NATIONAL TREASURY’S RESPONSE TO COMMENTS MADE TO PARLIAMENT ON THE CO-OPERATIVE BANKS BILL
Answers and Comments
Business Parliamentary Office (BUSA & CHAMSA)
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.
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.
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.
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.
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.
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.
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. 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.
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.
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.
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.
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.
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.
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.