Chairperson, the DA is a patriotic party. We love our country and we cherish its institutions. That is why we work relentlessly to ensure that their functionality is not eroded by the selfish actions of any interest group or any political party. The SA Reserve Bank was established in 1921. It was modelled on the Bank of England and its primary objectives were to issue banknotes, act as custodian of cash reserves of other banks, lend cash to other banks in the event of shortages of liquidity, clear and settle interbank transfers and act as custodian of the country's gold and foreign-exchange reserves. From the outset shareholding in the bank was intended to be symbolic. Shareholding was limited to ensure that the broader public could participate in ownership of the bank and dividends were limited to restrain the profit motive for share acquisition.
One of the current shareholders who appeared before the committee during the public hearings presented a detailed history of the bank and confirmed that, historically, shareholders played a very limited role in the affairs of the bank and that the bank divulged little, if any, information to its shareholders. Over time, the shareholder said, the bank began to exchange more and more information with its shareholders as governance trends changed over the years and shareholders became more vocal about their demands for access to information.
The relationship between the bank and its shareholders appeared to be progressing in the right direction until a few years ago, when a noise emanating from a group of shareholders started to increase significantly. It was not immediately obvious, but this marked the beginning of a specific strategy by one shareholder in particular, who was determined to unlock the so-called value of the investment in the bank and embarked on a programme to encourage other shareholders, and new shareholders, to do the same. Part of this strategy included attempts to circumvent legislated limits on the number of shares any individual or entity could hold in a bank, with a view to mobilising a block of shareholders to appoint directors to the bank who were sympathetic to their cause.
The strategy included plans to increase the limited dividend payable to shareholders, access capital at the bank and share in their annual profits but not in any losses. An approach was also made to the ANC to nationalise the bank. Their primary motive was to liquidate the bank and receive a massive windfall.
We will never know how the relationship between the bank and its shareholders would have evolved on its current trajectory, because there is no doubt after the public hearings that a legislative intervention is required to match the expectations of the shareholders with those of the bank.
The proposed amendment limits an individual or entity to ownership of 10 000 shares, including the shares held by their associates. Limited shareholding is not new, and strengthening this position will make it more difficult for individuals and entities to yield more influence than the original legislation intended.
Some shareholders claim that the proposed amendment is unconstitutional, is an act of expropriation and contravenes bilateral international agreements on compensation for acts of nationalisation. The basis of their argument is that the bank is a company similar to any other company, is subject to the Companies Act and that they, as its shareholders, are its owners and can do whatever they want with their asset.
The fact is that the bank is a unique policy institution, established in terms of a special Act of Parliament, the Currency and Banking Act No, 31 of 1920, and its shareholders have always known the limits that are associated with ownership of its shares. The bank's view is that the actions of a group of shareholders are undermining its ability to properly perform its functions. The amendment, they argue, will improve and clarify governance of banks.
It is unfortunate that the expectation mismatch between the bank and its shareholders arose, requiring legislative intervention. We need to accept the reality that the SA Reserve Bank performs a crucial policy function and that it also has private shareholders, many without ulterior motives. Despite the noisy dispute, the actual question is how the SA Reserve Bank should be structured to best serve the interests of all South Africans.
The DA recognises the need for government to intervene when the market fails. The world financial crisis has revealed substantial gaps in classical economic theory, especially the assumption that all the information is available and that markets can always self-correct. In this instance, the failure is the misaligned objectives of the bank and some of its shareholders. This problem is not unique and arose at the Bank of England, prior to its nationalisation in 1947. Hansard records of debates in the House of Commons in 1945 and House of Lords in 1946 reflect the primary reason for the bank's nationalisation. Both sides of the Houses agreed that the bank was a unique policy institution and that shareholders should not be permitted to influence the bank for their own benefit. Although the solution, to nationalise the bank, was not unanimously supported, the British government paid 58 million, in 1947, to buy out the shareholders.
During our parliamentary hearings, some SA Reserve Bank shareholders made clear their opposition to current monetary policy and declared a need for a fundamental change in the operation of our entire banking and financial system. This is well beyond their mandate and reflects broader aspirations to influence key aspects of our economy. Board members are not intended to represent a particular interest group and must act in the best interests of the bank. The amendment sets out the corporate governance functions of the board and introduces a mechanism to consider the suitability of directors who will be nominated by a wider group of stakeholders. The number of directors is increased to 15, seven of whom are elected by shareholders. Any shareholder, current director or member of the general public can nominate a director for election.
A panel will confirm that a candidate is suitable for possible election to the board. This process should screen out unsuitable candidates and retain those who are fit and proper and possess the required skills and experience.
During my recent visit to the United Kingdom, I had an opportunity to meet with the governance department at the Bank of England and had a close look at developments in their corporate finance over their long history - since 1694. Their view is that governance is evolving and this is reflected in ongoing amendments of the Bank of England Act.
Similar to the Bank of England, the SA Reserve Bank operation in pursuit of its mandate is independent, but the inflation target is set by government. While the Crown appoints all directors to the Bank of England, the SA Reserve Bank Amendment Bill proposes the election of seven directors, a more transparent and inclusive approach than that of the Bank of England.
Having considered the deliberations before the committee and the role of the SA Reserve Bank in our economy, an amendment to clarify shareholder expectations and improve governance procedures to ensure ongoing stability at the bank is required. The proposed amendment does move in this direction. Governance evolves over time and Parliament must exercise more vigorous oversight over this institution.
It is likely that further amendments will be required over time to strengthen governance and ensure that the most optimal structure is maintained. In this regard, the Bank of England and other central banks, including those that have private shareholders, can provide useful guidelines.
At the peak of the world financial crisis in 2008, a group of 15 leading financial economists met at Squam Lake, New Hampshire, to consider the question of how we can prevent a repeat of the world financial crisis. The resulting Squam Lake report sets out several recommendations, including the need for one organisation in each country to be responsible for overseeing the health and stability of the overall financial system. They argue that the central bank should be charged with this important responsibility. The DA agrees. The role of the SA Reserve Bank is far wider than implementing monetary policy and protecting the value of our currency. It needs to drive macroprudential policy and the necessary microprudential reforms.
The role of Parliament is to hold the bank to account, to provide oversight and to ensure that the bank operates in a stable environment. Although the proposed amendment does improve this stability, it is likely that further amendments will be required in future, especially to enhance transparency and inclusivity. Given that this amendment takes a step in the appropriate direction, the DA will support this Bill. Thank you. [Applause.]
Mr N J J van R KOORNHOF: Thank you, Mr Chairman. The debate around the shareholding, the so-called nationalisation and the independence of the Reserve Bank created quite a stir. The financial columns were full of speculation - why the sudden need for these amendments? However, as far as I can remember in my political life, in the committees I have served on, the amendments published in this Bill went through the committee unchanged. There were no objections from those parties present at the meetings. Full marks go to Governor Marcus and her team, who have so eloquently argued for the adoption of these amendments.
In 1999, S K Apea wrote, "To ensure that the central bank commands the confidence of the financial system, the Governor, in particular, must possess the following qualities: strong academic and professional background, strong personality and ability to influence opinions through persuasive argument." The Governor lived up to this definition during our hearings.
Fabian Amtenbrink wrote for the International Monetary Fund, the IMF, on the three pillars of central bank governance and according to him the first one is independence. There is large consensus worldwide on the need for central bank independence. This independence concerns the relationship that exists between the bank and the government. It is therefore desirable that the bank and its board are not subjected to political orders or pressures. We, as politicians, must always remind ourselves that the very nature of our positions makes it impossible for us to be impartial to the short-term benefits of an expansive monetary policy. The focus must be long-term stability rather than short-term monetary temptations.
The second pillar of governance is accountability. To the extent that central banks are independent, mechanisms of democratic accountability are required in order to legitimise the position of the bank within a given constitutional system. The legislation is silent - quite correctly - on this, and therefore it is important that Parliament and, in particular, the Standing Committee on Finance, should become more active in this role.
The third pillar of governance, according to Amtenbrink, is that the central bank must be transparent. Transparency includes the public's understanding of decisions taken by the bank and the reasoning behind those decisions. In the words of Deane and Pringle, "an open, democratic society has the right to demand a broad degree of understanding of what central banks do and how they do it". We should design our own parliamentary process to assist in a way that does not compromise the independence of the bank nor apply undue political pressure for the wrong reasons. Cope will support these amendments. And, in closing, were it not for the various international treaties and the possibility of sending a negative signal to international investors, we would have supported an amendment that only South African citizens should be allowed to buy shares in the Reserve Bank.
We are looking forward to a stable era under the governorship of Gill Marcus. Be strong. Defend your independence and do not allow the debate and disagreement on economic policy within the alliance to undermine your independence. I thank you. [Applause.]
Thank you, Mr Chairman. In a salient showing of the limits of democracy, this Bill does just the opposite of what it proposed to achieve, a fact clearly highlighted in all the public input, but ignored by the media and commentators.
The Bill increases the composition of the Board with people without the required specialised, relevant experience, but takes all the powers of management away from such a bloated board and places them exclusively in the hands of the Governor and the bank's inner and secretive circle. The Bill does nothing to deal with private profits on the bank's shares - the very reason given for its introduction by the Minister. It does nothing to create transparency, representation and accountability where it matters - in the Monetary Policy Committee, which creates and destroys money at will, without any public official or public representative involved in, or aware of, this process.
Effectively, this Bill is an internal coup d'tat to concentrate even more power away from public accountability and transparency. It excludes and silences the individual shareholders who, warts and all, are the only existing public watchdog within the bank.
The Bill leaves fundamental issues unaddressed. Who does the Reserve Bank really serve: the country or the banking community? Its constitutionally required independence is threatened more by the incestuous embrace of the banking community than by the ineffective and tenuous liaison with our government.
The secretive black box within which the operations of the Reserve Bank take place has remained unaffected. The bank can do as it wishes in creating and destroying fiat money as long as it does so within the broad inflation targets set by government. And, in so doing, it partakes in the broader process through which central banks generate recessions or economic booms at the time they deem best.
Neither the Minister nor this Parliament has the statutory power or the in- house skills base to check on what goes on within the black box, or to answer the allegations we heard during public comments, such as that the gold reserves of South Africa have been moved to England; that the huge losses posted by the Reserve Bank this year are really losses of the banking system transferred to the Reserve Bank by shifting reserve requirements and titular ownership; and that there are preferential tracks for application under the Exchange Control Acts which are said to be applied differently, depending on who the client is. Even the Minister has no power to shine a light into the black box.
The Reserve Bank has been promising to be accountable and transparent, exactly because this Bill does not create any legal obligation for it to do so, and we must rely merely on its promises. The public input we received about this Bill ... [Time expired.] Under these conditions we cannot but oppose this Bill.
Hon Speaker, hon members, ladies and gentlemen, given the difficulties that the Reserve Bank has been experiencing in the past, as evidenced by the recent public debate regarding the changes being proposed by this Bill, amendments to clarify the different roles of shareholders, the executive and Parliament are welcomed.
In the main, the role of the shareholders in the context of the Reserve Bank is to safeguard its independence as stipulated in the Constitution of the Republic and to ensure that it fulfils its mandate as set out in the South African Reserve Bank Act. Collectively, the role of the shareholders must be seen as that of the board of directors as a whole. Clauses seven and eight strengthen the public character of the SA Reserve Bank. They will assist in building the credibility of the bank. Shareholders have to act in the interest of the bank and the public.
The Bill identifies roles of the board in terms of its responsibilities, powers and duties. These include corporate governance matters, such as compliance, rules adoption and policy determination, approving the budget, reports, appointment of bank secretaries and assistants, remuneration policy, allocations of funds to the retirement fund, authorising the establishment of branches, making recommendations to the Ministers and performing any function assigned to it in terms of the Act.
Most of the problems affecting public institutions are as a result of unclear mandates between the various stakeholders such as the board of directors, executive management and government. The Bill clearly defines the role of the board as that of governance, authorising and reporting. It provides for clear demarcation of responsibility between the board and operational management, vested with the governor and the deputies. These functions are consistent with best practice and principles of good governance internationally as far as central banks are concerned.
Directors must be fit and proper to act in the interest of the SA Reserve Bank and not of shareholders. The establishment of a panel and its proposed composition is viewed as the most appropriate mechanism to ensure nominees are fit and proper, as the SA Reserve Bank plays a vital role in the South African economy. The amendments of sector allocations are intended to ensure that the board has persons with knowledge of relevant sectors. Presidential appointees will contribute to this knowledge.
The role of the executive management, on the other hand, is a dedicated one from the Governor and the Deputy Governors. Their role is that of implementing policy and management. They do not take decisions that are of governance nature. They account to the board, who in turn accounts to Parliament. Parliament's role is critical in the sense that the bank is also independent of the executive arm of the state. Its role is to seek accountability from the bank through its board of directors. Parliament is entitled to summon the bank to account at any point in time, should it be necessary to do so. I thank you. [Applause.]
Chairperson, the Reserve Bank, as we know, is a crucial independent institution in South Africa, mandated inter alia with determining monetary policy. Public hearings on this Bill exposed a very high level of mistrust between shareholders and government, as well as confirming concerns that some shareholders seek to influence not only executive management decisions but also operational issues, including monetary policy decisions.
This is clearly beyond the mandate of shareholders, as previous speakers have indicated. This is a situation that is untenable, resulting in these amendments before us. The amendments require that board members - certain board members - must be screened by a panel to determine their suitability, whether they are fit and proper persons with appropriate skills and experience, taking into account the requirements contained in the Banks Act of 1990.
The amendment clarifies that bank directors owe their fiduciary duty and that of care and skill to the bank, and to no one else. The bank must serve the public interests and not a personal shareholder's objective. Directors must therefore avoid any conflict of interest between his or her interests and those of the bank.
The ACDP raised certain questions as to why this panel will only screen the shareholders-nominated directors and not the directors appointed by the President. We accept the explanation that this would impinge upon the President's powers, but it did seem slightly odd to us during deliberations.
The President's appointments must in any case satisfy the same requirements, of being fit and proper persons to be appointed with appropriate skills and experience. Significantly, the whole policy debate as to whether there should be shareholders at all has been postponed to a later occasion. In view of this and of the concerns surrounding the shareholders, the ACDP will support this Amendment Bill.
As the last issue, relating to what Mr Oriani-Ambrosini said, may I just say that these are valid concerns that we as parliamentarians also need to consider. Clearly the Reserve Bank is accountable to Parliament in the final instance. At least in future we should engage and consider some of those concerns that Mr Oriani-Ambrosini raised, particularly to the secrecy box and in the view of the fact that the Reserve Bank is accountable to Parliament. I look forward to engaging with the Reserve Bank in more detail to discuss those concerns. I thank you.
Hon Chair, hon members, ladies and gentlemen, the ANC has gone through this Bill. The Minister has alluded to a number of issues, which include governance and some technical aspects. One focus is that of corporate governance leading to the proposed amendment.
The main objective of the Reserve Bank, in terms of the Constitution, is to protect the value of the currency of the Republic in the interest of balanced and sustainable economic growth in the Republic. This places a premium on the importance of good corporate governance in the way the bank is being managed.
Although the reasons for this Amendment Bill are not only about corporate governance, as was correctly alluded to by my chairperson, a lot of the issues that led to the amendment are of a governance nature. In recent years, evidence suggesting that the current Act might be open to potential abuse has come to light. This relates to the potential for private shareholders to increase their shares above the prescribed maximum of 10 000 shares per shareholder by purchasing shares through their relatives. These shares could then be used to influence the bank through acquiring the so-called "voting powers". I wonder why some people are asking why the Bill is being challenged now, as some of my colleagues from Cope have been doing.
The main aim of the Bill is to amend the SA Reserve Bank Act, Act 90 of 1989, in order to stop the bank's shareholders from circumventing the prescribed maximum of 10 000 shares per shareholder; to broaden public involvement in the nomination of directors and board representation; to provide for the establishment of a panel for the election of directors; and to clarify the power of the board and those of the Governor and the deputy. In so doing, the aim is to improve the bank's governance.
The most important amendment in relation to corporate governance is the stipulation of the limitation on the number of shares that the shareholders may hold in relation to associates and the setting of measures to prevent the circumventing of the limitation on the maximum number of shares a shareholder may hold. The Bill sets the limits for private shareholding by stipulating that "no shareholder shall hold, or hold in aggregate with his, her or its associate, more than 10 000 shares in the Bank" and sets the limits for voting rights of private shareholders by stipulating that "no shareholder ... shall either directly or indirectly exercise any vote as a shareholder in respect of the number of shares in the Bank held by him, her or it, either alone or in aggregate with his, her or its associates in excess of 10 000." The same conditions apply to companies with interlocking directorates.
The proposed amendment, as the chairperson also alluded to, will help to ensure that the bank is seen as truly fulfilling its public-interest role and acting independently from private shareholders' narrow interests. It will also assist in strengthening good corporate governance in the bank, thus improving its credibility and public confidence. Currently, this is not the case.
We also had the privilege to listen to shareholders when they presented the history of 1921 on the establishment of the bank. All in all, the ANC supports this Bill on the basis that it will now be open to the public to allow them to participate freely and not just serve the interest of the minorities. I thank you. [Applause.]
Chairperson, I thank all the representatives of the various political parties for their contributions. I also thank the various stakeholders who made presentations to the standing committee for their contributions and thoughts, whether we agreed with them or not. That is relevant. Their participation is important.
The majority of the parties shared the view of the government that the Reserve Bank is an institution which is central to our national interests. No individual, shareholder or groups of shareholders should try to interfere with its mandate in any kind of way. Any attempt to do so must require us to act, as we have done in this regard.
The only lone voice out there is that of hon Ambrosini. I must certainly assure him that this is no internal coup d'etat. In response to both him and hon Swart, the Governor of the Reserve Bank and her colleagues do appear before the standing committee. You have adequate opportunity to raise any matter that you wish to raise with them. I am sure that they will account to you as they account to South Africa more generally.
All in all, thank you very much for the support for this Amendment Bill. Once again, I thank the standing committee for processing the Bill so effectively. Thank you. [Applause.]
Agb Voorsitter, kan u die IVP se besware op rekord plaas? [Hon Chairperson, can you put the objections of the IFP on record?]
Debate concluded.
Bill read a second time (Inkatha Freedom Party dissenting).