Comparative Overview of the Financial Legislative and Regulatory Framework for South Africa, Botswana, Lesotho, Namibia and Swaziland (SACU)

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1 1 MAKING FINANCIAL MARKETS WORK FOR THE POOR Comparative Overview of the Financial Legislative and Regulatory Framework for South Africa, Botswana, Lesotho, Namibia and Swaziland (SACU) Note: This document has been prepared for FinMark Trust by Deloitte. Any corrections and comments will be appreciated and should be addressed to: Anne-Marie Chidzero, Financial Policy and Regulation Theme Champion FinMark Trust, OR Karin Rathbone Ingrid Goodspeed (011) (011)

2 South Africa (existing) 2 Minister of Finance Minister of Trade & Industry Unregulated / self regulated entities Financial Services Board Financial Services Board Act Registrar* South African Reserve Bank South African Reserve Bank Act National Payment System Act Registrar of Act Registrar of Cooperatives MFRC Usury Act Exemption Notice Stokvels burial societies** Act CommonBond Exemption Notice Village banks Credit unions BA Exemption Notice Insurers Long-term & Short-term Insurance Acts Pension funds Pension Funds Act Friendly societies Friendly Societies Act CIS participation bond managers Collective Investment Schemes Control Act Portfolio managers FAIS Act Financial markets: BESA JSE SAFEX Securities Services Act Financial advisors assetmanagers FAIS Act Act Usury Act Credit Agreements Act FAIS Act Mutual Mutual Act Usury Act (Credit Agreements Act) (FAIS Act) Co-operatives Village banks Co-operatives Act Act Financial Co-operatives Exemption Notice Micro-lenders MFIs Usury Act (Credit Agreements Act) DFIs National Housing Finance Corporation Development Bank of South Africa Land Bank Post Bank *The Registrar encompasses the registrars of all non-bank financial institutions, i.e. the registrarsof: stock exchanges; financial markets(registrar of Securities Services); insurers; pension funds; collective investment schemes; financial advisors and friendly societies. ** Exemption Notices promulgated in terms of the Act 94 of 1990 governs activities National Payment System: SARB AML: Financial Intelligence Centre Act and Prevention of Organised Crime Act

3 3 Products South Africa Transactions: 100 Act Long term insurance: Savings: - Act - Long-term Insurance Act (for short-term insurance and pensions Short-term Insurance and Pension Funds Act) 57 - Act Exemption Notices for Village and Stokvels - Friendly Societies Act - (Pension Funds Act) FinScope SA 2003 Credit: - Act - Usury Act - Credit Agreements Act - Usury Act Exemption Notice - Co-operatives Act

4 South Africa (proposed) 4 Unregulated / self regulated entities Minister of Finance Minister of Trade & Industry Stokvels Burial societies Village banks Financial Services Board Registrars * South African Reserve Bank Registrar of Office for Cooperative National Consumer Credit Council National Credit Regulator Credit unions DFIs National Housing Finance Corporation Insurers Pension funds Friendly societies Financial markets: BESA JSE SAFEX Dedicated banks Dedicated Bill Co-operatives (financial) Co-operative Bill Micro-lenders MFIs National Credit Bill (Consumer Credit Bill) Development Bank of South Africa Land Bank CIS Participation bond managers Portfolio managers Financial advisors Asset managers Mutual banks *The Registrar encompasses the registrars of all non-bank financial institutions, i.e. the registrarsof: stock exchanges; financial markets(registrar of Securities Services); insurers; pension funds; collective investment schemes; financial advisors and friendly societies. National Payment System:SARB AML: Financial Intelligence Centre Act and Prevention of Organised Crime Act Note: Only new legislation appears in this diagram. Refer to diagram on page 2.

5 Botswana 5 Unregulated / self regulated entities Bank of Botswana Minister of Finance Minister of Agriculture Bank of Botswana Act Financial advisors Informal microlenders & deposittaking MFIs The Banking Act Statutory banks National Development Bank Botswana Savings Bank Building Societies* Collective investment undertakings Collective Investment Undertakings Act Registrar of Insurance Insurance Insurance Industry Act Registrar of Pensions and Provident Funds Pensions & provident funds Pension and Provident Funds Act Capital Markets Unit Financial markets (BSE) Botswana Stock Exchange Act Commissioner of Cooperatives Savings and credit cooperatives MFIs Asset managers Botswana Development Corporation DFIs The Cooperatives Societies Act Credit agreements and usury: none National Payment System: Bank of Botswana AML: Proceeds of Serious Crime Act, 1990 *Regulated in terms of the National Development Bank Act, the Botswana Savings Bank Act andthe Building Societies Act

6 6 Products Botswana Transactions: Formal bank and insurance sector The Banking Act NGO, burial societies, stokvels, savings clubs, and savings & credit cooperatives 60 Life insurance: Insurance Industry Act Savings: -The Banking Act -Cooperatives Societies Act -Pensions & Provident Funds Act Botswana Savings Bank Act -Building Societies Act -Collective Investment Undertakings Act Credit: -The Banking Act -Cooperatives Societies Act -Building Societies Act FinScope Botswana Pilot 2003 usage by head of households surveyed Finmark Trust

7 Namibia 7 Minister of Finance Minister of Agriculture Unregulated / self regulated entities Informal microlenders Bank of Namibia One large burial society NAMFISA NAMFISA Act Bank of Namibia Act Financial advisors chief executive officer Governor of the Bank of Namibia Banking Institutions Act Registrar of Cooperatives Pension fund administrators MFIs* Provident Institutions Division Investment Institutions Division Insurers Long-term and Short-term Acts Pension funds Pension Funds Act Friendly societies Friendly Societies Act Unit trusts Unit Trusts Control Act & Collective Investments Schemes Act Participation bond managers Participation Bonds Act Asset managers (Stock Exchange Control Act) Micro lenders Usury Act and Exemption Notice Banking Institutions Act In terms of section 50 of the Banking Institutions Act, banking institutions are obligated to report suspicious transactions to the central bank. In order to implement provision, the Governor issued a determination on money -laundering. have implemented internal policies. Co-operatives BA Exemption Notice Co-operatives Act (Savings & credit multipurpose) Namibian Development Corporation Development Fund Namibia DFIs National Housing Enterprise Agricultural Bank of Namibia *It is not clear whether or not microfinance NGOs are regulated National Payments System: Bank of Namibia

8 8 Products Namibia Transactions: Banking Institutions Act Formal bank and insurance sector NGO, burial societies, stokvels, savings clubs, and savings & credit cooperatives Life insurance: - Long-term Insurance Act (for short-term insurance and pensions Short-term Insurance Act and Pension Funds Act) Savings: - Banking Institutions Act - Banking Institutions Act Exemption Notices for Co-operatives - Friendly Societies Act - (Pension Funds Act) FinScope Namibia Pilot 2003 usage by head of households surveyed Finmark Trust Credit: - (Banking Institutions Act) - Usury Act - Usury Act Exemption Notice - Act Exemption Notice for Co-operatives - Co-operatives Act

9 Lesotho 9 Unregulated/ selfregulated entities Minister of Finance Central bank Central Bank of Lesotho Act Supervision division Financial Institutions Act Money Lenders Act Minister of Industry Trade & Marketing Rotating Savings and Credit Association (Setokofeles) Rural savings and creditgroups Stokvels Christmas savings clubs Burial societies Moneylenders (informal) Commissioner of Money Lenders Commissioner of Building Institutions Commissioner of Insurance Commissioner of Financial Institutions (central bank) Commissioner of Credit Cooperatives Co-operatives Societies Act MFIs Lesotho National Development Corporation*** Money lenders Money Lenders Act Building institutions Insurers Lesotho Insurance Act Financial Institutions Act Burial societies Basotho Enterprise Development Corporation*** Lesotho Unit Trust* Collective Investment Schemes Regulations 2001 Co-operatives DFIs Pension funds** **It is not clear how pension funds are regulated. The Corporate Body Pension System is operated by the Lesotho National Insurance Company and is the only formal scheme operating in Lesotho. ***Our research did not indicate that these entities are supervised National Payment System:Central Bank of Lesotho AML: Prevention of Corruption & Economic Offences Act

10 10 Products Lesotho Transactions: Financial Institutions Act Formal bank and insurance sector NGO, burial societies, stokvels, savings clubs, and savings & credit cooperatives Life insurance: Lesotho Insurance Act Savings: - Financial Institutions Act - Co-operatives Societies Act 12.6 FinScope Lesotho Pilot 2003 usage by head of households surveyed Finmark Trust Credit: - Financial Institutions Act - Money-Lenders Act - Co-operative Societies Act

11 Swaziland (existing) 11 Minister of Finance Minister of Agriculture & Co-operatives Unregulated / self regulated entities Insurers Government monopoly set up by Control of Insurance Order Governor of Central Bank of Swaziland Commissioner of Cooperatives Pension funds Financial advisors Informal microlenders Registrar of Building Societies Registrar of Capital Markets Development Unit MFIs Savings and Credit Cooperatives Asset managers Co-operatives Societies Act Building Societies The Building Societies Act Financial Institutions (Consolidation) Order Financial markets (SSX) CIS Stockbrokers Financial Institutions (Consolidation) Order Swaziland National Provident Fund Swaziland National Provident Fund Order DFIs Credit agreement and usury: none National Payment System:Central Bank of Swaziland AML: Money Laundering (Prevention) Act 2001, the Criminal Matters (Mutual Assistance) Act 2001, and the Serious Offences (Confiscation of Proceeds) Act, SSX: Swaziland Stock Exchange

12 12 Products Swaziland Transactions: Financial Institutions (Consolidation) Order 17.7 Formal bank and insurance sector NGO, burial societies, stokvels, savings clubs, and savings and credit cooperatives 20 Life insurance: Control of Insurance Order Savings: - Financial Institutions (Consolidation) Order -Cooperatives Societies Act -The Building Societies Act 27.7 Credit: -Financial Institutions (Consolidation) Order -Cooperatives Societies Act -The Building Societies Act FinScope Swaziland Pilot 2003 usage by head of households surveyed Finmark Trust

13 Swaziland (proposed) 13 Minister of Finance Minister of Agriculture & Co-operatives Unregulated / self regulated entities Informal microlenders MFIs Governor of Central Bank The Central Bank of Swaziland (amendment) Bill Financial Services Regulatory Authority The Financial Services Regulation Bill (in draft) Commissioner of Co-operatives Swaziland National Provident Fund Swaziland National Provident Fund Order, 1974 DFIs Registrar of Registrar of Building Societies Registrar of Insurers and Retirement Funds Registrar of Capital Markets Savings and credit cooperatives Co-operatives Societies Act The Co-operatives Societies Bill Financial Institutions (Consolidation) Order Building societies The Building Societies Act Insurers Pension funds The Insurance Bill The Retirement Funds Bill Financial markets (SSX) CIS Stockbrokers Asset managers Financial advisors The Securities Bill Credit agreement and usury: none National Payment System:Central Bank of Swaziland AML: Money Laundering (Prevention) Act 2001, the Criminal Matters (Mutual Assistance) Act 2001, and the Serious Offences (Confiscation of Proceeds) Act, 2001.

14 14 SACU proposed legislative reforms South Africa: Dedicated Bill Co-operatives Bill National Credit Bill Home Loans and Mortgage Disclosure Act Retirement Fund Reform Discussion Paper Swaziland: The Insurance Bill The Retirement Funds Bill The Securities Bill The Financial Services Regulation Bill (in draft) The Co-operatives Society Bill Lesotho: Review of Lesotho Insurance Act of 1976 Consideration of three-tiered banking structure (tier 1: mainstream commercial banks; tier 2: co-operative banks; tier 3: micro-banks) Botswana: During National Development Plan 9 the following will be addressed: Improving the supervision and regulation of financial markets Amendment of the Insurance Industry Act, Legislation to govern the National Payment & Settlement System Legislation to establish a central securities depository Namibia: Implementation of legislation similar to South Africa s Financial Advisory and Intermediary Services (FAIS) Act The Social Security Commission is in the process of establishing or considering establishing: 1. National Medical Benefit Fund 2. National Pension Fund 3. Social Security Development Fund Draft Retirement Funds Bill

15 General legislative process in South Africa for ordinary primary legislation 15 Executive branch Legislative branch Department of minister involved initiates process but any member of parliament is competent to submit legislative proposals Amendments requested by portfolio committee Vote on desirability together with report to NA Prepare draft bill Consultation with stakeholders & ministerial sign off Submit draft bill to cabinet Portfolio committee: public hearings and deliberations on bill First reading of bill and referral to relevant portfolio committee Second reading of bill at least three days after portfolio committee report tabled and vote by full NA plenary If approved, referral of bill to NCOP for consideration by select committee, with report to full NCOP plenary for decision State law advisors scrutinise and certify bill Speaker or Minister of Finance introduces bill in National Assembly Approves: Bill referred to President for assent Rejects/ proposes amendments: bill referred back to NA for decision Publish explanatory memorandum of draft bill in Gazette NA debates bill/amendments NA: National Assembly NCOP: National Council of Provinces Submission of bill to Speaker of NA and chairperson of NCOP President assents and Act gazetted President may refer Bill to Constitutional Court before assent Note: the above diagram is not exhaustive and there are exceptions or deviations for special legislation and circumstances

16 General legislative process in Namibia 16 Executive branch Legislative branch Prepare draft bill or document describing legislative proposals Report by NC to Speaker of NA Submit to Cabinet Committee on Legislation for in principle approval, and then to Cabinet Consideration and vote by NC Referral to Office of Attorney General for scrutiny of constitutionality Drafting (if necessary) and scrutiny of Bill by the Directorate: legislative drafting in the Ministry of Justice Referral of bill to chairperson of NC Approves: bill referred to President for assent NC proposes amendments: NA votes and if approved Submission of bill to the Attorney-General for certification Consideration and vote in NA Submission to Standing Committee, if appropriate President assents and Act gazetted Should President withhold assent, he or she must so inform the Speaker who must inform the NA and the Attorney- General, who may then take appropriate steps to have the matter decided by a competent Court. NA: National Assembly NC: National Council Submission of bill to speaker of NA

17 SADC s strategy for harmonisation of financial regulation across SADC is embodied in its Financial & Investment Protocol (FIP). To develop the FIP, SADC Ministers of Finance & Investment designated the primary responsibility for developing Memoranda of Understanding (MOUs) to the Committee of Central Bank Governors (CCBG) and the Committee of Senior Treasury Officials (CSTO) 17 Area of cooperation Responsible SADC body Primary objective of MOU Progress East & Southern African Banking Supervisors Group (ESAF) To co-ordinate banking supervision in Eastern and Southern Africa. Currently not part of the FIP process Non-bank financial institutions CSTO through the Committee on Insurance, Securities and Nonbanking Financial Authorities (CISNA) To establish a general framework for cooperation and consultation between CISNA regulatory authorities to inter alia establish harmonised financial regulatory regimes In draft form DFIs CSTO through the Development Finance Institutions Sub Committee To effect co-operation between DFIs to address national and regional investment and finance needs Approved by Council of Ministers Central banks CCBG To harmonise the legal and operational frameworks of SADC central banks Not agreed National Payment System CCBG To achieve convergence of payment system features, policies, practices, rules and procedures across SADC region Approved by the Committee of Ministers. Still to be approved by Council of Ministers Stock Exchanges CCBG through the Committee of SADC Stock Exchanges (COSSEE) To achieve an integrated real-time network of national securities markets within the SADC region Still to be approved by Committee of Ministers

18 Alignment of regulatory structures within SACU Institution Botswana Lesotho Namibia South Africa Swaziland 18 CB NBR MoA CB NBR MoA CB NBR MoA CB NBR MoA CB NBR MoA X X X X X Building societies X X X X Insurance X X X X Pension funds X X X Collective investment schemes / unit trusts X X X X X Co-operatives X X X X X Microlenders X X X Informal microlenders / moneylenders X MFIs Exchanges / financial markets X X X X Asset managers X X Financial advisors X DFIs CB = Central bank NBR = Non-bank regulator MoA = Minister of Agriculture; Minister of Trade & Industry in South Africa NBRs: Botswana: Minister of Finance Lesotho: Minister of Finance Namibia: Namfisa South Africa: Financial Services Board (FSB) Swaziland: Minister of Finance

19 19 References: 1. Confidential reports 2. ECI Africa, Third Tier Banking report: A review of the capacity, lessons learned and way-forward for member based institutions, 25 July Genesis, Legislative and regulatory obstacles to mass banking, September Enterprise and Cooperatives Development Department International Labour Office, Geneva The performance of the Lesotho credit union movement: internal financing and external capital inflow Working Paper No Genesis, Access to Financial Services in Lesotho March Genesis, Access to Financial Services in Namibia March Genesis, Access to Financial Services in Botswana March Genesis, Making insurance markets work for the poor in Lesotho, Namibia and Swaziland scoping study March Werner Krull, Legislative process: Bills other than Money Bills not affecting provinces 9 November Ray Goba, The Infrastructure to Detect and Control Money-laundering and Terrorist Funding in Namibia Eastern and Southern Africa Anti-Money Laundering Group 12. Genesis, SADC Finance & Investment Protocol, December Deloitte Touche Tohmatsu, Swaziland: Improving Access to Financial Services (Draft), November, 2004