Members of the Select Committee on Finance have concluded work in relation to processing the Financial Sector Laws Amendment Bill [B15-2020], and they adopted a committee report to this effect.
The Bill was introduced to Parliament by the Minister of Finance in August 2020. It aims to, among other things, amend the Insolvency Act of 1936, in order to clarify and define the application of certain provisions of the Act; the South African Reserve Bank Act of 1989, in order to provide for the performance of resolution function by the Reserve Bank and; the Banks Act of 1990, in order to, amongst others, establish a deposit insurance scheme as well as a Corporation for Deposit Insurance (CDI) and a Deposit Insurance Fund (DIF).
According to committee Members, the Bill is historic in nature as it introduces the CDI, which will be the first of its kind in South Africa to administer the insurance fund.
They believe that the insurance scheme is long-overdue, and that it will eliminate reliance on public funds to bail out failing banks and non-bank but systematically important financial institutions. Furthermore, Members believe that the scheme will also provide the much-needed protection for depositors.
In the committee report, Members warned that the presence of the DIF should not cause banks to operate recklessly simply because there is this insurance.
The committee notes that this Bill aims to close a number of legal gaps in the protection of depositors, and bring about financial stability in the country. The Banks Act, Companies Act and Insolvency Act, in their current form, are inadequate in protecting the customers and depositors of banks.
Currently, the Banks Act, on the one hand, provides for curatorship, which is limited in scope and does not allow for resolution planning, and the Companies Act, on the other hand, provides for business rescue proceedings which do not give due regard to the nature and complexities of large banks which had critical functions of allowing the payment system to continue to operate.
Lastly, the Insolvency Act only applies to liquidation and does not recognise depositors as preferred creditors.
The committee will then table its report and the Bill in the National Assembly for consideration and adoption.
By Justice Molafo
2 June 2021
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