failing implies.
Normally a supervisor determines the reasons and the extent of the
failure. If such reasons are not
justifiable, then financial support would not be an option. There may
be primary cooperative banks which do not belong to any secondary or tertiary
cooperative banks. This suggestion
implies the Agency cannot assist them.
In cases where a primary bank belongs to secondary bank, such
liquidity assistance may be provided through a secondary cooperative bank. See response
to COSATU. See
comments under 20 above. See
comments under 20 above. See
response to COSATU. Must be
left to the constitutions of the banks. See
taxation comments. Exemption
issued in terms of the Banks Act. It
will be repealed in the Banks Act. See
response to COSATU. It is not
within Government’s jurisdiction to encroach on the business practices of the
private companies. |
Standard Bank
of SA |
1.
FICA: says ‘know your customer’. Is a Co-op bank not an accountable
institution in terms of this Act? This would mean that commercial banks won’t
fully comply with the FICA requirements. Is the intention to exempt according to s89? S45(d) of the Bill, would it apply to suspicious
transactions under FICA and whether the furnishing of such info by the
supervisor would be subject to or exempt from the confidentiality provision? 2.
Can co-op banks enter into joint ventures with the commercial banks
that could lead to the creation of business synergies? 3.
Re: NPS Act, the impact on the system in cases of suspension and
failure of a co-op bank? In a case of shortfall between
taking-deposits and making payments on behalf of members of a co-op bank, how
would the shortfall be funded? 4.
Tertiary co-operative bank, the reference to a secondary co-operative
is unclear in the definition! 5.
S6(2)(d) – would the provision of the NCA apply to loans granted by
co-operative banks? 6.
S11 – ‘Suspension’ of a co-operative bank is not defined, What effect would suspension have
on the business of a co-operative bank Under what conditions can
suspension be lifted? 7.
S11(4)(a) - replace ‘may publish’ with ‘must publish’. This is in the
interest of the public. 8.
S14(3)(c) – opening a foreign currency account: Would the requirements
of the Exchange Control Regulations apply to those parties and the related
foreign currency transactions? 9.
S14(5) – if accounts are held for co-operative banks or their members
at commercial banks, to what extent would this provision (fees, charges and
fines) apply to banks registered under the Banks Act - in which charges, fees and fines are
already largely regulated? 10.
S15(e) – intermediary role: would co-operative banks be subject to the
provisions of Financial Advisory and Intermediary Services (FAIS) Act and to
what extend would the provision of this Act apply to co-operative banks? 11.
S25 and 26 – ‘Scheme’ is not defined: this needs clarity. Is the Fund [s(26)] different from
the ‘Scheme’ in s25? Why does only tertiary co-operative
bank have a compulsory insurance scheme? |
See response
under the Business Parliamentary Office submission. Section
36 of FICA is excluded from the provisions of the Promotion of Access to
Information Act. It follows that when co-operative banks are included under
the FICA they will be obliged to report such transactions. Yes they can – see for example s14(1)(g & h), and 15(e)
–these will be dependent on the nature of the joint venture. The impact will be similar to that of commercial banks. The
NPS have operational means of excluding the bank to minimize impact on other
banks in case of failure. According to the regulations of the NPS Act. In the
case where a secondary co-operative bank proves to have sufficient capacity
to fulfill the functions of a tertiary co-operative bank they are allowed to
register as tertiary co-op banks. Yes, see
response under the Business Parliamentary Office submission. No
definition is necessary as the Bill provides for the definition. It is
depended on the nature of the suspension and the conditions imposed by the
supervisor. This is
adequately addressed under s11 of the Bill. See
section 11(4)(c). We are
proposing an amendment to the section which suggests that the cooperative
bank open an account with a commercial bank to facilitate foreign currency
transactions. It is not
the intention of this Bill to enable the Minister to prescribe charges and
fees a commercial bank to a cooperative banks Yes, see response
under Business Parliamentary Office submission. See
response to SACCOL’s submission. |
SARB |
1.
The SARB and NPS Act Standing Committee suggest that the definition of
the different tiers of co-op banks be amended in the consequential amendments
of the NPS Act to read “co-operative banks” because any tier will have to
meet the set criteria in order to be admitted in the clearing and settlement
system, should they wish to do so. 2.
The Standing Committee would like to make oral submissions to the
Portfolio Committee in order to elucidate further. |
We agree
with all the amendments proposed by the SARB. |
University
of Pretoria |
1.
The village banks are fairly frail entities and would require
assistance in meeting compliance costs under the other related Acts such as
FAIS, FICA, and NCA. 2.
Concepts such as MD are misleading because some banks have 1 employee.
3.
Also, the village banks will not be able to carry Audit costs on their
own. 4.
The imposition of the deposit insurance schemes or fund – while
essential – will add further operational costs to these banks. 5.
Requirements for registration such as s7(b) (c) will mean that certain
banks won’t survive because these conditions are (onerous) and don’t take
into account the nature of the banks and the services they render. Also, if
on each auditor a report by an auditor will be called for, i.e. s6(1)(4)(b),
it will impact on the ability of the applicants to register where they don’t
have any support. 6.
How will the village banks not meeting the application requirements as
set in s3(1)(a) and (b)will be regulated going forward? 7.
S15(e) encourages the relationship with the private sector and it is
important and thus, should be retained. 8.
There is no need for a representative body to be registered merely to
represent other organizations. Registration and accreditation should be done
for support organizations only. 9.
The draft regulations under this Act should be made available ASAP
given the importance of this Act. Technical comments
|
The
Agency and the accredited support organizations will assist co-operative
banks to meet these requirements. In
addition, appropriate exemptions will be requested/recommended where
appropriate. See
response to COSATU’s submission. We
suggest that auditing of the cooperative banks be included in the functions
of the Agency. The Agency may provide such services for free for a limited
period, which may be determined by the Agency on a case by case basis. There
will be assistance in this regard by the Agency. Government will finance the Fund initially
at 100% of the funding requirement and this financing will reduce over time
while the financing by the cooperative banks increases. See response
under SACCOL’s submission. See
response under SACCOL’s submission. Supported.
There is
a need to an extent that it may be necessary to protect communities from
unscrupulous persons claiming to be legitimate representative bodies when
they are not. Supported.
Supported.
It is recommended that an amendment be effected in this regard. See response
under COSATU’s submission. The
common bond requirement is a critical principle of a co-operative. Supported.
Supported. We are of
the opinion that the effect is the same. Not
supported as s7(c) accommodates the concern raised (“every person…of the
proposed co-operative bank…to operate the proposed co-operative bank”). Not
supported. An organ of state is expected to act reasonably in accordance with
the promotion of Fair Administrative and Justice Act. Supported. It is
important that an institution that is no longer registered as a co-operative
bank does not refer itself as such – see s10 (2 & 4) of the Bill. The Agency
will assist in this regard. See
response under SACCOL’s submission. We
recommend an amendment to s14(1)(c) to clarify that borrowing does not
include deposits referred to in s14(1)(a). Not
supported. See response under COSATU and SACCOL’s submission. Supported.
However, this is best provided for in the constitution of the Bill. See
response in s3 above. Not
supported. Should they wish to change corporate form they must de-register as
co-operative banks and register into a corporate form which they whish to
become. See
response under COSATU and SACCOL’s submission. National
Treasury and the SARB are comfortable with the amount, it is not necessary
for the Minister to prescribe a different amount at this stage. Not
necessarily. The supervisor may wish to delegate to a service provider with
specific technical skills, etc. S57(3)(a)(1
& 2) and s46(3)(a)(1 & 2) make provisions to avoid such possible
abuse (requires the Minister’s approval). Supported. See response to SACCOL above. S8(1) and
s38(1) and 33(1) makes provision for the Agency to collect fees in relation
to registration of co-operative banks, support organizations and
representative bodies. Supported.
It is recommended that the section be amended to provide clarity. Supported.
It is recommended that ss2 be amended to delete the phrase “…is incorporated
as a co-operative under the Co-operatives Act…” as the phrase is superfluous.
|
Yebo
Co-operative Ltd |
This section is different from similar sections of the
Banks Act, s73(1)(a) and the Mutual Banks Act, s51(1) – as they place
restrictions on investment and loans to 1
person/entity and not to the total
loan book as does the Bill.
Co-operative banks should be given more decision-making
powers in compliance with the constitution (that members themselves will
formulate). 3. Support organizations (Chp III) – support
orgs should provide temporary support in the initial stages and then transfer their duties to the structure of a
co-op support organizations such as
YEBO and not be forced to belong to
one (government) support organization but be encouraged to make their own
choice S13(1)
training of staff. It is equally important to train members and board as
well. 5.
The law should promote the development of the co-operative banking
system.
|
See response
under SACCOL submission. Noted The Bill is
not proposing more regulations than are necessary in terms of the cooperative
principles and prudential regulations. In addition, appropriate regulation is
required to protect depositors while enhancing a growing co-operative banking
sector. The Bill
does not prohibit co-operative banks from using the constitution providing
for decision-making. We are
not clear what this comment means. Incorrect
referencing. This what
the Bill is proposing – see s55(1)(a). The
principle of a cooperative is that it has to be member-based. See
response to SACCOL above. See
response to SACCOL above. This is
the function of the Co-operatives Act. |
Thomas
Mathew |
|
Noted. |
Competition
Commission of South Africa |
1.
The Competition commission believes that the Bill is the step in the
right direction, hoping that it will, inter
alia, increase competition in the banking industry. 2.
In relation to S8(2), where the supervisor may grant an application
for registration subject to any condition he or she may determine, it
is important that in any such determination the supervisor apply objective
criteria, therefore, Consider establishing clearly stated and objective
criteria to guide the supervisor in granting applications for registration of
co-op banks. 3.
Provide clarity on the rights and obligations of primary co-op banks
in relation to payments services requiring clearing and settlement in the
co-op banks Bill and in the proposed amendments to the National Payment
Systems Act. Would it mean that a co-operative
bank would only be able to offer transaction services on its own
infrastructure? 4.
If a primary co- operative bank wished to broaden the scope of its
payment services, would it be facilitated through some process or would it
have to convert to a secondary or tertiary co-operative bank? 5.
With regards to Chapter V of the Bill, the competition Commission will
scrutinize and make recommendations to the amalgamation, division, or
transfers of co-operative banks to the extent that they fall within Chapter 3
of the Competition Act. 6.
Effective working relationship between the Competition Commission, the
supervisor and the Minister of finance is crucial in as far as regulating
amalgamations and/or merger control of co-operative banks is concerned. |
Agreed The Bill
allows for an appropriate level of discretion similar to that afforded the
Registrar of Banks and the Financial Services Board (FSB). We are of
the opinion that Section 7 and 8 sufficiently guides the exercise of
discretion taking into account the unique nature of each cooperative bank. See
amendments recommended under the NPS Act. Yes they
can and can also be sponsored by a commercial bank. Section
14 (1)(g) – primary co-operative bank may conduct any additional banking
services as may be prescribed by the Minister. Section
53 (1) – indicates that the supervisor may liaise with any regulatory
authority on matters of common interest. It is
recommended that a consequential amended be effected to the Competition Act
to align the position regarding banks and co-operative banks (Minister may
exclude jurisdiction of the Commission and Tribunal). Supported.
However, this need not be provided for in the Bill. Despite this, s53 and
55(1)(l) provides for this in general. |
Mr. De
Villiers |
1.
Currently, co-operatives are clients of commercial banks. Perhaps the
co-ops registered in terms of the Co-operatives Act no 14 of 2005, should
channel their business through the co-operative bank. 2.
S68(c) of the Bill should exist for a limited period until the bank
has enough funds to function on its own. The government intervention is
undesirable. 3.
The bank must become a property of co-operative banking and
co-operatives should also purchase shares in the bank. 4.
Co-op members should also become direct members of the bank, on a
voluntary basis, through the purchasing of shares. 5.
The board of directors should consist of a chosen person from the
co-operatives in each province (nine) plus four appointed by the government. 6.
The bank should have the intention to grant loans to its primary,
secondary and tertiary co-operative and then the latter would be able to
grant loans to their members. Suggested way forward -
The establishment of branches. -
The establishment of co-operative training colleges. -
Technological development of banking services in the rural areas as
well as skills development and community involvement. |
It
appears Mr. De Villiers has misunderstood the purpose and objectives of the
Co-op banks Bill. It appears his understanding was that the Agency constituted
a co-operative bank that would operate similar to the Land Bank. |