Hon Speaker, hon members, hon Minister of Finance, hon Ministers and hon Deputy Ministers who are present here, the rising centrality of financial services in economies across the globe has raised a number of critical questions centred upon the practices and regulatory environment for the financial services industry. It is common cause that economies to a greater extent have become financialised, resulting in certain benefits whilst at the same time this has led to undesirable practices.
Credit rating agencies' opinions are translated into ratings that carry a considerable weight in the economy, particularly in the financial markets, both in terms of business practices and regulatory requirements. Credit rating agencies, therefore, have been widely criticised for their role in 2008 global financial crisis, for failing to detect the worsening of conditions that underpinned financial markets; failing to adapt to the risks of the derivative trading; collusion in the collateralisation of debt obligations with financial institutions; and the output of poor quality of ratings.
The widespread fallout of the subprime lending crisis precipitated by loans to people with no income, no jobs and no assets, what were commonly known as "ninja loans", led to a massive fallout across the globe with millions of jobs lost. This resulted in calls for far stricter regulations governing the practices of credit rating agencies. Any weaknesses in this respect can generate uncertainty and exacerbate volatile markets, which can trigger general financial instability. This crisis was of a nature and scale that required a global response.
As a result, the G20 jointly committed to regulating these agencies. Introducing a regulatory framework for credit rating agencies is thus one of South Africa's G20 commitments.
The Bill seeks to align the South African regulation of credit rating agencies with international best standards and practices, including the International Organisation of Securities Commissions' principles, G20 countries' regulations and the European Union's equivalency requirements.
In his 2011 Budget Speech, the Minister of Finance announced a range of reforms to further strengthen South Africa's regulatory system, the intention of which was to shift towards separating regulation of prudential risk, which is the probability of companies going bankrupt, from market conduct through financial sector regulations.
In short, the commitments of this Bill are in four areas: a stronger regulatory framework through the development of appropriate principles to address areas of weakness in the global system of financial regulations; effective supervision through the strengthening of the effectiveness of governance of financial service agencies, at both national and international level; addressing systemic weaknesses in the financial institutions and ensuring that the financial and human costs of a financial institution's failure are reduced as far as possible, and that such a failure does not affect the broader financial system; and the introduction of international assessment and peer review through the undertaking of regular assessments of the regulatory system and benchmarking principles and practices against the international norms.
The aims of the Bill as stipulated in the Bill itself, amongst others, are to ensure that South African authorities can work with their international counterparts to ensure responsible and accountable credit rating agencies at a global level, and to protect the independence, integrity, transparency and reliability of the credit rating process and credit ratings results or improve investor protection. In terms of the process of processing this Bill as a committee, I can say, on behalf of the committee, that the Bill has undergone a considerable number of changes under the guidance of the Standing Committee on Finance to ensure that the Bill is more effective.
In considering the changes made by the committee, we were mindful of the strategic objective of the Bill, that of establishing South Africa as a financial centre for Africa. To achieve this strategic objective, the amendments we have effected had to ensure that the regulatory framework remains up-to-date, and is benchmarked to the best of our ability in relation to the rest of the world.
This Bill, in our view, needed to be processed as quickly as possible so that we do not fall outside the developments in relation to the rest of the world. To clarify the intention of the Bill, the committee introduced a definition of "registered credit rating agency" that includes both internal and external credit rating agencies approved by the registrar in this country.
With regard to the entrenchment of common-law, delictual liability in the Bill, we believe it is the most practical approach as the principles of common-law liability are well-established in South African case law. When faced with a claim for liability, the courts will be able to rely on these principles and precedents rather than relying on interpreting legislation.
As the ANC, we have also come to the conclusion that it is important to support the Bill before us with all amendments that were effected by the committee. The ANC supports this Bill, hon Chairperson. Thank you. [Applause.]