CO-OPERATIVE BANKS BILL,
2007
Presentation to: Select Committee on Finance
19 September 2007
National Treasury
Outline
1. Background & context of the Bill
2. Differences between the 2004 Draft and the
2007 Draft Bill
3. Summary of the Bill
4. Outline of each chapter
5. Interim supervisory arrangements
6. Depositor Payout process
7. NT – visits to the FSC’s
2
Context behind the Bill
• Cooperative Banks Bill constitutes part of the
financial regulatory framework
• Creates second and third-tier class of banks
• Outcome of the financial sector summit (2002)
• Other elements of the proposed reform,
dedicated banks bill, deposit insurance bill
3
Context behind the Bill
• Purpose of financial regulation
– Establish and maintain financial stability
– Promote efficiency of the financial system &
soundness of financial institutions
– To protect the consumers of co-operative
banks & promote consumer confidence
– Promote access to financial services
4
Differences between the 2004 Draft Bill
and the 2007 Draft
Key differences:
Initial Draft (2004)
Latest Draft (2007)
Provided for a single supervisor
appointed by the SARB
Two supervisors will be established:
SARB and Development Agency
No provisions for deposit insurance
Statutory deposit insurance fund
Prudential requirements adapted from
the Banks Act
Simplified prudential requirements to be
prescribed by the Minister of Finance
Only one Support Organisation
A Development Agency for Co-operative
Banks to be established. Will work with
support organisations.
Board of Review
Appeals Board
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Summary of the Bill
12 Chapters of the Bill
• Chap I – Definitions & purpose of the Act
• Chap II – Registration, constitution, functions &
management
• Chap III – Prudential requirements & large exposures
• Chap IV – Deposit Insurance Fund & schemes
• Chap V – Amalgamation, division, transfer & winding up
• Chap VI & VII – Representative Bodies & Support
Organisations
• Chap VIII – Administration of Act
• Chap IX – Cooperative Banks Development Agency
• Chapter X – Appeals & Appeal Board
• Chapter XI – Offences & Penalties
• Chapter XII – General Provisions
6
Chapter I
Definition, purpose & application
Purpose of the Act (S2)- to:
• Create an appropriate regulatory framework for deposit
taking FSCs, credit unions, village banks & community
banks;
• Promote the development of sustainable & responsible
cooperative banks; and
• Promote and advance the social and economic welfare
of all South Africans by enhancing access to banking
services.
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Chapter I
The Purpose will be achieved through (S2):
• The registration of deposit taking FSCs, Credit Unions,
village banks, community banks as cooperative banks;
• Establishment of cooperative banks supervisors to
ensure effective regulation & supervision;
• The establishment of a Development Agency for
cooperative banks to develop & enhance the
sustainability of cooperative banks;
• Creation of a Deposit Insurance Fund.
8
Chapter I
The Act Applies to (S3):
• Any co-operative that takes deposits, registered
with the Co-operative Act and under this Act;
• That has 200 or more members; and
• Holds deposits of members to the value of R1m
and more.
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Defining a “Co-operative”
“Co-operative Bank” is defined as (S1)- a Cooperative registered as a co-op bank whose
members:
• Are of similar occupation or profession or who are
employed by a common employer or who are
employed within the same business district; or
• Have common membership in an association or
organisation, including religious, social, cooperative, labour, business or educational
groups; or
• Resides within the same defined community or
geographical area.
10
Chapter I
Types of Co-operative Banks defined in the Bill
are (S5):
• Primary savings banks
• Primary savings and loans banks
• Secondary co-operative banks
• Tertiary co-operative banks
11
Chapter II
Application, functions & registration requirements
To register, a co-operative bank must submit, inter
alia (S6):
• Copies of the constitution, registration certificate
as a co-operative;
• lending policy (if applicable), savings policy &
business plan;
• Certified copies of the registers referred to in the
Co-operative Act;
• Postal and physical address;
• Application fee, as prescribed by the supervisor.
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Chapter II
To qualify for Registration, a co-op bank must
demonstrate that (S7):
• It has sufficient human, financial & operational
capacity to function competently as a co-op bank;
• Director has experience & knowledge to operate a
co-op bank (Fit & Proper requirements section 9);
• The composition of the board of directors is
appropriate.
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Chapter II
The constitution of a co-op bank must provide
for (S13):
• Appointment of an Audit committee;
• Establishment of a Governance committee;
• The supervisor may, in accordance with
section 48 direct a co-op bank to amend its
constitution to remove anomalies.
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Chapter II
Primary savings co-operative bank may provide the
following banking services (S14):
• Solicit & accept deposits from members;
• Open a savings account for its members;
• Open a savings/cheque account in the name of that
co-op bank with any banking institution;
• Provide trust or custody services;
• Conduct any other banking services and invest
money in investments as may be prescribed by the
Minister.
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Chapter II
Primary savings & loans co-operative bank may provide
the following banking services:
• All of the activities by the primary savings cooperative banks, in addition:
• Grant secured and unsecured loans to
members;
• Conduct any other banking services and invest
money in investments as may be prescribed by
the Minister.
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Chapter II
Secondary co-operative banks may provide the following
banking services:
• All of the activities by the primary savings and loans co-operative
banks, plus
• Trade in financial instruments;
• Open an account with a bank to facilitate foreign currency
transactions (through commercial bank); and
• Conduct any other banking services and invest money in
investments as may be prescribed by the Minister.
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Chapter II
Tertiary co-operative banks may provide the
following banking services:
• All of the activities by the secondary cooperative banks, plus
• Conduct any other banking services and
invest money in investments as may be
prescribed by the Minister.
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Chapter II
General functions of Co-op banks allows for
co-op banks to (S15):
• Receive grants & donations;
• Secondary & Tertiary co-ops may apply to be
a representative body or for accreditation as
Support organizations;
• Together with co-op banks of the same type
establish a dispute resolution scheme
(Ombud); and
• Subject to conditions may act as an agent or
intermediary of a banking institution, pension
fund, etc.
19
Chapter III
Prudential Requirements
A co-op bank must meet and maintain minimum
(S20):
•
•
•
•
Capital requirements;
Asset quality;
Liquidity to be held in addition to surplus reserves;
Surplus reserves as required by section 46 of the
Co-operatives Act.
The inability to meet or maintain prudential
requirements (S21):
• Should be reported to the supervisor; and
• The supervisor may de-register or suspend the
registration of a co-op bank
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Chapter IV
Deposit Insurance Fund and Schemes
Establishment & control (S26)
• Development Agency for co-operative banks must
establish Deposit Insurance Fund
• The Fund will be controlled & administered by the
Agency
– i.e. it must account for money received & paid out
• Funded by
– Contributions from cooperative banks
– Funds from the National Revenue fund – via the
Agency
– Interest from Investments
• Audited by
– the Auditor General
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Chapter IV
• Funds to be used for:
– Compensating members for deposits lost as a
result of co-op bank failure
– Expenses involved in the control & management
of the Fund
• Also, the Fund:
– Must maintain separate accounting records &
prepare separate financial statements
• Participation in the Deposit Insurance
Fund is compulsory
22
Chapter V
Amalgamation, Division, Convention,
Transfer, Judicial Management and Wind-up
Prohibited Transactions (S27)
• A co-op bank may not convert into any other form of
corporate or unincorporated body;
• A co-op bank may only amalgamate with another co-op
bank and transfer assets rights, liabilities and obligation
to another co-op bank.
Conversion of primary savings co-op bank (S28)
• A primary savings co-operative bank may convert to a
primary saving and loans co-operative bank.
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Chapter VI
Representative Bodies
• Requirements for registration (S32)
– Must represent two or more co-operative banks;
– Has knowledge, experience & competence to
represent co-operative banks;
– Has sufficient human, financial & operational
capacity to function.
• Must submit (S31):
– A list of co-operative banks it represents;
– Constitutions, list of members & directors.
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Chapter VII
Support Organisations
• Must apply for accreditation with the Agency (S36)
• Requirements for accreditation, must demonstrate
(S37):
– To have 2 or co-op banks as members
– Support agreements have been entered into which
provide for
• Development & support for members
• Education & training of members
• Assistance in managing & maintaining prudential
requirements
• Must submit – copies of support agreements, business
plan, cooperative registration certificate.
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Chapter VIII
Administration of the Act
• Supervisor 1: South African Reserve Bank (S41)
– Primary co-ops banks with deposits in excess of
R20m
– Secondary and Tertiary co-op banks
• Supervisor 2: Agency
– Primary cooperatives with deposits less than R20m
• Supervisors must annually submit a report to the Minister
• Agency must notify the SARB when a primary co-op
bank starts holding deposits of more than R20m
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Chapter IX
Co-operatives Banks Development Agency
Establishment & legal Powers (S54)
• Public entity accountable to the Minister of Finance
• Governed by a Board appointed by the Minister
(between 6 to 10 non execs)
• Managing Director and management team
Funding (S68)
• From the National Revenue Fund
• Collection of fees
• Financial management, preparation & submission of
financial statements - PFMA
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Chapter IX
General Functions (S55)
• Support, promote & develop co-operative banks
– Facilitation and promotion of education & training
– Oversee the collection of data & act as repository of
data
• Manage the Deposit Insurance Fund
• Regulate & supervise co-op banks (deposits less that
R20m)
• Register representative bodies & accredit support
organisations
• Interact with any regulatory authority to ensure
appropriate regulation of cooperative banks
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Chapter X
Appeals and Appeal Board
Appeal against decision of supervisor (S75)
• A co-operative bank, representative body or support
organisations may appeal to the board against any
decision of the supervisor or a decision of the Agency
on:
– Registration; Accreditation
– Cancellation of registration
– Accreditation of a representative body or support
organisation
Establishment & composition of appeal board (S76)
• Appeal board consists of at least three members
appointed by the Minister
• Board expenses will be paid for by NT
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Chapter XI
Offences and Penalties
Offences (S77 – 80)
• Unlawful use of the word “co-operatives bank” or conduct
of banking business of co-operative bank;
• Untrue information in connection with applications;
• Criminal liability of directors, managing directors
executive officer and other persons;
• Failing to comply with the directive under this Act.
Penalties (S81)
• A fine or imprisonment for a period not exceeding 10
years.
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Chapter XII
General Provisions
Fair administrative actions (S82)
– Any decision of an administrative nature must comply with
the Promotion of Administrative Justice Act, 2000 (Act
no.3 of 2000)
Certification of documents (S83)
– Any document that must be submitted to the supervisor by
co-operative bank must be certified as correct by
managing director
Access to records, register and other documents (S84)
– Regulatory authorities must, at the request of the
supervisor or agency make information regarding a cooperative bank, representative body or support
organisation available to the supervisor or Agency
31
Chapter XII
Regulations (S86)
Minister may by notice in the Gazette make
regulation regarding
• Anything which must or may be prescribed in
terms of this Act
• The conduct of a member of the board of directors
of a co-operative bank in the performance of his or
her functions
• The manner in which any payment in terms of this
Act must be made to the supervisor
Exemptions (S89)
– Co-operative bank may be exempted from the
provision of this Act or any other Act administered by
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the Minister of finance
Chapter XII
• Amendments of Laws (S90)
–
–
–
–
Bank Act, 1990
National Payment System Act, 1998
Financial Services Ombud Schemes Act, 2004
Co-operative Act, 2005
33
Interim Supervisory Arrangements
• Minister of Finance issued exemption notices in
terms of the Banks Act;
• 2007 - Exemption Notice appoints SAMAF as
interim regulator for FSC’s pending the
promulgation of the Co-operative Banks Act &
Est. of the Agency;
• 2006 - SACCOL is appointed through another
exemption notice to regulate SACCOs, also
pending the promulgation of the Co-operative
Banks Act, including:
– stokvels and ROSCAS.
34
Conditions of the Exemption Notice
• Banking activities as defined in the Banks Act can be
performed by FSCs solely in respect of its members;
• An FSC shall not refer to itself by the name “bank”;
• An FSC shall comply with the provisions relating to:
– The management of co-operatives contained in
chapter VI of the Co-operatives Act, and
– Accounting records, accounting and auditing of cooperatives contained in chapter VII of the Cooperatives Act.
• Any additional prescriptions imposed by the Registrar of
Co-operatives.
35
Depositor Payout Process
• In 2002 two self regulated bodies (Finasol & FSA) – that
supervised & supported the FSC’s collapsed;
• As a result FSC’s & village banks were left unregulated faced financial difficulties – unable to sustain
themeselves;
• 2005 – NT appointed Deloitte to conduct the payout
process to the depositors;
• NT committed R5,3 million for this process;
• 35 FSC’s were visited (62 FCS on the Co-operatives
Register) – about 11 FSC’s that were willing to close
down were paid out;
36
Depositor Payout Process
• SACCOL has been appointed to complete the
payout process;
• SACCOL is expected to make contact with about
50 FSC’s;
• They will make recommendations to NT w.r.t:
– FSC’s no longer operating;
– Those that opted to continue operating – and their
financial status (e.g. solvency etc.);
– Those that must close down;
– FSC’s that require recapitalisation & support.37
THANK YOU
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