South African Postbank Bill [B14-2010] (DOC and NT) 10 August 2010 PCC Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Delegation DOC Team Dr. Harold Wesso : Acting DG Gift Buthelezi : Acting DDG Norman Munzhelele : Chief Director Willie Vukela : Director Alf Wiltz : Director Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Delegation National Treasury Team Omega Shelembe : Acting Chief Director Jeanine Bednar-Giyose : Director Alvinah Thela Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Definitions To avoid conflict with PFMA, clause 1 of the Bill was amended to ensure that word as defined in the Bill bears the same meaning as in the PFMA The term “ business of the bank” was deleted and replaced with “banking business” wherever it appeared in the Bill “Registrar of Banks” definition was inserted as it is now used in the content of the Bill. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Objects of the Act (Developmental role of Postbank) As an emphasis to the developmental role of the Postbank and in line with COSATU’s proposals, the following objectives have been added to the Bill: (c) expanding the range of banking services and developing into a bank of first choice in particular to the rural and lower income market as well as communities that have little or no access to commercial banking services or facilities; and Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Objects Cont… (d) promote universal and affordable access to banking services; and (e) ensuring that the rates and charges of the Company must take into consideration the needs of people in the rural and lower income market as well as communities that have little or no access to commercial banking services or facilities.” Treasury is still of the view that paragraph (e) is too operational and should possibly be omitted. The developmental role is also strengthened by the Minister’s policy making power proposed Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 3 ( Incorporation) The PCC requested the DoC and National Treasury to look at alternative proposals on the governance structure of the Postbank that would give greater power to the Executive Authority to intervene in governance matters at the Postbank, should the need arise. One alternative mechanism to ensure greater power to the Executive is to make the Minister the shareholder in the South African Postbank. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 3 ( Incorporation) The SLA was requested to provide their views on the legal implications of the Minister being the shareholder as opposed to the South African Post Office, as the Bill currently provides in clause 3(2). Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 3 Cont… The SLA provided the following opinion that clearly explain the implications: “If the Minister is the shareholder, the Postbank is no longer a subsidiary of the Post Office and the Post Office has no relationship with the Postbank. It must be kept in mind that the Post Office is a wholly owned State enterprise, thus, if the Post Office remains the shareholder of the Postbank, the State (in effect the Minister) would be able, through the Post Office, to hold the Postbank accountable for any of its actions. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 3 Cont… Furthermore, the Post Office is a Major Public Entity listed in Schedule 2 of the Public Finance Management Act, 1999 (Act No. 1 of 1999), and must comply with all the requirements of that Act relating to public entities. In terms of the same Schedule, “(a)ny subsidiary or entity under the ownership control of the … (Post Office)” is also a public entity. Thus, similarly to the Post Office, the Postbank will have to comply with the PFMA. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 3 Cont… Paragraph 5.1.15.2. of the Protocol On Corporate Governance, also provides that the directors of a wholly owned state owned enterprise (SOE) are required to keep the Executive Authority informed of the operations of the SOE and its subsidiaries, and to give the Executive Authority such information in relation to those operations as the Executive Authority may require from time to time. The said protocol applies to all public entities (such as the Post Office) and any subsidiaries of such public entity. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 3 Cont… If the Minister becomes the shareholder, the Bill will have to be scrutinised for any unintended consequences. E.g. clause 9 of the Bill seeks to authorise the Postbank to render its services “…through the physical assets, systems, employees and general infrastructure of the Post Office”. The provision was drafted based on the fact that the Postbank is a wholly owned subsidiary of the Post Office. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 3 Cont… The Post Office will also have to be given an opportunity to respond should the possible change of ownership of the Postbank be considered by the Committee.” Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 3 Cont… DoC and NT team is not in favour of establishing the Postbank as an independent state-owned enterprise at this stage for the reasons indicated above and prefer the current structure in the Bill that creates the Postbank as a subsidiary of the Post Office. The current governance structure will allow sufficient power for the Executive to intervene. The policy and regulatory power in clause 25 further empowers the Minister to guide the Postbank where necessary. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 3 Cont… As suggested during the PCC meeting of 18 May 2010, provision has also been made in clause 14 for the designation of two members of the Board of the Post Office to serve as members of the Board of the Postbank. The Minister further remains responsible for the appointment and removal of members of the Board. In view of the discussions between the DoC, NT and SLA, the governance structure in the attached revised Bill is proposed, retaining the Post Office – Postbank subsidiary relationship. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 4 ( Registration as Bank) In light of the pending Dedicated Banks legislation that Treasury is still working on, which the Postbank could be registered under and for the purposes of this process, clause 4 is amended to provide for the Postbank to be registered in terms of the applicable legislation. This will allow the Postbank to register under either the Banks Act or the Dedicated Banks Act, if the latter is promulgated Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 4 ( Registration as Bank) A provision was further inserted in clause 4 (3) to exempt the Post Office to register as a controlling company of the Postbank for the purposes of section 43 of the Banks Act and that the appointment of the Post Office board is not subject to the approval of the Registrar of Banks. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 7 and Schedule 1 (Transfer of Business of former Postbank) Clause 7 (c) is amended to make reference to the compliance with Labour Relations Act, 1995 (Act No. 66 of 1995) and therefore resulting in Schedule 1 being deleted. This is in line with the recommendation by COSATU and decision taken by the PCC Clause 9 Clause 9 (3) is inserted to ensure that the compliance with policies issued in terms of Clause 25 Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 12 (Composition of Board) As per the PCC decision, amendment has been made to clause 12 for the Board to compose of Nine non-executive members and managing director who is an executive member, instead of 15 members Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 14 ( Appointment of Board Members) Clause 14 is amended to provide for the nomination committee to obtain the Registrar of Banks approval if a person is a fit and proper person to hold the office as board member. This will ensure that various regulatory approvals from the banking and other relevant non-banking regulators are also complied. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill The following paragraph (d) added to clause 14(4), as follows: “(d) in consultation with the Registrar of Banks, whether the candidate is, as far as can reasonably be ascertained, a fit and proper person to hold the office of a member of the Board of a banking institution” As per the PCC recommendation, a provision is also inserted (14 (6) (a))to empower the Minister to designate two members of the Post Office Board as members of Postbank Board by virtue of office Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 15 is amended to allow removal of a member if the Registrar of Banks informs the Minister that a member is no longer a fit and proper person as required." Clause 16 is also amended to delete “all” under 16 (e) (iii), since it is not possible to attend all Board meetings. Sub-clause (2) that makes non-compliance with fiduciary duties an offence, has also been deleted.". Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 20 (2) is amended to remove the requirement that the managing director and the Minister of Finance should be consulted before the Board can determine conditions of service of staff. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Clause 21 (1) is amended to ensure compliance with PFMA with regard to submission of report to the Minister. Report to be submitted within “5 months” and not “6 months” The heading for Chapter V has been moved from clause 22 to clause 21 in accordance with the Arrangement of Sections. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill CLAUSE 25 (REGULATIONS AND POLICY) Clause 25(1) is amended to ensure that the Registrar of Banks is consulted before regulations are made. Clause 25(2) is added to provide a policy making power for the Minister. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Amendments to the Bill Cross-references The reference made in clause 26(b) to “section 25” should be to “section 27” and The reference in clause 27(4) to “section 26” should be to “section 28”. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Conclusion The Bill in its current form incorporates the proposals made during the PCC deliberations and as discussed and agreed to by the DoC and NT team and SLA as per the PCC recommendation. Both Departments wish to thank the Committee for the opportunity to respond to the submissions and clarify issues that were of concern The Departments will gladly provide any further clarity or assistance required. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

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