Mr. Speaker, I move—

Mr. Speaker, the Financial Relations Amendment Bill, of which I have just moved the Second Reading, is not a controversial measure. The Bill aims at effecting certain textual amendments to the Financial Relations Consolidation and Amendment Act, 1945. I shall refer to this Act as the principal Act. The proposed amendments follow from the intention to consolidate the principal Act. Hon. members are aware that Bills consolidating existing Acts and amendments thereto may be introduced into either House of Parliament as consolidation measures and be passed without discussion, provided such measures do not alter the existing law in any way.

The principal Act has now been in operation for more than 30 years and down the years it was amended many times. A number of its provisions was incorporated in other legislation, either in toto or partially. In this process a number of outmoded concepts in the principal Act was either not repealed or replaced by more modern concepts in drafting legislation. During the years many structural changes were also made to the governmental hierarchy in South Africa, some of which also had an indirect bearing on the provisions of the principal Act. Although relevant, the principal Act was not in every case appropriately amended.

The provincial administrations and State departments concerned were asked to point out those concepts in the principal Act which were outmoded and should be either repealed or be brought into line with later legislation passed either by the provincial councils or Parliament. The State law advisers expressed the opinion that not all the amendments proposed by the provincial administrations and State departments could be regarded as not amending the existing law. Such amendments cannot therefore be included in the proposed measure consolidating the principal Act and the many amendments thereto. It is these amendments to the principal Act that are included in the Bill now before the House.

These amendments do not affect the principles of the principal Act, are merely textual in nature and will therefore be explained in the Committee stage of the Bill where necessary.

Mr. Speaker, as the hon. the Deputy Minister has mentioned, the principal Act which is to be amended in terms of the Bill before us, was in itself a consolidation Act in 1945. It in fact provides the charter for provincial councils in so far as the powers of taxation are concerned, as well as the acquisition of revenue and the expenditure to which the provincial councils may direct their attention. In the intervening years the Bill has been amended on numerous occasions. I took the trouble to find out on how many occasions it had been amended. I found that over a period of 30 years it had been affected by no fewer than 45 Bills which had passed through Parliament. To the extent that this Bill is a preliminary to a new consolidation Bill to come before this House we, of course, will support it.

Clause 2 incorporates necessary amendments as to the source of funds required by and available to provincial administrations. These amendments, as the hon. the Deputy Minister has pointed out, are consequent to the subsidy basis which was introduced in 1971. Although certain words in the existing section 4 of the principal Act are to be repealed and others substituted, the funds for the provinces will still come broadly from the three sources which exist at present. Firstly, money is appropriated by Parliament, secondly, there are contributions from the National Road Fund, and thirdly, revenue is raised directly by the provinces. The fact is that these sources remain today and will remain in the future, despite the proposed amendments which are now before us. The extent of dependence upon each of these sources is, I believe, worthy of note and should be considered by the House this afternoon. In terms of clause 3 of the Bill which is before us, in determining the subsidy payable to a province, there shall be taken into account firstly what the requirements of the province are, not as previously defined, but as contemplated in section 4 of the principal Act, which relates to the requirements of the province to function properly within its area of responsibility.

Secondly, regard must be had to the province’s ability to pay for its own requirements, having regard to revenue outside of the subsidy revenue which it receives by Vote of this House. There is a proviso which states that the subsidy, plus the province’s own revenue from its own resources, shall not be less than the financial requirements of the province. In other words, the province should always be able to present a balanced budget. Therefore, I believe it is relevant for us to direct our attention to the sources of revenue, so far as the provinces are concerned, as now defined, as they will be defined in the Act as amended by this Bill, and as they will probably appear in the consolidated Act which is still to come.

The very fact of the introduction of this Bill this afternoon is an indication that there are certain changes which cannot be brought about in a consolidation Bill. Let us look at the Cape Provincial Administration. I do not want to take the time of the House with a long review of the situation. I merely want to deal with certain aspects as they appear in respect of that Administration. For the year 1975-’76 the expenditure which was budgeted for totalled R561 million. The first source of revenue to meet that expenditure is taxation which is, as the hon. the Minister and hon. members will know, restricted to tote and betting tax, to an entertainment tax, and to a game and fishing tax, which produces some R5 million towards the requirement of R561 million. Then there are motor vehicle licences of R25 million which will accrue to the province. In other words, in the form of direct taxation the Cape Provincial Administration is able to produce 5,5% of its requirements from revenue. Departmental receipts—the hon. the Minister of Economic Affairs will recall this—coming from educational and other sources, is a very small figure equivalent to 3,6% of the requirements of the province. Its own revolving fund provides something like 12,5%. Then we have the grants and subsidies which this House makes, which is 78% of the requirements of the province. One has to look at the total taxation resources plus departmental charges …

It sounds like home.

The hon. the Minister says it sounds like home, because he and I have battled with these matters for many years. The total taxation resources of the province, even with all the amendments that have been brought in, are less than 10% of the revenue requirements of the province. Clause 3 of the Bill before us provides that the capacity of the province to pay will exclude in future the subsidy appropriated by Parliament, and that the subsidy is to be determined having regard to a province’s capacity to pay, its own revenue resources. As a result of this approach to the financing of provincial revenue requirements and no doubt because of the Treasury’s cut-back on the availability of subsidy funds, the provinces are now looking towards their own taxation resources, their own sources of revenue. We in the Cape have had increases in taxation on tote and betting, and what is more unfortunate is the recent announcement of an increase in hospital fees as far as patients at provincial hospitals are concerned. I want to draw the hon. the Minister’s attention to the fact that the hospital fees collected in the year 1975-’76 in the Cape Province totalled R11 million and represented 6,6% of the expenditure by the province of the provision of hospital services; in other words, 6,6% gross of an expenditure of R176 million. When one looks at the administration costs, the salaries of the officials to administer the whole system of the collection of fees, one wonders what the net result will be. The cost of running the Groote Schuur Hospital during 1974, exclusive of any capital expenditure, was R24,3 million. The fees collected amounted to R849 000 or 3,5% of the cost of administering that hospital. What does the administration involve? The collection of the amount of R849 000 involved the processing of 288 572 accounts for individual in-and out-patients at the hospital during those 12 months. In addition it involved the recording and entering on those accounts of 440 000 in-patient days and 916 000 individual outpatient attendances. I do not have to elaborate on what the administration costs of that amounted to. The gross result was that an amount equal to 3,5% of the cost of administering the hospital was collected.

The increase in hospital fees which has been effected by the provincial administration, ostensibly to offset the effect of the change of the basis of subsidy, does not affect the rich people, because hospital fees do not affect rich people, nor do they affect members of medical aid schemes, but they impose an intolerable burden on that level of persons who are between the pauper and the middle-income groups. The fear of illness is therefore becoming more and more acute for our people. I raise this matter because the remedy is in the hands of the hon. the Minister in collaboration with the Minister of Finance. I believe that the practice of raising hospital fees, as has been done, is a tax on sickness which is being borne by the persons of the community least able to bear that expense. As I have said, the power is in the hands of the hon. the Minister. The Bill before us does not define, and is silent on what provincial revenue resources are. It is silent and the principal Act is also silent. There is no obligation on the provincial administration to raise hospital fees and there is no legal obligation on the provincial administration to attempt to collect funds from hospital fees. The hon. the Minister can take the simple step, obviously in collaboration with the Minister of Finance, of informing the provinces that hospital patients are not to be regarded as a source of revenue for provincial finances. It is a simple step and all that he has to do is to say that in future the Government, in determining subsidies, will not regard hospital fees as a source of revenue for provincial administrations. If that is done this outmoded method of financing can be removed. I shall probably have to seek another occasion to say that I have other views on how this problem can be met for the greater benefit of the community, and that does not only entail the question of a State-aided medical aid scheme in which all members of the public are involved. I believe in the introduction, as a corollary equally taxable with horse-racing and betting, of a provincial lottery or a provincial premium bond scheme, which will provide the funds necessary for the provision of hospitalization.

While we support this Bill today, I want to appeal to the hon. the Minister to direct his attention to a clear definition of the sources of revenue which he regards as being open to provinces, and to indicate to the provinces that the taxation of hospital patients, as least in-patients, is not to be regarded as a source of finance. The hon. the Minister will further concede, and I speak from my own experience as chairman of the board of Groote Schuur Hospital for several years, that the raising of a fee for out-patients has its merits in that it deters the hypochondriac from attending hospitals and asking for attention. This can be achieved by the raising of a fee, even if it is only a matter of a few cents. Once a patient has been admitted to a hospital, however, and that person is ill, hospitalization is necessary and I believe that under those circumstances there should be no raising of charges. It is in the hands of this hon. Minister, as I have said, merely by means of a directive to the provinces, to regulate the raising of financial resources within the provinces.

Mr. Speaker, I have no difficulty whatsoever in supporting this Bill, nor do I have any difficulty in supporting the rather noble views expressed by the hon. member for Green Point. I may say the only difficulty, if any, which I have, is that I am not sure that this Bill, in its present form, provides the correct forum for a debate on the general sources of income of the provincial councils. Some years ago the method of financing provinces was changed through this Parliament and the legislation we have before us is merely of an up-dating nature. The provincial councils today have far greater reliance than ever before—which is, in itself, a debatable procedure—on the central Government for their sources of revenue. This Bill merely rectifies the obsolete language in some of the sections of the Act.

I have some interest in the last two clauses of the Bill. Perhaps it is of interest just to look at them. The power to tax the “profits or gains” of companies and individuals is being removed, and I may say that I believe very few people were aware of the fact that the provincial councils in the past had the right to levy a capital gains tax. I wonder—because as far as I know, this was never utilized—if the hon. the Deputy Minister could tell us whether this perhaps bodes ill for the future, and whether it is the intention in the future, having removed this power from the provincial councils, that the Government itself is considering introducing at a central level a tax on capital gains.

Do you want it placed back.

Sir, I asked the question. I say that the provinces never utilized that power, and I think the public was not aware of the fact that the provinces even had that power. By now removing this power, attention is drawn to the fact that the provinces may not in future levy personal tax on the profits or gains of people. Having taken this irrevocably away from the ambit of the provincial sphere, I am wondering if the Government is not considering introducing it at a central level. However, I believe that would be worthy of a debate in itself. We shall support this Bill.

I want to thank hon. members opposite for their support of the legislation. The hon. member for Green Point made a few interesting observations, and it was clear that he was able to draw on his years of experience in the provincial council and also of hospital matters in the observations he made. As far as the request of the hon. member is concerned, I just want to tell him that although I did not have an opportunity to go into the matter properly, it seems to me as though this matter should rather be considered by the hon. the Minister of Finance than by us, but I can assure the hon. member that this will be borne in mind and that the matter will receive attention at the appropriate time.

As far as the hon. member for Sandton is concerned, I wonder what the reason is for the hon. member’s concern about the provision in question. I shall rather not comment any further on this matter. I have taken cognizance of his concern, but I am not prepared, at this stage, to comment any further in connection with the present or future attitude of the Government on this specific matter.

If the hon. the Deputy Minister does not wish to reply to that particular point, could he explain why it was necessary to put those particular words into those clauses? I was not aware that the provinces had in fact the right to tax the gains of persons, in other words capital gains in this way defined, and I cannot see the necessity for putting this particular wording in the Bill at all if in fact the provinces never had that power.

Sir, this is actually a matter which can be discussed in detail during the Committee Stage, but I can just furnish the hon. member with the explanation at this stage that the power of the provinces to levy tax on companies was abolished in terms of section 3 of the Financial Relations Amendment Bill, 1957. The insertion of the words “profits or gains” in the said section 3, is necessary to establish beyond all doubt that the powers of the provinces to levy tax in respect of the profits and gains of companies, are also being abolished. Therefore, it is merely a technical adjustment in regard to this matter.

Question agreed to.

Bill read a Second Time.

Mr. Speaker, I move—

The Bill which is before the House contains amendments to nine Acts administered by the Financial Institutions Office, i.e. the Insurance Act, 1943; the Stock Exchanges Control Act, 1947; the Unit Trusts Control Act, 1947; the Pension Funds Act, 1956; the Friendly Societies Act, 1956; the Inspection of Financial Institutions Act, 1962; the Participation Bonds Act, 1964; the Banks Act, 1965; and the Building Societies Act, 1965.

These Acts are all concerned with business institutions which are active in the dynamic sphere of the economy and it is essential that they be adjusted from time to time to keep pace with continually changing conditions. While only minor changes are being made to some of the Acts, the amendments to others are considerable and fairly drastic. The most important amendments are those in respect of the Banks Act and the Insurance Act, and I want to begin with the proposals in regard to these Acts.

The amendments to the Banks Act are contained in clauses 37 to 53 of the Bill. They have chiefly resulted from the recommendations embodied in the Third Report of the Commission of Inquiry into the Fiscal and Monetary Policy in South Africa, the so-called Franzsen Commission.

These recommendations, as well as the comment they elicited from the financial institutions concerned and from several national bodies, were given serious consideration, and on 10 May 1973 a Press statement was released in which the decisions of the Cabinet in regard to the recommendations were announced. On 5 June 1974 a draft amendment Bill, incorporating, inter alia, the proposals which had been accepted, was published in the Gazette for general information. In response to representations subsequently received from interested parties, concessions were made where possible, and an amended Bill was introduced in Parliament at the end of the second session of 1974, but it did not get any further than the First Reading. After further amendments had been made, mainly to the Insurance Act and the Banks Act—in the case of the latter, mostly on the recommendation of the technical committee which was revising that Act and the Building Societies Act—the Bill was again introduced during the 1975 session, as hon. members will remember. Because of the large amount of work which had to be completed at the end of that session, however, the Bill had to stand over once again after the First Reading.

The Bill which is now before the House differs from the one introduced last year in that it contains a number of additional amendments, particularly amendments to the Unit Trusts Control Act and the Participation Bonds Act, amendments which have become urgently necessary in the meantime.

The amendments to the Banks Act are mainly concerned with the introduction of a number of new principles into the Act. The most important of these concern—

1. (i) the ownership and control of banking institutions;
2. (ii) foreign control of banking institutions and bank controlling companies;
3. (iii) the registration of bank controlling companies;
4. (iv) the limitation of diversification in banking institutions and inter-group financing; and
5. (v) the ambit of the Banks Act.

Statutory control is being introduced over the ownership and control of banking institutions and bank controlling companies. The position in South Africa is that only a small number of banking institutions have a fairly wide distribution of shares. In quite a number of cases our banking institutions are subsidiary companies of other banks—to a large extent of foreign banks—or even of business enterprises outside the banking sphere, or large blocks of shares are held by individual shareholders. It is necessary, in the interests of sound banking, to introduce statutory control over the ownership and control of banking institutions so that the existing position of concentrated shareholding may gradually be placed on a sound basis and the possibility of undersirable control may be eliminated as far as possible.

Statutory control over bank ownership is justified on two grounds in particular. The first is that banks guard the savings of the public. In terms of the Banks Act, a banking institution must maintain capital and reserves amounting to at least 6% of its obligations to the public, i.e. the owners of the bank provide only 6% and the public provides 94% of the total funds of the bank. Where a banking institution is controlled by only one or a few shareholders, the possibility exists that the deposits of the public, which the bank is guarding as trust funds, may be utilized for the promotion of group interests and that sound principles of safe investment may be disregarded in the process. In the second place, banks occupy a fiduciary position in relation to the Government because the official monetary policy as well as the exchange control measures have to be applied by means of the banking system. When foreign control comes into question, there is the further consideration of the strategic importance of a country’s banking system.

Consequently it is necessary for concentrated shareholding and especially control over a banking institution to be regulated on an acceptable basis. The proposed amendments provide that, apart from another registered banking institution, only a company, which complies with certain requirements and which has been approved and registered as a bank controlling company by the Registrar in terms of the new provisions of the Banks Act, will be allowed to hold more than 30% of the shares in a banking institution—excepting a discount house—and to have full control itself.

In addition to banking institutions and bank controlling companies, a financial company—

Bank controlling companies of ordinary banking institutions, i.e. banking institutions other than discount houses, are subject to the same rules as ordinary banking institutions as far as their shareholding is concerned.

In cases where the limits are exceeded at the time when the amendments come into operation, the shares may remain registered in the name of the shareholder, but no further shares may be registered in his name until the shareholding has come to be within the limit concerned, owing to capital growth, for example. Different action is contemplated in the case of a discount house and of certain banks under foreign control, to which I shall return later.

A bank controlling company must comply with certain requirements—for example, not more than 40% of its total investments may be outside the banking sphere. For obvious reasons, a bank controlling company must be registered by the Registrar of Banks and must submit certain particulars to the Registrar on a regular basis. Consequently the two kinds of shareholders that can have control over a banking institution, i.e. another banking institution and a bank controlling company, will be subject to a greater or lesser degree of supervision by the authorities.

In the case of discount houses, stricter limitations are being imposed than in the case of other kinds of banking institutions. Apart from a registered bank controlling company in which the shareholding of any person and his associates is limited to 10% of the total issued shares of the company, no one is allowed to own more than 10% of the shares in a discount house. This means that only a particular kind of registered bank controlling company may have control over a discount house, and that other banking institutions are prevented from doing so. Furthermore, a bank controlling company which controls a discount house cannot obtain control over any other banking institution. In cases where these limits are exceeded, unlike the position concerning other banking institutions under domestic control, the shareholdings which exceed the limits will have to be reduced in accordance with a scheme approved by the Registrar. These more stringent provisions are necessary so that a discount house may operate freely on the monetary market.

In order to prevent the formation of excessively large conglomerates of banking institutions, a banking institution is allowed to control only one banking institution in each class of banking institutions, but not a banking institution of the same class as itself nor a discount house, while a bank controlling company may control either only one banking institution of each class, expecting a discount house, or only a discount house.

As far as foreign control over the banking system is concerned, South Africa finds itself in the position that its banking activities, particularly in the field of commercial banking, are dominated by banks under foreign control. Approximately 69% of the deposits in our commercial banks and 54% of the deposits in all banks are held by banks controlled by foreign shareholders.

Because banks are at the root of the financial system, the banking industry may rightly be described as one of the most strategic industries in a country, and for that reason it is a high priority for South Africa to reduce the present foreign domination of this key industry. There are several precedents for such an action and there are Western countries which impose considerably more stringent limitations on foreign shareholding in their banks than the limitations in this Bill.

The object of the amendments is that in cases where a banking institution or bank controlling company with capital and reserves amounting to more than R20 million is controlled by a foreign bank, the shareholding must be reduced within a reasonable period, in consultation with the Minister, to not more than 50% of the total issued shares of the institution concerned. Because the smaller banking institutions under foreign control, i.e. those whose capital and reserves amount to less than R20 million, may find it difficult to obtain local share capital when they are legally obliged to increase their capital, they are not required to reduce the foreign shareholding as long as their capital and reserves are less than R20 million. Foreign banks which have to alienate their shares in banking institutions or bank controlling companies in order to correct the proportions must sell their shares to domestic shareholders.

Mr. Speaker, it is a pleasure to me to be able to say that some of the banks under foreign control have already begun to take steps which will gradually bring their share distribution into line with the requirements proposed.

As far as the acquisition of a new interest by a foreign bank or banks in a local banking institution is concerned, the Bill before the House proposes that in cases specially approved by the Minister, a maximum of 30% of the issued shares may be acquired. After careful consideration of representations which have been addressed to me, however, I believe that cases may arise in the future where it may be in the best interests of the country, all circumstances considered, to allow a foreign bank or banks to acquire a larger share than 30% in a banking institution. Naturally, this will only be a practical possibility in the case of fairly small banking institutions. For this reason I intend, Mr. Speaker, to move an amendment in the Committee Stage which would authorize the Minister to grant approval in specific cases for a foreign bank or banks to acquire up to 50% of the shares in a banking institution and, because of practical considerations, even more than 50% on a temporary basis, on condition that it be reduced to 50% within a reasonable period, as determined by the Minister.

It is known that banking institutions have considerably diversified their activities in recent years. This new tendency has not been confined to the sphere of financing and services related to financing, but has extended to the activities of other kinds of financial institutions by means of the establishment of subsidiary companies or the acquisition of control over or an interest in or affiliation with such institutions, and even through the acquisition of considerable interests in enterprises in commerce, industry and property development and construction. Such diversification may endanger the safety of deposit moneys. The accepted approach is that deposits may not be used for these diversified interests of a banking institution. Consequently the Bill provides that the total amount of a banking institution’s investment, direct and indirect, in fixed property and its investments in shares, including shares in its subsidiaries, may not exceed the amount of its share capital and unimpaired reserves.

Another problem area in banking is that pressure can be brought to bear upon a banking institution operating within a group of associated enterprises to provide loans to other members of the group. Because such loans are not negotiated independently and freely, they can be bad investments and unduly concentrated. In order to protect the deposits of such a banking institution and to prevent the possible abuse of the banking institution by its controlling company, the total amount which may be owed to the bank by members of the affiliated group, including the amount of redeemable preference shares issued by members of the group to the banking institution, is limited to 5% of the banking institution’s obligations to the public.

I come now to a matter which is of primary importance in the administration of the Banks Act, i.e. the ambit of this Act. According to the present wording of the Banks Act, “the business of accepting deposits” is the only criterion for determining whether or not this Act is applicable to specific activities. Experience has shown that many ways can be found of obtaining money from the public with which banking business is in fact carried on without its being possible to regard it as accepting deposits. The result of this is that there is unlimited scope for grey market activities, which have in fact assumed considerable proportions in recent years. Particularly in times of interest rate control, banks and building societies are faced with tremendous competition from grey market institutions which, unlike the former, are not subject to liquid asset and capital requirements or interest rate restrictions. Hon. members will also recall that in recent years, a number of grey market institutions have gone out of business, resulting in considerable losses for some members of the public. With a view to grey market activities, the Bill is slightly broadening the concept of accepting deposits and provides for extending the concept of “business of a banking institution” by authorizing the Registrar, after consultation with the President of the Reserve Bank, to declare other ways of obtaining money from the public which is then used for granting money loans or credit to the public, to constitute the carrying on of the business of a banking institution, in addition to the acceptance of deposits. That is to say, it will not be possible for such activities to be carried on by a person who has not been registered in terms of the Banks Act.

The last amendment to the Banks Act that I want to deal with is concerned with monetary control. Section 17 of the Banks Act authorizes the Reserve Bank, when it deems it desirable in the national economic interest, to require, with the consent of the Treasury, that supplementary liquid assets be maintained by all banking institutions or by the banking institutions of a particular class. Experience has shown that it is sometimes unfair to treat all the banking institutions of a particular class alike in this connection. The amending Bill accordingly provides that the Reserve Bank may, for the purposes of supplementary liquid assets, deal with banking institutions on a different basis from their class of registration, to be able to implement the measure more equitably.

In respect of the amendments to the Building Societies Act I just want to mention that Building Societies will be relieved of the requirement of having to appoint a branch auditor for every branch. This will bring building societies into line with banks and other financial institutions in this connection and will enable them to curtail their expenses considerably.

The remaining amendments to the Banks Act and the Building Societies Act are mainly of a regulating nature, or are intended to clarify the Act where its provisions are obscure.

†Mr. Speaker, I now come to the proposed amendments to the Insurance Act. These are dealt with in the first 15 clauses of the Bill. The more important with which I shall deal are those involving the domestication of foreign insurers, the tightening-up of the solvency requirements for short-term insurance business, the new powers for controlling commissions paid to insurance intermediaries and the adoption of a more flexible basis for determining the liabilities in respect of long-term business.

In regard to domestication, hon. members will recall that the Franzsen Commission recommended that foreign insurers be required to convert their branch operations in the Republic to locally incorporated companies. I see this as a desirable step which will bring about fuller disclosure of particulars of the local business. Also, I should like to see from this beginning a natural development in the direction of meaningful local participation in the equity of such companies. The Cabinet accepted the recommendation in 1973 and the measure now before the House seeks to implement the Cabinet’s decision.

Foreign insurers will be required to submit their domestication plans to the Registrar of Insurance within two years of the commencement of the amending legislation and those plans must provide for either the transfer of the local branch operation to a locally incorporated company or the formal separation of the local business from that conducted outside the Republic, on the lines determined in the amending legislation.

The separation procedure has been designed for those mutual companies who feel that a transfer of business to a locally incorporated company would conflict with the mutuality principle on which their business has been built. The basis on which they separate the local business must be acceptable to the Registrar of Insurance, and after separation the local business must be placed under the control of a local board with powers that have the approval of the registrar.

During 1974 and 1975 we witnessed some disconcerting rate-cutting in the short-term insurance industry. These cuts came at a time when claims, commissions and other administration costs were on the increase. I would be the last one to want to deny the insuring public the benefit of lower insurance premiums, but naturally, it must be the result of sound underwriting if difficulties in the industry are to be avoided. I do not say that the premium reductions were in all cases ill-conceived, but the severe underwriting losses since disclosed in the published accounts of many short-term insurers, would seem to confirm the allegations made earlier that many of the reductions had been made with apparent disregard of the consequences and without the statistical data or past underwriting profits to support them.

I am aware of the efforts of the S.A. Insurance Association to remedy the position by means of a market agreement and I appreciate their endeavours. However, in a free enterprise economy such as ours, the threat posed by such inordinate rate wars to the financial soundness of insurers should in principle rather be met by more stringent solvency requirements. The Bill therefore makes provision for powers to increase, by regulation, the present 10% solvency margin. The powers will not be invoked without prior consultation with the industry and insurers will be allowed a reasonable period to adjust their affairs and bring them into line with any increase of the solvency margin. The absolute minimum amount by which a short-term insurer’s assets must exceed his liabilities will also be increased from R100 000 to R200 000, and in the case of the larger insurers where the margin is related to premium income, the upward adjustments that have to be made to the margin when premium income is on the increase, will now have to be made earlier than has hitherto been the case. In such cases the normal margin will now in effect be 10% of the current year’s premium income. At the same time the opportunity is being used to bring the Part I asset component of the solvency margin into line with the Part I asset component of those assets that have to be held to cover net liabilities in respect of short-term business.

The next matter requiring attention is the new approach to the determination of a long-term insurer’s liabilities under unmatured policies for the purpose of establishing the insurer’s financial position. When calculating these liabilities, the actuary makes an assumption in regard to the rate at which interest will be earned in the future on the premiums still to be received under the unmature policies. The lower the assumed rate, the higher will be the figure of the liabilities produced by the calculation, and vice versa. A conservative approach requires than an upper limit be placed on the rate which the actuary may assume for the purpose of his calculations. This limit is presently laid down in the Act. While interest rates were fairly stable, the rigidity of having a limit in the Act presented no difficulties, but in view of the rapid rise in rates and the possibility of variations in future, adjustments of the rate at shorter intervals may become necessary. A more flexible procedure is therefore called for, and the power is being taken to prescribe the rate by regulation. In this connection I should like to inform the House that, in view of the high interest rates, it is the intention to increase the assumed rates of interest once the Bill is enacted and the regulations can be proceeded with. The regulations will be back-dated so as to cover approvals granted to certain insurers to anticipate the introduction of the less stringent rates for calculating their liabilities.

The amount which an insurer is required to invest in assets of the kind listed in Part I of the Third Schedule to the Act represents a proportion of his liabilities. In view of the relationship and of the power taken to change the basis on which the liabilities are calculated, the further power is being taken to prescribe by regulation a special basis for the calculation of liabilities, specifically for the purpose of the Part I asset requirements of the Act.

Provision is also made for controlling the remuneration levels of insurance intermediaries by way of regulation, if such action should be considered desirable. There is evidence of a very unhealthy state of affairs in the industry with regard to unjustifiably high rates of commission as well as their further escalation. It was only after it had become clear that the short-term industry was unable to reach agreement to restrict commission levels voluntarily, as is for example done in the United Kingdom, that it was decided to resort to legislation. In various other countries maximum commission levels are laid down by the authorities. I do not regard the taking of the statutory powers as ruling out entirely the possibility of a voluntary agreement. Perhaps the very fact that statutory powers could be used, will assist the industry in reaching some form of agreement. As it is, the authorities will necessarily have to liaise closely with the market on the levels of remuneration that could be regarded as fair and reasonable to all parties concerned if, eventually, restrictions have to be imposed.

I hold the view that commissions paid to intermediaries should not become a factor in the competition among insurers. If it does, it can only result in escalating commissions and ultimately in higher premiums being charged to the insuring public. The registrar’s office has evidence of commissions paid in respect of motor business at rates as exorbitant as 30% of the premium. The situation with which we are faced is such that the powers have had to be widely drawn. However, the intention is to use them only in those areas where control has clearly been shown to be necessary.

As far as long-term business is concerned, the members of the Life Offices Association recently succeeded in reaching agreement on commission levels. The question whether those levels should be accepted or whether the proposed controls should be extended by regulation to long-term business, will be decided in the light of the findings of the Registrar of Insurance who will be giving the matter his continued attention.

I may also inform the House that I have received an informal indication, through its chairman, that the Long-term Insurance Inquiry Commission supports the principle of assuming powers to control commissions to intermediaries. The proposed amendments in regard to the valuation of liabilities are also in accordance with the views of the commission. These matters have, however, become so urgent that the action we now propose to take cannot be postponed until the commission has submitted its report, which is not expected to be done until later this year.

The remaining clauses in the insurance section of the Bill do not raise important matters of principle. Their object is mainly to improve, or to bring into line with existing conditions, certain regulatory provisions of the Insurance Act.

*I come now to the proposed amendments to the Pension Funds Act, which are contained in clauses 21 to 24 of the Bill. Most of the amendments are self-explanatory and intended to remedy deficiencies and ambiguities which have come to light. I consider it necessary to elaborate on only two of the amendments, i.e. those concerned with loans granted by pensions funds to their members and the protection of pension benefits against attachment and in the event of insolvency and death.

As far as loans to members are concerned, the Act proceeds from the point of view that loans to members should only be allowed in exceptional cases. One of the exceptions is where a member wants to secure a loan against first mortgage from his fund in order to purchase a property upon which a dwelling has been or is to be erected. However, it is not laid down as a legal requirement that the dwelling must be intended for occupation by the member or his dependants. Accordingly, cases have occurred where loans have been granted to members for speculative property transactions which had nothing to do with the personal housing needs of the members. This deficiency in the Act is now being remedied, and in future loans to members will be strictly limited to those required by a member for purchasing a dwelling or for purchasing land and erecting a dwelling on it for occupation by the member, or his dependants, or for redeeming an existing mortgage loan on his dwelling.

In order to prevent the circumvention of the restrictions on loans to members, pension funds will also be prohibited from granting any loans to companies controlled by members of the funds concerned. Companies controlled by officials of a pension fund will also be brought within the ambit of this prohibition in an attempt to prevent the kind of transactions which may prejudice the interests of the pension fund. Where housing loans are granted to members, the amount is restricted to 75% of the market value of the property plus the amount which the member would have received from the fund if he had terminated his membership on the date of the loan. This provision may enable the borrower to borrow more than the market value of the property, which is considered to be undesirable. The maximum amount which may be borrowed will now be restricted to the market value and the manner in which the market value is to be determined is also being laid down.

Apart from housing loans to members, the Act presently provides for uncovered loans to members as well. Loans of this kind may cause pension benefits to be wasted and consequently the permission to grant them will now be withdrawn. The object of a pension fund is to provide pension benefits to its members and their dependants. The Act does not protect the benefits from alienation and attachment, nor does it exclude them from the insolvent and deceased estates of members in order to ensure that they do in fact accrue to members or their dependants. This deficiency is now being remedied.

Now, Mr. Speaker, I shall briefly discuss the proposed amendments to the Friendly Societies Act, which are contained in clauses 25 to 31 of the Bill. These amendments resemble those to the Pension Funds Act in being intended for the most part to remedy deficiencies and ambiguities.

However, the amendments contained in clauses 29 and 30 require further elucidation.

These clauses introduce new provisions into the Act, authorizing the Registrar of Friendly Societies, whenever it is deemed necessary, to demand financial statements from professional administrators of Friendly Societies, and to impose limits on the management expenses that may be incurred by societies.

The essential characteristic of a Friendly Society is that it is a body into which members pay financial contributions for the purpose of assisting one another in defraying major expenses which may be caused by illness, death, etc., and which the individual member may find difficult to meet. This means that the largest possible part of such a society’s income must be available for providing benefits to its members and that management expenses should therefore be limited to the absolute minimum reconcilable with efficient management. From the nature of the services they render, professional administrators of Friendly Societies need not possess considerable risk capital, nor are they expected to pay large amounts of capital into the societies administered by them. In view of this and of the mutual and social character of Friendly Societies, there is no reason why a professional administrator of such a society should be able to claim more compensation than that which would cover repayment of essential expenditure, a reasonable return on capital provided and an equitable compensation for services rendered. What may be regarded as reasonable will be determined in consultation with representatives of societies and the professional administrators.

The other proposed amendments to the Friendly Societies Act are intended to amend regulating provisions of the Act which need to be updated at this stage.

A minor amendment is being proposed to the Inspection of Financial Institutions Act, the purpose of which is to obtain inspection powers under the Act over the administrators of Friendly Societies so that they may also be inspected when it is deemed necessary, as in the case of any financial institution.

†Mr. Speaker, I would now like to draw the attention of hon. members to the amendments which the Bill will insert in the Stock Exchanges Control Act, 1947, the Unit Trusts Control Act, 1947, and the Participation Bonds Act, 1964. The first of these measures is the new section 28, contained in clause 16 of the Bill, which it is proposed to insert in the Stock Exchanges Control Act and which, in effect, precludes the establishment of a scheme or arrangement whereby the business of a stock exchange is carried on which is not licensed in terms of the Act. An exception can, however, be made in respect of dealing in Government and semi-Government securities. The authorities are desirous of improving the market for securities of the public sector and the proposed section empowers the Registrar of Financial Institutions to permit the establishment of a scheme for dealings in Government and semi-Government securities if circumstances should make such action desirable. The proposed amendment will not affect transactions which are of an isolated nature. Hon. members will note from the provisions of the proposed section that the prohibition applies only to a scheme or arrangement whereby business is carried on as a regular feature of an operation.

The proposed amendments to the Unit Trusts Control Act are contained in clauses 17 to 20 of the Bill. The provisions will alter the existing requirement whereby a portion of the assets of a scheme must be invested in approved securities and will make it possible for any domestic insurer who complies with the requirements for a trustee as laid down in the Act to become and act as a trustee of a unit trust scheme.

Proposed amendments to the Participation Bonds Act are set out in clauses 33 to 36 of the Bill. The amendments contained in clause 34 will alter the conditions on which a participant will be permitted to enforce his rights to repayment of the debt secured by a participation bond as also the conditions on which he will be permitted to transfer or cede his rights in such a bond. The new section contained in clause 35 provides for the amalgamation of two or more participation mortgage schemes and for the transfer of participation bonds from one scheme to another without the rights of participants being affected by such amalgamation or transfer. The amendments contained in the other two clauses are of a regulatory nature.

I have now dealt with the more important provisions of the Bill. Because of the very technical nature of the various measures and also because of some conflicting interests in respect of which an acceptable course had to be found, this proposed legislation was difficult to draft and a great deal of consultation, time and effort have gone into the preparation thereof. I am pleased to say that in respect of the more important provisions we have liaised closely with the institutions and other interests concerned. I trust that we have succeeded in working out measures which are practical and which represent the balanced approach which the best interests of the institutions concerned make desirable.

Mr. Speaker, first of all I should like to tell the hon. the Minister how much we appreciate having been provided with such a comprehensive explanatory memorandum on this Bill in such ample time as to allow us to study the Bill and understand, as far as possible, its content.

This is a long and very important measure, and as the hon. the Minister has explained, it contains important amendments to no fewer than nine Bills affecting financial institutions. Much of this meansure, by the nature of it, is technical, and contains a lot of detail and a lot of routine matters. At the same time, however, there are some very important amendments in principle to laws governing financial institutions and I propose, in what I have to say during the Second Reading, to deal with two of the measures that are being amended and which, I think, are most fundamentally amended, namely the Insurance Act and the Banks Act. Other members on this side of the House will deal with another measure which is being importantly amended, namely the Pensions Fund Act.

As far as the Insurance Act is concerned, as the hon. the Minister indicated in his Second Reading speech, the most important amendments are, first of all, the compulsory domestication of foreign insurers, secondly, more stringent solvency requirements for short-term insurers, thirdly, the power taken by the hon. the Minister to control commissions and remuneration paid by insurers to intermediaries, i.e. agents and brokers, and fourthly, the introduction of a more flexible basis for valuing the liabilities of long-term insurers.

As far as the domestication of foreign insurers is concerned, I think there is only a handful—the number is nine in all, I think, of which three are mutual insurers—left in South Africa. But there are amongst these insurers some quite important ones. I believe that the domestication of all foreign insurers is a logical and a sound step to take, one which we on this side of the House will support. It will give the registrar more uniform and fuller control over the insurance industry as a whole. In line with the recommendations of the Franzsen Commission, it should improve the administration, the financial position and the tax position, or rather the position of the fiscus, in relation to foreign insurers. It should involve foreign insurers in no hardship in converting their local branches into domestic companies. All they have to do is to transfer the business of their local branches to a domestic company, and this does not involve the disinvestment by foreign insurers of any assets or investments in this country.

On balance, I believe that policy-holders’ interest in policies in foreign companies should not be much affected either way. It can be argued that by domesticating the branch of a foreign insurer you are depriving the policy-holder of a certain amount of asset cover which would be provided by the world-wide assets of the foreign insurer, but on the other hand I think the general practice of branches of foreign companies is to reinsure their local policies to quite a large extent with their parent companies so that the benefits of the wider world-wide asset cover should be at least compensated through reinsurance. As far as the more stringent solvency provisions are concerned which are made in this Bill to cover short-term insurers, this is something which we also welcome. We welcome it particularly at this time when short-term insurers are subject to considerable competitive pressures, and as the hon. the Minister indicated, there have been public companies amongst the insurers who have been showing underwriting losses. I would, however, like to draw to the Minister’s attention the fact that the additional margins which this Bill requires for solvency purposes will have to be provided out of taxed profits. This may be difficult in the case of short-term insurers who are struggling under today’s competitive position. I would suggest to the hon. the Minister that he should consider some reasonable form of tax relief in regard to the provisions by insurance companies of these additional margins for solvency purposes.

I now come to the power which the hon. the Minister is going to take under this Bill to limit the remuneration commission payable to intermediaries, brokers and agents. This is something which we have very serious reservations about because it does, however one looks at it, constitute an interference by the Minister in private enterprise. I believe, however, that in this case it will probably be in policy-holders’ interest that the level of some of the commissions presently being paid by insurer to intermediaries should be lower. It certainly is not healthy for insurers to be competing for business by offering higher and higher commission rates to brokers. If there is any margin to be given away by insurance companies, that margin should be given away to policy-holders by way of lower premiums or improved cover. I realize, however, that there is a need to do something in this regard, because the rates of commission being paid by insurance companies in South Africa to intermediaries is very high in comparison with the rates that are paid in other countries. It so happens that in South Africa the brokers fraternity are in a very strong position vis-à-vis the insurance industry. They are in a position to pressurize and squeeze higher commissions out of the insurance companies. I might say that this is not the only respect in which brokers are squeezing the insurance industry. The hon. the Minister is well aware of the position in regard to the payment by brokers of premiums received by brokers to the insurers. Under the Insurance Act brokers are permitted a period of three months in which to remit premiums received by them to the insurers. They have taken full advantage of that, and more so, at a time when these funds could be more usefully employed by the insurance industry itself for the benefit of their clients and their policy-holders. The Minister is taking this power to limit commissions, but I hope that it is a power he will use sparingly and that he will still endeavour to get the industry to put its own house in order without having to use this power. If the Minister is forced to take action, I do not underestimate the complexity of the task of setting a fair scale of commissions, because he is going to have to deal with a very wide spectrum and wide variety of services offered by different brokers and different agents. He will have to deal with the broker giving a comprehensive service, and he will have to deal with the broker giving only a limited service. He will have to deal with the chief commission agent who may or may not be giving a comprehensive service, but who may be giving a great volume of business. He will have to deal with the whole gamut of ordinary agents, some giving service and some who are merely points of sale. In setting a fair scale, the Minister must evaluate the value of the service offered by the broker both as far as the client is concerned and as far as the agent is concerned. Obviously this can best be done by the industry itself, so that I hope that an endeavour to get the industry to limit commissions voluntarily will be successful. But whatever happens, whether this result is brought about by the exercise of the Minister’s power or by voluntary action, lower commission rates for brokers result. I believe that this will be a healthy development. It is going to tend to lay the emphasis on the function of a broker as an an adviser to his client rather than as a competitive seller of insurance. Brokers will be employed and will be remunerated for the quality of the services they are able to provide rather than by squeezing higher commission rates out of the insurance companies. I believe that, taking a wide picture of the whole situation, it will be in the interest of policyholders and that they should as the result of the control of commission rates receive better service and at lower premium rates.

The final amendment of principle to the Insurance Act on which I would like to comment is the provision now being made that fixed assumed interest rates for valuing the liabilities of long-term insurers will be replaced by interest rates which may be varied from time to time. I regard this as an improvement in the position, because the present position does not take account of the very considerable change and increase which have generally taken place in interest rates over the past few years.

I would now like to say a few words on the proposed amendment to the unit trusts. We on this side of the House welcome the lower percentage of prescribed assets which will now have to be held by unit trusts. We do not regard prescribed assets, even the slightly wider definition of prescribed assets contained in the Bill, as being a suitable compulsory investment for a unit trust. After all, investors in unit trusts are buying a basket of securities, primarily a basket of shares on the Stock Exchange. They do not require the so-called security of having a part of that basket invested in Government stocks. The only purpose that I can see that this compulsory component of Government stock in unit trusts serves is to provide the Government itself with some of its loan requirements.

I now come to the other main item and that is the amendments to the Bank Act. I regard these amendments as probably forming the most important part of the proposed legislation. These amendments aim, firstly, at regulating ownership and control of banking institutions. Secondly, they regulate the extent of foreign interest in the share capital and the control of banking institutions. Thirdly, the amendments take steps to limit diversification and inter-group financing by banking institutions. Fourthly, they widen the scope of the Bank Act to subject grey marketing operations and fringe operations to the provisions of the Bank Act. Finally, the amendments give the registrar the power to declare any banking practice as being irregular and undesirable. I would like to deal with these five provisions separately.

First of all, as far as the ownership and control of banking institutions are concerned, I appreciate the desirability of obtaining a spread amongst the ultimate shareholders of banks. We therefore support the limitations which are placed by this Bill on individual shareholdings and we also support the concept of the bank controlling company which must comply with the same limitations in this respect as banking institutions themselves. I think that it is very desirable to avoid a situation where there is an accumulation of power over individual banks, which can happen if there is not a sufficient spread in the shareholdings of those banks. If you get that accumulation of power you can get interests influencing the granting of loans other than on an “at arm’s length” basis. I think that it is also desirable to avoid too great a concentration of control in the banking industry as a whole. The banking industry is not characterized by competitive conditions. In fact there is in my view a very serious lack of competition in the banking industry. We do not want to see any further diminishing of that competition. The banks should be regarded as providing a service to the economy and to the community and must not be regarded as a power base from which large sections of the economy can be controlled. We also welcome the stricter control measures over discount houses. Their business is a specialist type of business. They are important in the overall control of the money supply, and it is therefore essential that they should conduct their business “at arm’s length” and not be influenced by other sectors of the banking industry. I do believe, however, that the Bill, as at present drafted, is going to present the banks and prospective shareholders in the banks with very real practical problems in complying with its provisions. Take the question of determining who are associates. I would like to quote here from a report which I have received from one of the commercial banks—

I would also like to ask the hon. the Minister whether in clause 28(2) of the Bill he intends prohibiting absolutely, the registering of shares in the names of nominee companies. This is a very usual way of having shares which are administered by banks themselves and by trust companies registered and I do not think it is a practice which should be lightly disturbed. Unless the hon. the Minister is able to find a smooth and efficient way of registering shares in banks, shares of associates and shares of nominee companies in a manner which is suitable to investors, he is going to make the shares in banks less marketable, which in turn is going to make the domestication of bank shares held by foreigners a more difficult matter to proceed with.

I would now like to come to the amendment which affects foreign participation in the shareholding and control of banks. These amendments are designed to limit foreign shareholding in South African banks and they also provide that where the shareholdings exceed 50% at present, they must be reduced to 50%.

I would like to say that I think that this is an area where we are treading on extremely delicate ground. I believe that it is very often a very satisfactory arrangement to have a partnership on a parity basis between a foreign firm, or a foreign shareholder and a domestic enterprise. That applies whether the industry involved is banking or any other industry. I believe that parity shareholding on this basis is an arrangement from which one very often gets the best of both worlds. Foreigners are able to provide capital, know-how and connections, while from local resources, one is able to get management, skills and capital as well.

I regard it as a matter for regret that the hon. the Minister has deemed it necessary to legislate in order to achieve a position of parity where the majority shareholdings in banks are owned by foreign companies. There are so few institutions involved that I would have thought it would certainly have been preferable, and I believe it would have been possible, to have achieved this result—and this is a result which we agree with—by negotiation rather than by legislation. By legislating for what amounts to forced disinvestment by foreign capital in South Africa—and I include in the term “disinvestment” the denial of entry of foreign capital to take up rights issues—I believe that this forced disinvestment may well create the impression that there are areas where foreign capital is not welcome. Nothing, of course, could be further from the truth. We need foreign capital, and we need it in big quantities in order to take care of known capital projects. To avoid this impression I hope that the hon. the Minister will administer the provisions which force foreign-controlled banks to bring their foreign participation down to 50% with great patience and with great discretion, and if necessary, allow the process to take place over a relatively long period. By “a relatively long period” I have in mind a period of some 15 to 20 years.

The hon. the Minister, in his Second Reading speech, indicated that it was a matter of high priority to reduce the present foreign domination of the banking industry. I hope that by “high priority” he does not mean that he is going to treat it as a matter of urgency. The position does not warrant haste. Foreign-controlled banks over a period have been of great service to South Africa, and I do not believe that there is any strategic danger to our country in treating this matter with patience and over a relatively long period. As far as the activities of foreign-controlled banks are concerned, they are adequately circumscribed by the Banks Act itself. This lack of strategic danger, I think, has been very adequately illustrated in Rhodesia over the last ten years, where virtually all the banks, I believe, are foreign controlled. Their major shareholdings are in the hands of countries that cannot be regarded as friendly towards Rhodesia, but the banks have done nothing harmful. In fact, they have played a very useful and constructive part in the economy of Rhodesia over this period since UDI.

I would say to the hon. the Minister that, while we support the objective of parity between foreign ownership and local ownership of banks, and while we support the concept of partnership, the matter is one which has to be dealt with very skilfully and very patiently.

I now come to the steps included in this Bill to limit diversification and inter-group financing by banking institutions. These amendments cover a number of measures. They cover the limitation of banks’ investments in fixed property, in subsidiary company shares, in loans to subsidiary companies and in other shares. They limit that investment to the paid-up capital plus free reserves of banks.

The second amendment affecting diversification limits the interest which banks may hold in insurance companies to 30% of the share capital of an insurance company. Finally, there is the limitation of loans by a bank to affiliates to 5% of the liabilities of that bank to the public. I might say that I regard that 5% as being a very generous percentage. I believe that this is a sound step and it means that the public’s deposits will be used primarily for normal banking purposes “at arm’s length,” and not for enriching the banks through other types of investment.

Finally, we come to the amendments to the Banks Act which aim at widening the scope of the Banks Act to subject grey market operations and other forms of fringe deposit receiving activities to the control of the Banks Act, and which also give the registrar the power to declare certain banking practices irregular and undesirable. I would like to say that we support the widening of the definition of accepting deposits and of the business of a banking institution. I believe that this will give the banking mechanism much better control over the overall supply of money, and it will afford depositors, who have deposited their money in fringe institutions—or institutions which prior to this Bill were regarded as fringe institutions—security which they have not enjoyed up to the present time. There have been depositors who have lost money which they have deposited with institutions on the fringe of the banking industry, institutions which, had they been subject to the provisions of the Banks Act, would have had to take measures which would have protected the depositors’ money.

We are however, not happy with the unqualified power which is given to the registrar to declare a practice irregular or undesirable. The hon. the Minister will be aware of another measure which is to come before this House shortly, the Trade Practices Bill, which is also aimed at declaring certain trade practices undesirable. In that case there is a safeguard in the sense that a practice may only be declared undesirable if the hon. the Minister has received a recommendation from a committee which is composed partly of persons who will be affected by the measure declaring the practice undesirable. In this case the power to declare a banking practice undesirable is given to one man, the registrar, who in effect can make laws, and those banks who do not comply with the laws can be punished. I think this is too much power to place in the hands of one person. Therefore in the Committee Stage this is one aspect of the Bill in respect of which we shall be moving an amendment. We believe that this power to the registrar should be circumscribed. In the first place we believe that it should not be exercised by the registrar, but by the hon. the Minister himself and then it should only be exercised after the hon. the Minister has consulted with the registrar and with the Governor of the Reserve Bank. Any practice subsequently determined undesirable should be subject to scrutiny by Parliament within a certain period or, if Parliament is not in session, at its next session. This is an amendment we shall move in the Committee Stage and I hope the hon. the Minister will give it very serious consideration. Apart from those comments, we support this Bill at its Second Reading.

Mr. Speaker, having listened to the speech of the hon. member for Constantia, I have come to the conclusion that the hon. member’s chief objections amount to two points. The one point he mentioned right at the end, namely the extensive powers being given to the registrar. The other is the question of the control envisaged in the legislation in respect of foreign banks. This, evidently, is also one of the problems which the hon. member for Constantia had.

He said that the powers of the registrar were too extensive, but I want to point out to the hon. member that the powers being given to the Registrar, are chiefly of an administrative nature. In my opinion these powers actually fall within the province of the registrar. In my opinion he is the person to have those powers and to exercise them. In my opinion adequate and sufficient provision is being made in the legislation for aspects of policy to be controlled mainly by the hon. the Minister. As far as matters which are controlled by the registrar are concerned, it is also provided that there shall be an appeal to the hon. the Minister. Therefore I cannot think that the hon. member really has a fundamental objection here.

In the course of my speech I shall deal with the manner in which foreign relations is to be conducted, the principles which are involved, etc. I shall not deal with the amendments to the Insurance Act. There are other hon. members on this side of the House who will deal with that. This legislation undeniably envisages a disciplined and restrained financial structure for South Africa over a wide field. It is clear, with reference to all the financial legislation involved in this Bill, that the Bill seeks to discipline our whole financial structure. What is actually being envisaged is the stability and integrity of a whole structure which is primarily intent on protecting the public interest. It is the object and endeavour of our authorities to ensure the stability and integrity of our financial institutions, and consequently it was a shock to me to read a report in the latest edition of the Financial Mail. The Financial Mail published photographs of the hon. the Minister of Finance, the hon. the Minister of Economic Affairs and the Governor of the Reserve Bank under the main heading “Credibility at Stake”. The article contained the following—

In the light of what is envisaged here and of what is being done by the authorities, I cannot but call a report of this kind scandalous. I think a report of this kind is simply “the most malicious declaration I have read for a long time”. We can only reject it with disgust, especially in the times in which we are living today, times in which it is our task to place the finances and the financial legislation of South Africa on a proper and ordered foundation.

Today South Africa has the most sophisticated monetary authority in Africa, indeed, one of the most sophisticated in the world. It demands adequate, effective and disciplined financial services, which we know are envisaged in this legislation. Naturally, because of its history, South Africa is indeed very much indebted to financial institutions, at home and abroad, which have served it over the years. I think that we can say that the general position and concepts of our financial institutions are of a high order. I think that these institutions have indeed succeeded in the past in making a great contribution towards raising South Africa’s economy from an agrarian economy to the sophisticated economy it comprises today. The present monetary and financial set-up is indeed a closely-meshed international interaction which often respects no borders and sometimes bends the policies of countries to adapt to it.

In the past wars have been won and lost as a result of financial implications. In view of this it is essential that we should be able to utilize a financial system which meets the demands and requirements. For this reason the Franszen Commission said, after the inquiry which they held in this connection:“Na gelang die lewenstandaarde van ’n volk styg, neig die vraag na ’n geleentheid vir die lewering van finansiële dienste.” Banking, insurance, building societies—in fact, all financial institutions—play a great and responsible role in the scope of our financial existence. In 1969 the capital controlled by the banking industry was as much as R15 000 million. South Africa occupies a peculiar, and singular position as far as its banking industry is concerned—peculiar in this sense that it has, since the beginning of this century, as producer and seller of minerals, gold, etc., been very closely geared to the financial institutions of the world. These days South Africa also occupies an important position internally in the development of this financial position, also in respect of the demands imposed in this connection. We think, for example, of the banks which have recently been established for non-Whites. We think of the Good Hope Bank, which is controlled by the Coloureds, and of the African Bank, which is controlled by the Bantu. I think that it is also our task to make our demands in such a way that these institutions will also be safeguarded from outside exploitation. Therefore it is important to note that, when one analyses one’s banking industry, as the Franzsen Commission did, one finds that at the end of June 1970, as the hon. the Minister also said in the Second Reading, foreign controlled commercial banks held 73,2% of all South African commercial bank deposits. If one bears in mind that this colossal amount of money which has been paid into our banking industry by means of deposits is controlled by foreign institutions, I believe it is time we had a significant share in it, not because we have no confidence in those organizations, not because we want to speak about those organizations in any way disparagingly, but because we believe that, in the words of the Franzsen Commission, because a bank’s deposits are primarily provided by the local inhabitants, they should also have a significant share in the bank. With regard to the hon. member for Constantia’s reservations as to whether we should have legislation to control this position, I want to refer him to a report made by the Chairman of the Barclays Bank group, Sir Frederic Seebohm in which he said—

This is not only the standpoint of this gentleman, the former chairman of the Barclays Bank group, one of the largest controlled banks in the world; it is indeed also the standpoint of other countries in this respect. It is, for example, the standpoint of Australia, namely that the presence of foreign control makes the Australian banking industry less sensitive to official policy measures. One thinks of the fact that one has to take these measures and create relationships in an orderly manner and arrange them so that we can also comply with our requirements here and fit in, let me say this, with the policies of South Africa, for surely it is self-evident that the foreign controlled bank will naturally be more interested in the profit-making aspect of matters than in the policies and needs of South Africa.

Apart from that, this state of affairs causes capital to flow out of this country in a very easy and convenient manner, and under the present circumstances this is something which is very difficult to control. If one also bears in mind that in the times in which we are living, we are already proposing measures in terms of which we shall intensify our exchange control and shall try to regulate our credit restrictions in such a way that they fit, so as to solve in this way the problems at present confronting us, then it appears to be absolutely essential for this to be done in this way. As far as control is concerned, this legislation puts the safeguarding of the public first as the primary requisite. Our banks compare well with those of the rest of the world. For example, one thinks of the fact that the American banks recently had problems and that some of them were even in debt. This does not happen in South Africa. The control here is good. Nevertheless I think that we need what is being proposed here.

This legislation creates the idea of a bank controlling company, as well as a financial company, and places limitations on foreign control. It comprises the effective distribution of share capital, investments and loans among subsidiaries, the prevention of grey market activities, provision for diversification, as well as limits in respect of property transactions. I want to express a few thoughts in regard to these matters. I want to refer first to the grey market. Grey market activities were indeed more serious in South Africa than in other parts of the world. This presented us with problems especially in view of the circumstances. It presented us with problems in connection with the control measures which we had to apply, because the position could get out of hand unless the necessary arrangements are made. It also meant that Reserve Bank measures were being evaded because there was no adequate control. Large-scale speculation then took place with money which had been borrowed from the public. The position was unfortunately such that the banks, even respectable banks, were obliged to participate in this as a result of the competition which was at stake and also in order to satisfy their clients. This created a very unfair position, especially for those banks who were intent on doing business in an orderly and disciplined manner, because they were placed on an unequal basis. This undesirable position is now being curbed by means of the registration of the controlling company, as is proposed by clause 37 as well as by means of the control measures which exist in respect of financial companies. The provision in clause 37 that the registrar may declare a certain practice to be irregular and contrary to banking practice, is in my opinion another good measure aimed at restricting these grey market activities to a large extent. The selling of assets with a repurchase agreement, which has been declared to be an undesirable practice, and the direct borrowing and lending of funds between business undertakings, usually entrenched by a bank guarantee, is normally the type of activity which is sometimes carried out completely in good faith, but sometimes they are also activities which could develop into malpractices. This makes a complete farce of the control measures in respect of credit restriction and the control of interest rates. I think that the measure which is being proposed in this respect, is entirely fair. The person or body concerned, will in any event still be able to work with his own money or with loans which he may obtain. It is therefore no infringement of the practice of the ordinary company which borrows money or issues debentures, provided that it does not use the debentures or money which it obtains in this manner, for further loans.

I think that the measures in respect of diversification are important. I am in favour of banks being allowed an ample measure of diversification, because I believe it assists industry. I am in favour of the one-stop idea. I am therefore in favour of the policy of diversification. I am also in favour of banks being able to expand their interests so that they may also have interests in immovable property, provided that the banks apply their own resources and free reserves for this purpose. Therefore the bank should not apply its paid-up capital or other capital to this end, because this would tend towards malpractices and create a risky position for the public.

Investments in business undertakings can be good investments, but we are here dealing with the idea of over-patronization which is sometimes the issue. That is why the necessary provision is being made in clause 47. I therefore think that it is advisable that limits be placed on diversification so that the activities of banks may be restricted in some respects, because it is true that banks today sometimes move in areas which actually fall outside the domain of banking and are nevertheless termed diversification.

There are also the other provisions which were clearly set out by the hon. the Minister in his Second Reading speech. I want to repeat that I think that all these measures are aimed at bringing about a very sound and orderly dispensation for our banking industry. I am of the opinion that this can only have good results. I believe that the distribution of shareholding in order to rectify the position of domestic and foreign relationships, will be beneficial in bringing about what we are envisaging here. Indeed, if the position is considered, there appears to be very little opposition in South Africa or abroad by people who understand and are willing to invest their capital in South Africa. It seems as if they accept it 100% that this should be the position in South Africa, because a completely different position holds for a country like the United Kingdom. I do not think that there is even a Bank Act in the United Kingdom. Therefore completely different conditions prevail there. Our position in South Africa is of such a nature that legislation such as this is necessary. I believe that if it is implemented, it will entrench and strengthen our position here and will in future serve to prove that South Africa’s financial system is one of the best in the world.

Mr. Speaker, one point which the hon. member made which I should like to underline is that there is little doubt that the financial structure of South Africa is one which is held in esteem in many parts of the world. We as legislators can be proud of the reputation which our financial structure enjoys.

This Bill is perhaps an example of how a Bill should be dealt with. It offers an example of the extent to which there can be consultation with all the interested parties and the extent to which an opportunity can be given for representations to be made. A comparison between the Bill in its draft form and the Bill in its present form leaves little doubt that the consultations and representations in connection with this Bill have resulted in substantial changes in the legislation. I think that many of us know for a fact that some of the provisions which are embodied in the Bill now before us came about as a result of representations that have been made by us on the draft Bill. If there is one department which I think is a particularly good example of consultation and of taking note of what the opinions of other people are, then it is the office of the registrar. I am not only referring to the Registrar of Banks. If I may use the broad term, I have in mind the Registrar of Financial Institutions, a term which covers the whole ambit of what we are dealing with in the legislation. Right at the outset of my address this afternoon I should like to pay a tribute to the office of the registrar and to his staff not only for the work which they have done in regard to this piece of legislation, but also because of their attitude in consulting and in taking into account the different conflicting interests. Make no mistake, this legislation is in fact concerned with many conflicting interests. There are people with very different ideas in this sector and there are different interest groups. It was necessary to reconcile all these. I believe that tribute is due to that office and due in particular to the registrar himself. The hon. the Minister has heard me before on the subject of raising the status of this office, and I want to say again that I believe that the status of this office should be raised. I am pleased to note that the hon. the Minister is nodding his head.

Now, what is the purpose of this piece of legislation? I think it can be said to be threefold. The first aim is to protect the economy and to enable protective measures to be taken, depending on the economic conditions which prevail in our country. The second is that the public are to be protected so that their savings and their investments are not affected by unscrupulous operators and people who abuse the law. One of the things which I found interesting this afternoon, having listened to the chief financial spokesman of the official Opposition and having listened to the hon. member for Ermelo, is that far too much attention is being given, with respect, to the interests of the capitalistic institutions as opposed to the interests of the consumer and the user of these institutions. I believe that we must not overlook the fact that in this particular instance the interests of the consumer and the interests of the public are the ones which should perhaps receive the most consideration. Then there is a third thing which should not be ignored and it is one which often gives us cause for concern. That is that financial institutions are being used as a means of providing finance to an ever-increasing extent for the machinery of government. There is the compulsory investment in Government securities, and I want to say immediately, in respect of pension funds, that when in fact the Government forces pension funds to invest in Government securities, there is an obligation on the Government to ensure that the people who place their savings into this—because pensions are savings—are in fact protected in so far as the value of their pensions is concerned when they receive them. There is no one, with respect, who is more deserving of consideration in this regard than the man who contributes towards his own pension, who does not become a burden on the State, who in fact contributes towards the revenues of the State by paying into a pension fund so that that money can be used in order to buy Government securities. There is no one more deserving of consideration than that individual and there is no one who is more ignored by the Government when it comes to the impact of inflation. It is in fact that man who is hit most severely and it is that man who is in the most perilous plight in this inflationary age in which we are living. If I may, Sir, I want to make a plea for that particular individual in our community who contributes towards the pension funds and who is being ignored when it comes to any form of assistance or relief in regard to inflation.

I should like to deal with a number of other aspects relating to pension funds, to which I believe the hon. the Minister should pay attention. Firstly, most of the pension funds provide that if you leave a fund after a period of time and before retirement age, you are not entitled as of right to get anything more than your own contributions plus normally a very low rate of interest. I want to say to the hon. the Minister today that I believe that he should introduce legislation in terms of which every pension fund should be obliged, when a man has worked for a particular firm for a minimum period of time—let us call it 10 years—to pay to him not only his contributions plus interest at a far more realistic rate, but his employer’s contribution as well. It seems to me utterly unfair that when a man has worked for a considerable period of time, all he is then left with if he leaves, due to a variety of circumstances, are his own contributions together with, in many cases, interest at a rate of only 3% or 4%. I believe that this is a matter which needs to be dealt with by legislation. I also believe that the transferability of pension rights is something which should be dealt with by legislation so that when you change your job you will not at a later stage in your life, find yourself in the position of again having to start anew in a pension fund.

Another point I should like to deal with in relation to pension funds is that I believe that it should be necessary for the contributors to a pension fund to play a greater part in its management. I believe that this too should be entrenched in legislation.

Now let me deal with a couple of the matters relating specifically to pension funds. One of the matters I would specifically like to raise is the issue of the protection of pension benefits. We have the situation that in terms of this legislation pension benefits are immune when one is sequestrated. They are immune from attachment, but should there not be a limit on this? Should it be possible, for example, that in the case of a top-hat type of pension, which in fact is a very substantial form of saving, those pensions in their entirety should be immune from attachment by creditors? One can in fact contribute a very substantial sum of money towards such a pension, and there is no limit to the protection which is given in terms of the legislation. This is a matter which should be looked into because creditors also have certain rights, and while pensions have to be protected, they should not be a means of ensuring that at all times when you do not pay your debts you can be extremely well off. There is a matter which seems to have been overlooked, mainly because this legislation did not exist at the time, and that is that even though you cannot attach pensions in terms of the Bill now before us, in terms of the draft legislation relating to the magistrates’ courts, which is also before us, a man can be committed for contempt if a magistrate considers that a portion of his pension should be used in order to pay his debts. I think that is something which needs to be covered in this legislation. I also think that we need to look at the question of the right to nominate dependants. I think we need to protect the widows and the wives so that they cannot be excluded from the benefits either by a decision of the pension fund management or by a decision of the individual himself who decides to exclude his family for some whim or fancy which he has at that particular moment.

Sir, if I may now turn to the question of insurance. I think insurance is also a field in which the savings of the public are used. The impact of inflation on insurance is being felt at this particular time, and again we have the obligation to invest compulsorily in Government stock. This too is a matter where there should be a warning from the consumer’s point of view. I wonder whether the hon. the Minister has looked at some of the recent advertising, where although the impression is created that certain types of insurance offer a real protection against inflation, an examination of this type of advertising demonstrates that this is not so. I believe that we should not allow advertising and selling techniques which persuade people to invest in insurance which does not in fact deliver the goods which are promised. Here again, as I say, we need to look at the interest of the consumer and not merely at the interest of the institution. One of the matters which I think we overlook is that the insurance industry in South Africa has in past years gone through some very difficult times. I remember very clearly, and I am quite sure there are other people in this House who also remember, the days when we had a series of bankruptcies of insurance companies. There are names which are very familiar and which need not be mentioned today, of a whole series of insurance companies which went bankrupt due to a variety of circumstances. I think it is to the credit of the present registrar that he has had a period of office which can be said to have been a very good one from the point of view of that type of activity. What has happened now is that we now have legislation which in fact seeks to protect the consumer against some of the problems which can arise in the insurance industry. One of these is in respect of claims. In this particular piece of legislation we now have the situation where the registrar is in fact involved in regard to the provision which is made for claims. In other words, you can no longer have the situation where an insurance company can underprovide for claims and eventually find itself in the situation where it cannot meet its claims. There are very many ways of abusing this and one is pleased that this loophole is being closed under the present circumstances. There is also a provision here relating to the determination of the value of assets, which is also a measure of consumer protection, if I may use that term.

I come now to the minimum capital that has to be involved and I want to ask the hon. the Minister whether in fact he is satisfied that a figure of R200 000 is adequate in today’s circumstances. It is true that there is an adjustment in respect of premiums, where a percentage of premiums must be taken into account, but I believe that in the modern inflationary age in which we are living, a figure of R200 000 is in fact far too low. The issue, though it may perhaps be a minor one, is that in this piece of legislation we have a provision in terms of which NCDs are now to be excluded. To me this once again seems to be a method of ensuring that more money goes into Government coffers. Although it may, from time to time, be needed because of peculiar circumstances, I wonder whether it should be included in legislation as a provision to remain there indefinitely, and whether it should not perhaps be a discretionary rather than a mandatory provision.

In regard to the right to invest in securities outside the Republic with the approval of the authorities, I would like to ask what the hon. the Minister actually has in mind. Does he have in mind that we should, for political reasons, allow investment in the securities of some countries, or does he have in mind that we should allow this for investment reasons? I think we need an answer to this, because quite obviously, there may be political reasons why we should allow it. At the same time, however, we should not allow such political reasons to jeopardize the investment merit of any particular security that can be bought.

When it comes to the question of the domestication of foreign insurers, there can be very little quarrel with this particular provision in the Bill. To my mind the provision has been adequately negotiated. There have been consultations and there should really be no difficulty in this regard.

I would now like to turn to a subject which has not been debated as yet. I am referring to the question of participation bonds. In this regard I have one great difficulty. There is a directive from the registrar’s office that a participation bond may not be guaranteed by an insurance company. I would have imagined that any such investment by any member of the public, particularly where participation bonds are very largely invested in by the window and orphan type of investor, should be made as secure as possible. To my mind there seems to be no reason why a participation bond should not be guaranteed by an insurance company. I wonder whether the hon. the Minister will deal with this matter in his reply and perhaps give an explanation so that we can test it.

The other matter I have difficulty with is the question of the transferability of participation bonds. I believe that one should be allowed to cede a participation bond; they should become negotiable. The concept of having a restriction of five years is, to my mind, an illogical one. I know the idea is to protect building societies, but I think the building societies can have other means of protection rather than to restrict the negotiability of participation bonds in these schemes. I also think that the five-year period is too long and that it should be reduced to three years. I also believe that the right to recover a participation after the fixed period has expired should vest in the individual irrespective of the views of the manager or the other participants. I also believe that the borrower of the money should be aware of the fact that he may have to repay individual participants.

I would now like to turn to the banks. The Banks Act contains a number of differing principles. In the first place I would like to discuss the question of the ownership of shares. There seems to be a view that there is some kind of magic in small shareholders owning a bank and that if a large institution holds the control over a bank or holds large shareholdings in a bank, this in itself leads to abuse. I would like to suggest that there is every possibility of abuse whether the shareholders are spread or not. The answer lies in a restriction on the activities of banks in respect of associated companies, people with whom they are connected in one way or another. I do not believe that the answer lies in eliminating the large institutions.

Another matter that needs to be considered is that a bank may find itself in times such as these, or even worse times, in need of further cash. It may need money by way of rights issues, it may need cash and support of all kinds and, with a multiplicity of small shareholders, that support is not forthcoming. It may well be necessary that a bank needs the support of large institutions. The fact that has to be borne in mind is that if, in fact, there is a wide spread of shares, what you are really doing is to give the executives of the bank even greater power than they would have otherwise, because they then virtually exercise control over the bank. The dangers of abuse on the part of the executives that exist are just as big as are the dangers when you have an institution owning a share. The argument that a bank is almost a public institution because only some 6% of the money comes from the shareholders, does not hold water. One can look at many other businesses which are highly geared and which have all their cash generated from the public. This does not mean that, in these circumstances, a multiplicity of small shareholders is needed.

I do not want to deal with the details of the legislation now. There are many problems, for example, in regard to the definition of “associates”. I will come to this in a moment if I have the time. There is also the question of the registration of shares. Perhaps these matters could be better dealt with in the Committee Stage.

If I may, I would now like to say a word to two about the question of the control of banks by foreign institutions. There is little doubt that when it comes to the influence which can be exercised on monetary policies by banks, this is something which the State obviously has to take into account. If the major banks in the country are under the control of people who are not citizens of the State, one must concede that there is a danger that there might in certain circumstances be an adverse influence on the monetary policies of the country. One can, therefore, see merit in the argument that any State that wishes to have complete control over its own monetary policy, needs to look at the situation in so far as foreign control of banks is concerned. There are, of course, other factors such as the question of seeking to encourage foreign investment. There is also the further question of reciprocity. In many countries of the world a South African will only be allowed to register a bank if the nationals of that country are allowed to register a bank in South Africa. One of the matters I believe to be in South Africa’s interest is that our banking should expand overseas and that we should be represented to a larger extent overseas. In fact, we should be owning banks overseas, because we are going to need this kind of connection in order to provide money for ourselves in the years that lie ahead. I would like to say here and now that I welcome the indication given by the hon. the Minister in his speech that he is to be given a discretion in respect of foreign participation in banks in South Africa, because I believe that one must not exclude foreign investment in that particular field in the appropriate circumstances.

I would now like to deal with a subject which is not dealt with in this legislation at all, but which, to my mind, should be dealt with. I am referring to the question of credit cards. I find it remarkable that in the present circumstances where credit cards are becoming an instrument of credit in South Africa to an ever-increasing extent, the only control that can be exercised is when the credit cards are issued by a bank, in particular when one can use the provisions relating to undesirable practices. However, there is nothing in the South African law to stop any small company with a capital of R100 starting a credit card scheme. I believe that the time has come where there has to be some legislative action to regulate the issue of credit cards, particularly where it does not fall within the sphere of banks at the present moment. I believe there should be procedures for the registration of companies which are in the credit card business. I am referring to the credit card in its widest definition. These companies should have a minimum capital and there should be control in respect of the practices indulged in by these operators of credit cards. Credit cards can be an instrument of credit which can be harmful and which can, in appropriate circumstances, cause people to fall into debt. In other circumstances it can encourage credit at a time when this should not be done. I believe that a credit card can be a useful instrument, and I am not against credit cards, but I believe that they should be controlled.

Order! I hope the hon. member is not going too far with that point, because it is not in the Bill.

No, Sir; I have just finished with the point. I want to mention one further aspect, namely that I believe that we need to look at what the future of merchant banks in South Africa is. I want to mention briefly, bearing in mind that it is also not in the Bill, that I believe there is a case today for an investment bank in the banking structure of South Africa in the American sense and I wonder whether the merchant banks should not be directed into the investment bank field in the future.

We then come to the question of the grey market. Many people can wax lyrical about the dangers of the grey market, but I think that any examination of the figures will demonstrate that the grey is not such a menace to the banking community nor to monetary policy, as is often painted. It is also not correct to say that these operators in the grey market constitute a major competition for the banks, because despite the fact that they have operated in the grey market for years and years, looking at the banking profit, it does not appear to me as if the banks have been adversely affected by that, even though it has to be conceded that in the case of companies operating in the grey market, there being no provision for liquid assets, etc., they do have an advantage. It is also true that, in respect monetary policy, a degree of control is perhaps desirable in respect of the grey market operation. What is, as I see it, the most important part is the question of the safeguarding of the investor. We have had the example of Sidarel and various other companies which have gone into liquidation and have caused many investors to lose money in this particular field. What I do not understand, is why we should not allow debentures to be issued if it is stipulated that they shall be true debentures in the sense that they should, firstly, be secured, and secondly, that they should not be short term but should be for a three-year period at least. If any person wants to invest in a company and is given a prospectus, as he would have to be given if he were to take up a debenture, then he takes it at his own risk and cannot complain that he has not been protected. In my view, I think that these provisions should certainly be amended in order to allow for the issue of debentures, even if the proceeds are to be used for leasing, factoring or matters of that sort. I do not believe that leasing and factoring should be restricted to banks. I think there is every reason why there should be other companies and other entities which should be allowed to indulge in this kind of activity.

I should like to deal with the provisions which relate to liquid assets. I want to say here and now that in my view the flexible liquid asset provisions are the correct provisions to use when it comes to dealing with monetary policy particularly in times such as we are in now. I have grave difficulty, however, in understanding why, when the power to use the liquid assets is available, the hon. the Minister will then still seek to use the power of imposing lending limits in order to create more complications and distortion in the banking system. We have had lending restrictions for many years and we believed that with the change in the provisions of the Banks Act, there would be flexibility in regard to liquid assets and that it would not again be used. Yet, we not only find that it is being used again at the present moment, but that there is also no direction as to where the lending should go. What worries many of us, is that when one imposes lending restrictions of this kind, it only means that the big and rich institutions again receive all the borrowings and that the small man and the small business at the bottom, who should be given the assistance, are the ones whose overdrafts are called up. To my mind, this is a wrong approach. The approach should be to use the liquid assets which are now available and which can be used because of their flexible nature, and not to impose lending restrictions of this kind, when one has another tool available to deal with this. I think one must say that the present imposition of lending restrictions is not something of which the hon. the Minister should be proud; either in regard to its imposition or in regard to the manner in which it was imposed on the banking community. There was, as far as we are aware, inadequate consultation and inadequate notice, and it had to be backpedalled upon because of the difficulties that arose from this impetuous imposition of something which is undesirable in the banking system.

There are many other matters one can touch upon in this piece of legislation. For example, there is the question of undesirable practices which the hon. member for Constantia touched upon. It is true, as the hon. member for Ermelo said, that there is an appeal to the hon. the Minister, but I would like to suggest that what is really required in respect of this type of administrative action, is that there should be an appeal to the courts in the end to decide what is, from an objective point of view, an undesirable practice. It should not merely be an administrative decision. One of the problems that one has with this legislation is that there are so many discretions which are now given to the authorities. There is the discretion in respect of undesirable practices, the discretion in respect of the grey market operations, and so the discretions carry on without anything beyond that, except an appeal to the hon. the Minister. It seems here as if the courts are no longer recognized. It is part of a pattern in which remedies from the courts are not adequately available. [Time expired.]

Mr. Speaker, the fact that we are here dealing with extremely sophisticated and very involved legislation could not be better illustrated than by what has occurred here this afternoon around the hon. member for Yeoville. In a masterly fashion he has succeeded by his talking in sending not only his bench mate, but his colleague behind him as well, into a deep slumber. I do not take it amiss of them, because undoubtedly we are here dealing with a piece of legislation which is highly sophisticated and involved. At the same time I want to associate myself with the tribute paid by the hon. member for Yeoville to the Registrar of Financial Institutions for this piece of legislation. I want to join him in congratulating the Registrar on the extremely able way in which he has dealt with this legislation. At the same time I also want to thank the hon. the Minister under whose guidance this work was carried out by the Registrar and his officials. In the course of my speech I shall come back to a few statements made by the hon. member for Yeoville and also to some made by the hon. member for Constantia.

What I find very striking in the legislation before us is the fact that our entire capitalist system, our system of private enterprise, is under fire. Whenever the prerequisite for a successful capitalist system is allowed to be lacking in some way, in other words when there is not absolutely free competition, and when practices which restrict free competition are permitted, then we are heading for very serious trouble, because our whole system of free enterprise is based on a very high degree of free competition. Now it is true that one does not want to introduce legislation to deal with everything, but only when it is extremely necessary to prevent the principles on which our whole system is based, being jeopardized.

The hon. member for Constantia referred to remuneration which was being limited, remuneration which was paid to assurance brokers. He spoke as if this constituted interference in private enterprise by the Minister. That is my interpretation of what he said. But the whole essence of the legislation is specifically that it does not interfere with private enterprises, except where private enterprises overstep the mark to such an extent that free competition is restricted. That is precisely what is happening here. If assurance brokers take up to 30% commission in comparison with approximately 12% in most foreign countries, then we can only conclude that there must be some form of restriction of free competition here. It is very clear to me that this is such a restriction of free competition. When the public has the ability or the opportunity to be informed as to the commission taken by these agents, then it is their own fault if they allow themselves to be caught. However the public is not informed in that regard and does not know what commission rates are negotiated between the broker and the assurance company. And it is because the people who, through their actions, have to ensure that there is free competition, viz. the public, do not know what the rates are, that one gets exploitation of this kind. When I refer to “exploitation”, I do not want to maintain that all assurance brokers are exploiters, because this is most definitely not the case. Because the public does not know what commissions are negotiated between the broker and the assurance company, the public cannot exercise the supervisory function. It is when such things occur that it is the duty of the State to step in and ensure that exploitation does not take place. That is precisely what this legislation does. This legislation only applies in so far as the danger exists that the free operation of our market mechanism is endangered. If this is not done then our entire system of free enterprise, the whole capitalist system, becomes suspect. Today there are so many attacks on this system in the world that we cannot afford this system to become suspect. That is why I want to welcome the fact that this legislation provides that the hon. the Minister, through his Registrar of Financial Institutions, will supervise dealings of this nature between persons in insurance, in order to ensure that exploitation does not take place.

I want to welcome the fact that two years ago, and last year too, this legislation stood over until this year, because legislation of this kind is so involved and so sophisticated that one can never be over-hasty with it. With this legislation, as handled by the Registrar of Financial Institutions, the Minister has achieved such a high degree of perfection that 99% of the bodies affected by the legislation are highly satisfied. A few days ago I received a call from a high official of the Life Offices’ Association. He expressed his concern that this legislation had not yet been discussed in Parliament this year and he wanted to know whether the legislation was still to be discussed this year because they were very eager that it be placed on the Statute Book. To me this constitutes yet further proof that the people who are so intimately involved with this legislation are extremely satisfied with it in its present form, after two years have elapsed. Of course, it is not true that all legislation which satisfies everyone is good legislation. There will always be those who are not satisfied with it. However in this instance we have such a high degree of consensus and satisfaction that we can only believe that this development, after two years, is highly satisfactory.

The hon. member for Yeoville, who in my opinion made a very meritorious speech about this legislation before us, simply could not resist the temptation to stray from the point at times. Therefore it is not at all surprising that you, Mr. Speaker, had to call him to order at one stage. For example the hon. member said here that we should re-examine advertisements and sales methods in the promotion of sales. If the hon. member for Yeoville looks further down the Order Paper, he will see that he can discuss this matter under Order of Day No. 7, too, viz. under the Trade Practices Bill.

You must look at the legislation.

The hon. member is now shaking his head and states that I should look at the legislation. When it comes to unjustified trade practices like advertisements, one must go to the Trade Practices Bill.

Provision has already been made for this in the Assurance Act. This is a different matter.

In other words, you want to maintain that the sphere of assurance does not fall under the Trade Practices Bill?

There are specific provisions relating to assurance in the Assurance Act. You must look at them.

As far as the Banks Act is concerned, it is true that over the past few years we have had a few very unfortunate occurrences on the grey market, occurrences which have resulted in the public sustaining losses amounting to millions of rands. Now it is quite natural when there is something of this sort that there is a great danger of us over-reacting to protect the public. It is a pity that one should have to introduce legislation to protect members of the public against their own stupidity. These people who have been caught by those institutions were caught because they wanted very high interest rates. They wanted to earn high interest rates, and that is why they threw their better judgment to the winds, were caught, and sustained losses as a result of their own greediness. I repeat that is a pity that one should have to introduce legislation to protect people against their own stupidity. But I suppose it is the task of the State to protect people against their own stupidity too. That is why clauses such as clause 7 of the Bill under discussion are necessary. However there is a danger that we could over-react, that we could go too far in the process of protecting people against their own stupidities and the resultant consequences. I am very pleased, therefore, to see that a short subsection of a clause has been deleted. It formed part of the Bill last year, but this year it has been deleted. I am referring to clause 37(d), the proposed subsection (2A)(b)(i) of which provides that in the case of deposits at certain institutions, the employees of those institutions should also be regarded as ordinary members of the public. Consequently they too are protected by this Bill.

As it was before us last year, the Bill also included shareholders of the companies concerned among members of the general public from whom such deposits could not be taken. I am very pleased to see that this has been removed from the Bill we have before us at present, because after all, a shareholder is surely in a position of having access to the books of the company of which he is a shareholder and consequently he can keep an eye on the activities of the company. That is why I welcome the fact that “shareholders” has been deleted from the proposed subsection (2A)(b)(i).

Having said all this, I want to pay tribute once again to the Registrar for this really outstanding piece of work we have before us here this afternoon and I also want to congratulate the hon. the Minister on it. I take pleasure in supporting it.

Mr. Speaker, the hon. member for Paarl has dealt with various matters concerning this Bill which is now before the House, and I am sure he listened with interest to the speech by the hon. member for Constantia, who clearly indicated our attitude with regard to particularly the amendments concerning the Banks Act and the Insurance Act.

I wish to deal with certain aspects of the amendments concerning the Pension Funds Act of 1956. If one considers the amendments which are contained in the Bill, one will soon realize that there are certain improvements that are to be given to in terms of the proposed legislation. Perhaps, during the Committee Stage, one might have greater opportunity of eliciting further information concerning the various clauses that are amending the Pension Funds Act of 1956. However, at this stage of the debate, it is appropriate that one should review certain functions of the principal Act and the part that has been played by this Act, as well as the fact that our pension funds are playing an increasingly important role in the economic life of South Africa today. We know that first and foremost, it is providing a degree of social security for those people who are members of the various pension funds, and secondly, that the role of the pension funds themselves as the financial intermediaries in the capital market and the contributions which they make towards the economic growth and development of South Africa, is indeed a considerable one.

If one looks at the figures in regard to the growth of the pension fund movement in South Africa, one will see that the number of funds has increased considerably over the years and that the membership of these funds has also increased, to the extent that we now have nearly 9 000 funds falling within the scope of this Act with a membership of some 2,5 million. If one takes into account membership in the private and public sectors, there are over 3 million members.

Therefore, when there is legislation which affects the pension benefits and the rights of these members, any alterations in those pension rights must be given very careful consideration. We had had an opportunity in the past of reading various reports concerning the Pension Funds Act of 1956, and indeed, there was a committee of inquiry into pension funds’ matters some years ago, which submitted a report to the Government in 1966 stipulating various aspects of the administration of the Pension Funds Act which they believed should receive attention. Some of these provisions have, of course, received attention from the Government, and indeed the legislation which is before us today, does give a degree of clarity concerning certain aspects, such as the definition of “dependants” in clause 21 of the Bill and clarity in regard to the retirement date as far as members are concerned. These are vitally important matters affecting the pension rights of members in terms of the Pension Funds Act.

Consequently, Sir, it is a little disappointing that further steps are not being taken by the hon. the Minister at this stage to implement other recommendations contained in the report of the said committee of inquiry. Here I am referring particularly to the fact that, when one looks at the question of the benefits that are paid, one will see from available figures that some R172 million was paid out as annuities by the private pension funds during 1974. In the same year R76 million was paid out as gratuities and death benefits, and some R82 million as lump-sum payments due to resignation or dismissal of members. Consequently, this is a tremendous drain on the position of these pension funds when they have to pay out amounts such as R82 million in lump-sum payments.

Incidentally, this also considerably affects the position of the whole purpose and the principle underlying the Pension Funds Act in terms of which members make provision for the time when they will no longer be gainfully employed, which will be when they have reached the retirement age, whether it be in terms of this definition of “retirement date”, in terms of which a member either becomes entitled in terms of the rules of the fund to receive his annuity, or to receive a lump-sum payment on account of age, ill-health or retrenchment of staff. Therefore I believe it is important that the hon. the Minister should give further consideration to the aspects concerning the preservation of pension rights. It was recommended by the committee of inquiry that a central pension bureau should be established, which would create a situation where these pension rights would be preserved for the benefit of the members of the various pension funds. Indeed, in some instances—if one looks at the position in the United States, for example—certain funds allow the rights for deferred pensions where employees leave before their retirement date. I believe that some attention on behalf of the hon. the Minister and his capable staff should be given to this whole aspect of seeing that these people’s pension benefits and their pension entitlements are indeed protected in some way and are not lost to the member concerned, particularly, as they are often in a situation where they might change their position of employment and their place of employment which means that they would have no transferability of such funds. In such an event those pension rights should be preserved.

As the hon. member for Yeoville has indicated, the question of transferability is a difficult one. It is not an easy matter. As we know, there is a vast difference and divergence of opinion amongst the pension funds themselves and the Association of Pension Funds and Provident Funds in regard to transferability. We know that there are practical difficulties involved in this regard. I believe it would be better if the hon. the Minister could give greater attention to the preservation of the pension benefits rather than to the question of the transferability, although transferability would of course be extremely desirable if it was a practical proposition. Unfortunately, until such time as there is a certain degree of standardization as far as the rules of the various pension funds are concerned, transferability would appear to be impracticable.

There are also other aspects concerning the pension funds and the investment of these funds, provided for in this Bill. We know that one of the greatest problems of the pension funds is to find hedges against inflation. We know that the inflation rate is round the 10% to 12% mark and that it is virtually impossible for these pension funds to meet the situation, even those that make provision for an escalation element as far as their benefits are concerned. Many of them are only able to give an escalation of some 3% per annum, and those are the ones where the members are fortunate enough to enjoy the benefits of such escalation. We know, however, that many of these registered pension funds have out-dated rules, and indeed it is very difficult for them to meet inflation by the provision of escalation clauses in their rules. The hedge against inflation is an extremely important aspect when one considers the compulsory investments in gilt-edged securities and Government stock. Indeed there is a slight amendment in regard to the provisions that are now before us. Loans or guaranteed loans are now also permitted as part of the 50% constituting the investment of the total aggregate of assets. This does place the pension funds in a difficult position, however, when it comes to meeting inflation. In recent years we have also seen a move into property and equity investments by the pension funds in an endeavour to counteract inflation. However, there are restrictions in regard to the basis of investment. The hon. the Minister of Finance, of course, looks to the pension funds on a number of occasions to provide him and the domestic sector with the needed capital by way of their investments, and they do make a considerable contribution, from premium investments and assets, to the raising of capital for the private and public sectors.

The position of these funds is another matter to which the hon. the Minister must surely give his serious consideration. He must give consideration to the difficulties these funds have in trying to meet the needs and requirements of their members. That is why we have to ensure that the legislation affecting the Pension Funds Act is continually under review so as to assist these people wherever possible. The hon. the Minister has, of course, spoken at the conference of the Association of Pension and Provident Funds of South Africa, and I have had the opportunity of reading the speech he delivered at the opening of the 25th annual conference of that association. There he gave an indication of his sympathy, to a certain extent, with the pension funds’ means of investment. He encouraged them to continue with the investments and to be pleased that they are able to make a contribution, by virtue of their investments, to the public and the private sectors. However, this situation is one requiring careful consideration and it is hoped that the hon. the Minister, in the time that lies ahead, will give further consideration to this particular aspect.

In clause 24 of the Bill before us, provision is made whereby the pension benefits are not attachable. Provision is made for the protection of these pension benefits so that they are not transferable or executable. There are also further provisions concerning the effect of insolvency on pension benefits and then also concerning how pension benefits are to be dealt with on the death of a member. I particularly want to draw the hon. the Minister’s attention to the proposed new section 37C—inserted by clause 24—which deals with the question of the payment of a death benefit to a member or the dependant of a member. There is a proviso in that proposed section which states the following—

I would like the hon. the Minister to consider extending the period from six months to nine months in order to give the dependants a greater opportunity to make a claim should they be entitled to one. There are many instances of dependants being scattered throughout the country when they move to other parts. Unfortunately sometimes there is a long period involved in trying to trace a dependant who would be entitled to the benefits in terms of the rules of the particular pension fund of the deceased member. In some cases the dependants may be minor children and then the process of tracing them involves a far longer period of time. I think it would only be right to give these people a longer period in which to claim the benefits to which they might be entitled in terms of the membership of a deceased member of a fund.

There is another matter I should like to raise briefly with the hon. the Minister. This concerns the amendment to the Friendly Societies Act in clause 27 of this Bill. Here provision is made for the question of insurance of the life of a child who is under the age of 14 years. In the past various ages and various amounts were applicable, but now certain amendments are being brought about to alter the amounts from pound sterling to rand. Now R100 is applicable if the child is under six years of age and R200 if the child is six years of age or older, but under 14 years of age. This provision is the same kind of provision as that contained in the principal Act. However, with the passage of several years, one would have thought the amount would have been increased to a greater extent than the R100 and R200 applicable here. Perhaps the hon. the Minister could give the reason why these amounts could not be further increased so as to allow for the tremendous decrease in the value of money that has taken place over the years. It is hoped that the hon. the Minister will give further consideration to this particular aspect.

In conclusion I should like to say that we on this side of the House believe it is of paramount importance to encourage the pension funds to provide the necessary security to employees and the dependants of those employees. It is indeed vital, in Western society, to ensure that a person does make some provision for the time when he is unable to be gainfully employed and to make provision for his dependants. The private pension fund provides an ideal method of compulsory saving for many of the people living in South Africa and it is indeed gratifying to see that many of these pension funds have amended their rules, where necessary, to allow members of all racial groups to participate in the pension fund movement in South Africa. That is why we on this side of the House believe that these are important provisions. Perhaps the hon. the Minister will, in a future session, be able to come forward with further legislation to improve the position as far as the pension fund movement in South Africa is concerned.

Mr. Speaker, this Bill which is before the House this afternoon is an extremely technical one. I think that the clearest evidence of its technical content is the fact that although a number of members are present, the interest level seems to me to be rather low. Because it is such a technical Bill, it is extremely difficult for those of us here who must take part in the debate, to cover a wide field. Consequently we confine ourselves to minor details only. I should like to mention two aspects in connection with the Assurance Act, aspects raised by the hon. member for Constantia. It has been repeatedly emphasized this afternoon that free economic activity is of cardinal importance in our national economy, but when economic activities occur in the national economy the extent of which is so great that influences from outside can have a harmful influence on the economic activities of one’s own household, it is essential for a body like this Parliament not to neglect its duty by not implementing certain control measures. However, one should never take it that such control measures are to be aimed at having a harmful influence on the free economy. The measures should rather be seen as control measures aimed at effecting order in the economic activities of the economy. There are a number of important principles contained in the Bill before us today. The first is that through this legislation the hon. the Minister and the department want to ensure that the insurance industry in South Africa is carried out at an orderly level and to the benefit of the national economy. That is the first principle I want to state. Arising out of this is the second principle that the policy-holders in South Africa who are involved in this are assured of the necessary security in regard to their policies. The third point is that policyholders, particularly as regards their short-term policies, should be able to get the best cover at the lowest price. This was the point made by the hon. member for Constantia and I shall come back to it in a moment. The other principle which is very much to the fore here, is that in these times of inflation to which our economy is subject, the assurance enterprises can maintain a convenient basis of solvency. This is the other major principle which comes to the fore in this amendment.

The final point of principle is that the amendment Bill at present before the House affords the assurance enterprises a better opportunity to distribute their investments in State securities, if I may put it like that, at a higher valuation of assets over a wider field. This is being effected by amending the third schedule and certain clauses of this Bill. To give the assurance enterprises the assurance that they can make more convenient insolvency calculations, this legislation provides for the separation of insolvency calculations and calculations in regard to assets. Let me put it differently: The separation is essential because if the same laws are applied to the insolvency legislation as to the investment in State securities, a position could arise where there could be far less investment in State securities in the period that lies ahead.

This brings me to the objection raised by the hon. member for Constantia in regard to the “domestication” of the foreign insurance enterprises. The decision to control foreign insurers locally has been beautifully set out in this Bill. Because it has been set out so neatly and clearly, one could almost label this Bill as “a child’s guide for insurance agencies”. The hon. member for Constantia raised the objection that the policy holders in South Africa did not enjoy the necessary protection in regard to the policies they took out here. I want to refute his allegation. In my opinion this Bill makes very good provision for this. The proposed new section 3quat—clause 2 of the Bill— provides that the proportion which domestic assets bear towards domestic business should not be less than the proportion which foreign assets bear to foreign business. In other words, it provides that the policy-holder in South Africa will enjoy the same protection as the policy-holder of the same mother company outside South Africa. We also note that any creditors of the foreign business have no claim to the assets of domestic insurance. In other words, these policy-holders and creditors have the fullest assurance that what they are entitled to is very well protected under this legislation here in South Africa. It is of importance, too, that whereas the principal Act provided that when reinsurance was effected, the reinsurer had to have money available in regard to this reinsurance, this Bill now provides that the reinsurer must have the money available with the insurer in the Republic to cover those reinsurance policies. This is a further assurance which the policy-holders have that their interests are protected here.

The hon. member for Constantia also referred to the brokers, the insurance agents. The hon. member for Paarl has already dealt with that matter, but I should just like to add a few points. At the moment the brokers in South Africa control about 80% of all short-term insurance. The hon. member quite rightly said that those people should discipline themselves. This is a matter of self-discipline. If enterprises in a free economy—they have that privilege here in South Africa—are unable to discipline themselves, the machinery must be created to exercise control and lay down certain restrictions. It has been said that the restrictive powers which this Bill gives the Minister and the Registrar, should not be used injudiciously. The hon. member probably did not listen to the hon. the Minister’s speech, because the hon. the Minister stated very clearly that the machinery was being created and would only be implemented where necessary. In other words, the hon. the Minister has already given the assurance that these powers will not be implemented injudiciously, but only where necessary. Now it is true that these brokers no longer deal in policies in the insurance industry; they deal in commissions. They play the various insurers off against each other in order to be able to promote the insurance business with which they are able to earn the most commission. That is where the problem lies. Reference has already been made here to the fact that commission of up to 40% is taken whereas abroad the figure is only 12%. Such activities take place in the field of long-term insurance, too. In the case of annuity policies it can happen in South Africa that a commission of up to 80% of the first year’s premium is paid. When this kind of unfair—if I may call it that—remuneration is received for services rendered, it is important that the necessary measures be adopted and that the hon. the Minister should have the necessary machinery to place certain restrictions on that as well.

I want to conclude by just remarking that one sees that a certain discretion is left to the Registrar and the Minister in regard to percentages in the calculation of insolvencies and assets, percentages which may result in very high amounts. One notes that in certain clauses increased amounts are being inserted. With regard to assurance of children, for example, the amounts concerned are increased by a few hundred rands to R1 000. It is just that one wonders why these specific amounts are being inserted. I want to ask whether the Minister would not perhaps consider leaving these amounts to the discretion of the Registrar and the Minister and not laying them down as fixed amounts in legislation, as is being done here.

Mr. Speaker, the hon. member for Wonderboom referred to three points which I will come back to in the course of my speech. The first was the threat of external intervention which might injure our economy on occasion through the fact of foreign control. It cannot be denied that such a threat exists, though I doubt whether the circumstances where it might happen have arisen frequently in the past or will arise frequently in future. Anyway, I should like to come back to this question of the foreign ownership of South African equities in the banks a little later on.

This is a Bill which covers a very wide purview of financial matters. It covers the Banks Act, insurance companies, pension funds, the Stock Exchange, unit trusts, friendly societies, participation bonds and building societies. The hon. member for Yeoville has already referred to a number of these matters and, as he has pointed out, some of them will be dealt with in the Committee Stage. This relates particularly to some of the minor points in relation to the changes proposed to the Banks Act. What I would like to come to is really to look at two of the main principles or objectives which underlie this Bill. As I have said, there are of course many other points of specific importance, but the first principle which I think runs through this Bill is that it is wrong or against the national interest that those who own or control banks should be foreigners, in other words that foreigners should own more than 50%, i.e. a majority of the shares in the banks which operate in our country, and as a reverse side of the coin or a corollary to that, that South African individuals or corporations, i.e. people resident in South Africa, should not own or control too big a slice of the companies which operate in these spheres. There is also the question of the conversion of insurance companies from what are termed “foreign insurers” to “domestic insurers”.

Now, what basically this Bill does in regard to shareholdings in banks is to set limits to the shareholdings which may be held in this particular sphere. This is a somewhat emotive subject in the sense that it is natural and understandable, in one sense and, indeed, in more than one sense, that the shareholdings in the South African banks should have a large element of South African ownership. In the light of what has been said by the Minister’s predecessor in 1966, we would like to come back to the hon. the Minister to seek certain reassurances in regard to what the underlying objectives of his policy are. We would also like to query some of the reasoning, particularly in relation to shareholdings in this particular sector by South Africans, because what in effect one is saying when one says that not more than 10% interest in this particular sphere may be owned, is that the concentration of power, in the sense of economic power through a shareholding, is something which is undesirable in the financial sector. In a real sense, therefore, this legislation in these particular areas is aimed, as I have said, at the prevention of a concentration of economic power in the banking sector either by foreigners, or indeed for that matter, by South Africans. As a consequential objective it is also aimed at what the Australians call “buying back the farm”, in the sense that in the instances where foreigners own over 50% of the shares in a bank which operates in South Africa, they are going to have to divest themselves of this over a time so that they will only retain 50%. Indeed, the Franzsen Commission said in para. 730—

Now the reason why I stress the word “first” is that when you use the word “first” you can either take it that that action should precede certain other actions which are contemplated by this Bill and which do not necessarily apply to banks, or it can be taken as a first step in actions which should be taken in relation to the banks and therefore that further steps are contemplated. Therefore I think it is important in this context to quote from the Franzsen Commission, para. 846, when the then Minister of Finance in September 1966 said the following—

He was talking primarily about insurance business, but I do not think there is any particular distinction of principle between those and banks. He said further—

This legislation is in effect the taking of the third step mentioned by the predecessor of this hon. Minister. What we should like to know from the hon. the Minister, when he replies to the debate, is whether that is the end of it in the sense that we stop after the third step has been taken or whether he still contemplates that foreigners who own shares in these sectors are going to have to climb higher on the rungs of his predecessor’s ladder and ultimately to the top. To do that, would to our mind be highly undesirable and detrimental to the national interest. I therefore hope that when the hon. the Minister replies he will tell us how far up this ladder—to use the simile of his predecessor—it is still the policy of the Government to go. South Africa gleans many advantages from investment from overseas in its economy and that is just as true, if not truer, of overseas investments in our banking sector, because banking, and particularly international banking, is such a very closely-knit business that the importance of connections in regard to shareholdings cannot be overrated.

It is therefore extremely important that we should be clear as to the rationale behind this legislation, because if it goes as far as suggested by Dr. Dönges, and if that is to be applied generally to overseas investment in equities, subject only to the level of our foreign exchange reserves, then it ignores the realities of our present economic situation, our present financial situation and the demands of our circumstances, and would be disastrous and strike our ability to attract capital from overseas a mortal blow. Capital from overseas we have always needed, and we will continue to need it for the foreseeable future. But it goes further than that. Equity and loan investment from overseas is of fundamental importance to us and we have to compete against others to attract it to our country. The name of the game is no longer simply to lend money for a fixed rate of interest—inflation and what is an acceptable level of debt in the eyes of your creditors has seen to that. I hope that when the hon. the Minister replies to the question as to how far up the ladder he is going to go, he will also remember the experience of the Australians under their Labour Government when it allowed an obsession with Australian ownership to run to the point where foreign investment simply dried up, with the result that the economic development of that country was seriously impaired.

The hon. the Minister’s immediate predecessor in office gave the reasons in the statement which he issued regarding the principles of policy concerning the banking and insurance sector on which the Cabinet decided in connection with the recommendations put forward by the Commission of Inquiry into Fiscal and Monetary Policy in South Africa, namely the Franzsen Commission. He said—

The hon. the Minister will know the reasons which were given by the commission in paragraph 813 as well as we on these benches do. Among the specific reasons why the control of a bank by a non-banking institution, or even the acquisition of too large a shareholding in a bank by a group with other interests, seems to be undesirable, are those I am going to mention now. Firstly, they make the point which has already been mentioned by the hon. member for Yeoville, and that is that in effect the shareholders in the bank have the advantage of extremely high gearing and that they have to put up a comparatively small amount of money in relation to the funds over which they have management control. Secondly, they said that incorporating banks into the conglomerate structures of non-banking companies disturbs the competitive relationship amongst banks mutually and also amongst business enterprises in accordance with the access they and their clients have to the financing resources of an associated bank. They went further and said that the bank’s credit facilities could really be used for what could be translated as conditional selling to solicit business strictly outside of the banking sector. The last point, which was also made by the hon. member for Constantia, is the question of the relationship between banks and the Reserve Bank when it comes to monetary policy and the question of the exchange control position. I do not think that the question of gearing as such really stands up to much scrutiny. I also do not think that the risk of the misuse of a position of control of a bank is something which is in any sense related to whether one has a minimum of 10 shareholders in the sense that there is 10% per shareholder, or whether there is a very large number of shareholders. The risk is always there and it can be dealt with in various other ways. It does not always necessarily involve the restrictions which are being placed on shareholdings.

The other question that has been brought up is that it is in the public interest that there should be at least a 50%, if not more, South African ownership of banks on the grounds that the banks are really custodians of the savings of the public. We have a great deal more sympathy for this reason than for the other two. It is only common sense and, indeed, prudence which in the last quarter of this century, should dictate either to foreigners investing in South Africa, or to South African corporations or individuals investing overseas, to make available a large portion of the equity—50% is indeed a magical figure—to local citizens as and when the viability of the particular enterprise is proved and established and it is possible to do so under reasonably favourable conditions. That has been the experience of South African business and investment overseas, and it will no doubt increasingly become the experience of foreign business in investment in South Africa namely that it is in their own self-interest to follow such a course. The hon. member for Ermelo quoted Sir Frederic Seebohm, the chairman of Barclays DCO Bank at the time, who stated that in the light of the importance of the funds held by banks in the national economy, they should themselves be locally owned. He actually added four further words which the hon. member omitted to mention, namely “at least in part”.

It is therefore a question of balance, and we can support the hon. the Minister when he takes the third step as it is now outlined. The Government has stated that it will bear in mind—and I hope the hon. the Minister will repeat this—the need for flexibility in regard to timing and market conditions on the Stock Exchange and elsewhere. We cannot, however, go along with the further step, pushed to its ultimate conclusion, as stated by Dr. Dönges, or more recently by the hon. the Minister’s predecessor, when he said:

Our objections to this are really quite simple. Firstly, this is an insular policy and is ultimately likely to breed a counter-reaction to the detriment of all; that is, people overseas will react by taking similar action if provoked. Secondly, we are worried that it may well spill over into other spheres outside of the banking and insurance sectors. It is for instance proposed to apply this to South African shareholdings in the discount houses, a point I would like to return to later. Thirdly, it seems to us to be aimed at preventing a concentration of economic power in a small number of hands. However, if 50% or more is already held by South Africans, where is the justification or necessity for pushing down a foreign shareholding to 10%? Are the Government and the hon. the Minister perhaps telling us that they have no confidence in the South African representation in those circumstances where they will own 50% of the shares, if not more, to see, through their directorship or representation on the board, that the bank will not act against the public or the national interest? Let us be clear about this. These restrictions come on top of all the other restrictions which are presently in force and under which banks have to operate, restrictions laid down by the Reserve Bank, in addition to the exchange control with which banks have to comply.

When one comes to the other side of the coin in this legislation, which deals with shareholdings of South Africans in South African banks, either by individuals or corporations, it is proposed that no person and his associates will be allowed to hold more than 10% of the shares in a bank, except a financial company and associates which may hold up to 30% and, likewise, a bank holding company. I have already mentioned the reasoning behind this to some extent. There is the risk that persons might take advantage of the situation to use their control of the funds of the bank concerned to further other business interests within their group or to the benefit of their associates on terms, as is implied here, which are not at arm’s length. But let us also be clear about this. Unless the hon. the Minister can clear this up for us when he replies, the figure of 10% seems to us to be an arbitrary one. Can the hon. the Minister tell us why 10% was chosen as opposed to 15% or 5% or, for that matter, 25%? The thrust of the proposal can hardly be that to have a minimum of ten shareholders—and in practice it will be a great deal more—is going to improve competition, because the realities or the facts in so far as the banking industry in South Africa is concerned—and here I regret to differ with the hon. member for Constantia—are that it is already a highly competitive industry and has been for some time. One only has to walk through any one of the cities or towns in South Africa to see how competitive the banking industry is. As the hon. member for Yeoville pointed out, if the number of shareholders in a bank are increased, it would possibly in certain circumstances be a disadvantage to that particular bank. This certainly seems to be so when one draws a comparison with other banks which have a significant or substantial shareholder. We are thinking particularly of the necessity to have rights issues in particularly difficult economic circumstances. It is then the very small shareholders who are nearly always in the greatest trouble to follow their rights.

Another interesting point that has been touched upon by the hon. member for Yeoville is that if the principle is to say that it would be ideal to have as many shareholders in a South African bank as possible, to the extent that no one person owns ½% of the equity, one will then be faced with the problem which is already being faced in North America, namely that the ownership of the bank which goes with the shareholding becomes so separate from the management of the bank that it can create very real problems. There are certainly occasions when the objectives of the management and the objectives of a shareholder do not always necessarily coincide. If one studies the recent records in this respect in America, one sees that this has created a very great problem and a very great deal of discontent in the sense that the management has built itself into an autonomous self-perpetuating position. That has of course not been the case to anything like the same extent in South Africa. If the objective is not to increase competition, because the competition is already there and the number of shareholders makes no difference in effect to the competition, and the other potential difficulties can be dealt with in a different way, then it appears to us that the motivation is to deal with the concentration of economic power in the banking sector. If that is the motivation, we should approach it with care because South Africa is not in the fortunate position where it can ignore foreign investment.

Indeed, as the hon. the Minister will be aware, we are one of the comparatively few countries in the world where both our exports and our imports run in excess of 30% of the gross national product. These figures are based on 1974. All this shows that South Africa is very dependent on international trade. It means that South Africa is competing against foreign businesses both outside South Africa and, more particularly, inside South Africa. Therefore, when one comes to talk in terms of size, which is what one is talking about when one talks about restrictions on shareholding, thereby increasing the number of shareholders at the same time, in circumstances where South African businesses and South African corporations are meeting fierce competition from very large companies overseas, then it is important to think of it in terms of that context, because the size of companies must be taken into account in connection with this competition against other competitors from overseas. The other special distinguishing factor of South Africa’s economy, although it is not the only one, is its dependence on the importation of capital to which we have already referred. I hope the hon. the Minister will bear in mind—if he thinks now of the rungs of the ladder of his predecessor—that the country which has had the greatest economic miracle in the last 30 to 50 years, I think he will agree has been Japan. We find that they deliberately took the opposite course. They concentrated power and encouraged rather than discouraged the creation of very large companies and very large diversified groups. All we are saying is that if one looks at this ladder of the Minister’s predecessor, I hope the hon. the Minister will approach both these points with care.

The final aspect which I would like to turn to in the time available to me, concerns the discount houses. I find it extremely difficult to follow the objective of the Government, in the sense that what they are inferring in the explanatory memorandum, and indeed this was confirmed by a statement by the hon. the Minister’s predecessor, is that when they say that no person other than a bank controlling company may together with associates hold more than 10% of the shares of a discount house, their approach is that a discount house should rather not be controlled by anyone so that it can act freely on the money market. The hon. the Minister will be aware as well as I am that one of the discount houses in South Africa already meets with that requirement as it has no shareholding which approaches 10%. We therefore want to know the reason behind this statement, because if the hon. the Minister tries to tell us that that particular discount house has proved to be more competitive than the others, I hope that he will give us some proof to justify such a statement. I would like to know how you are going to improve competition in the discount market of South Africa simply by increasing the number of shareholders. Mr. Speaker, you will remember that discount houses deal with moneys which they get from the banks and as such they have to be extraordinarily competitive with one another. One is left the uneasy suspicion, and I hope the hon. the Minister will enlighten us on this, that there is some other reason for his problem with the discount houses which may originate in the fact that they have performed their role so successfully as an independent market mechanism, that the authorities, or some part of the authorities, wish to curb their independence. I hope therefore that the hon. the Minister will reply to this.

Mr. Speaker, the hon. member for Johannesburg North dealt with the question of foreign ownership. I do not intend to discuss this subject because I am sure the hon. the Minister will give him a thorough reply on it. I should like to make a few remarks on two aspects of the Bill. While South Africa already has a very sophisticated banking system, it is nevertheless necessary to effect improvements in it from time to time that will make it serve its purpose even better and make it more streamlined for the role which it has to play in the South African economy. I am interested in two aspects in particular, i.e. the grey market and the building societies. I want to begin with the latter.

Clause 56 of the legislation provides that it is no longer a requirement for every branch of a building society to have an auditor. Although this is only a minor amendment, and although other organizations have already been exempted from this requirement, I want to bring it to the attention of this hon. House that this is also one of the good things that can come of a properly applied automation programme within the building society movement, for with modern equipment it is possible to transfer the entire bookkeeping system of a branch to its head office. Therefore it is no longer necessary for the detailed work to be done in the branch office. This results in a tremendous saving of costs, which is also reflected in this legislation and which will eventually be to the advantage of the consumer, whether in the form of better services from the building society or in the form of a smaller interest rate adjustment when this becomes necessary.

Secondly: A very important matter, and one to which I believe insufficient attention was given in this House today, is the question of the grey market, and a particular aspect of the grey market. But I shall deal with this later. First I want to consider the broader aspects of the grey market for a moment, and although I have great respect for the hon. member for Yeoville’s knowledge of banking, theoretical as well as practical, I want to differ with him because the information I have at my disposal indicates that the grey market does nevertheless have an extremely important impact on the official banking sector. It is the same as happens when one’s system has become run down and myriads of germs begin the attack and one comes down with a terrible attack of flu. The germs wait until one is weak. The same applies to the grey market. In times of tight liquidity, as we now have, in times, of high interest rates and keen competition, when the economy is going through a particular time of crisis, these people strike by cutting out the normal banking sector, by handling direct deposits between investors and borrowers, and then disappearing from the scene themselves. In the end an investor is left with a document which has no real security value to him. He has no hold at all upon the agent, the intermediary, who talked him into the transaction. Then, as has happened a few times in the past few years, these people lose large sums of money. These intermediaries, although many people say that they perform a useful function in certain respects, are to my mind, in most respects, extremely parasitically orientated because they fall upon the economy when it is sick, and because a large-scale misleading of investors, if I may call it that, takes place. These investors suddenly want to earn very high rates of interest and do not realize the risks which are attached to high rates of interest. Because the bank is not involved in this matter, there are not people who are properly qualified in the financial field readily available to the investor to discourage him from making risky investments, because the particular company in which he is now investing via the go-between may not even have a favourable balance sheet or sound financial relations.

The specialized financial advice which is an integral part of our banking today, is not at the disposal of the person who deals with the grey market. Because such attractive rates of interest are offered, many of our people are ignorant enough to accept the offers. Since he has no knowledge of the person to whom he has lent his money in the final instance and often does not understand the process which he has let himself in for, and does not have any knowledge of general financial system, it is often beyond his ability to see, from time to time, whether the said company is indeed still using his money as it should. Therefore I believe that this legislation meets a particular need. That is why the legislation is welcomed by a very large part, in fact by the most responsible circles, of our banking sector. The officials who drew up this legislation so well deserve a great deal of praise because those who participate in this matter speak of the legislation with great praise. For the information of this House, I want to refer briefly to two things which these intermediaries can do. Besides the fact, that they can bring an investor and a lender into direct contact and then disappear from the scene, they often sign a lease of their own accord, in their own name and then cede this contract to an unsuspecting investor. If they eventually become bankrupt, the investor is in a desperate position. There are even some of our banking institutions that have erred. According to the law they were completely within their rights, but judging by sound financial practices they acted erroneously by accepting promissory notes from their subsidiaries and then selling that paper to the public. It looks like a perfectly normal sale of an asset, but it is in fact unsound financial practice.

These intermediaries, who to a large extent are a parasites upon our system, often have balance sheets which look very good because their costs are extremely low. They have no specialized financial staff, they just have good salesmen. They do not have the certain investments in the State securities, etc. which normally provide a lower return and which means that they would really have had to make the most of their other funds like normal banks do, to reach any kind of a profitable position. Their average earnings from the capital which they employ are therefore much higher without the restricting measures imposed from without. Their balance sheets look marvellous because they take their profit immediately and then disappear from the scene. Many people look at the balance sheet of such an organization and because they are very impressed by it, they become involved in something which will cause them to find themselves in a terrible dilemma in the end due to their lack of knowledge and greediness, prompted by the possibility that they may receive more in that way than through normal channels. This also means that a large part of the capital stream in the economy is misdirected, as a result of such practices, away from the responsible bankers who have acquired their skills over a period of years and who specialize in good management, the maximalization of profit margins, within the limits in which they have to operate, and who do their best to accumulate capital on a long-term basis in order to provide a better and more certain service to those people who make use of their facilities. Investors therefore know that when they work with large institutions, their money will at least be safe because responsible legislation like this insures that those institutions are under proper control. The grey market therefore brings about an imbalance in the money market.

What is of further importance is that one cannot always determine these neat sidesteps of the grey market operators in advance and make provision for them accurately in legislation and in time. It is impossible to do so and therefore it is a feature of this Bill that wide powers are being conferred upon both the Minister and the Registrar, and that the President of the Reserve Bank is also being involved. It is far easier and more effective for them to recognize malpractices and to prohibit them—they are warned by their sound business sense—than to try to describe those malpractices correctly in advance so that convictions may subsequently be obtained. Therefore I believe that we are on the right track and for this reason this legislation also enjoys the necessary support. One can only hope that this legislation will be a sufficient deterrent sufficiently to deter the perpetrators of malpractices and that it will also result in those people who are only interested in their own monetary interests and do not care a jot for their investors, leaving the scene in time. Indeed there are already rumblings in the grey market from people who want to leave for other countries where they will be able to continue their practices, because they are going to be restricted to too great an extent here.

There is another aspect of the grey market to which I should like to draw the attention of this House. This facet is not so important in terms of the great flow of capital, but it is very important with respect to the smaller market, that part of the market which directly affects the consumer. This links up with what the hon. member for Yeoville said, who was concerned about the plight of the consumer. What I am going to tell you now is the truth. It is a practice which is being applied and which many people know about but which—like the case we have been dealing with—is also very difficult to prevent by means of legislation.

However, before I tell you what I am referring to, Sir, I should like to make an urgent appeal to the Minister to inquire into the possibility of also using this legislation to restrict the specific practice to which I am now going to refer, especiallly in the respect in which financial persons or bodies are involved. The whole matter concerns the so-called individual finance broker.

These brokers are in general the greatest parasites imaginable in any financial system. Some of them do indeed provide a certain service, but they are so few that one may just as well discount them. Amongst these people we normally find someone with an acquaintance or a friend who deals with investments. Usually they are building society investments which have to be made in terms of law. The operator in question usually approaches a prospective investor, tells him that he can make his investments according to the instructions of his board or of his directors, and then tells him:“Just give me the opportunity to put my stamp on your investment form. You will receive an investment certificate from the society concerned and your money will be absolutely safe.”

In spite of all the moral persuasion which has already been done by the office of the Registrar, the intermediate agent brings the investment certificate together with the cheque to the building society or other financial institution and maintains that the money concerned is earmarked for his clients. After that he comes to light with a request for bonds. After all, we all know who applies for bonds. Normally it is someone who does not quite have sufficient money to provide the prescribed cash amount to make a purchase. It may also be a person who perhaps needs a second bond, someone who perhaps wants to build a factory or something like that but who does not have the necessary cash or has been turned down elsewhere. The applicant for a bond now does so through this intermediate agent who in his turn says to the applicant:“I know of a person who will grant you a bond, but you must pay me 5% of the amount as commission. ”

Mr. Speaker, the agent receives that money in cash and immediately pockets it. In this way it frequently happens that 2% or 2½% or 3% or even only ½% of the amount of the bond, in cold cash, reaches the pocket of the secretary of the pension fund or other body or person concerned. This practice amounts to nothing less than corruption. Unfortunately one can do nothing at all about it unless an agent like this is caught red-handed. The only other remedy in this case will have to be some regulation or other, or something very strict. This is apparently the only manner in which such malpractices can be dealt with properly.

People who do operate on this level and who provide a proper service because the need for it exists, ought in all fairness to receive a fixed percentage of those bonds which are arranged by them. Say six people, jointly, want to build a block of flats somewhere but do not have the necessary knowledge or all the cash and are looking for someone to co-ordinate the proposed project. They can then approach a knowledgeable intermediate agent of this type and request him to organize the necessary financing, to undertake feasibility studies, to plan their cash flow and in all respects to provide them with a proper financial service. In all fairness the agent should be remunerated for these services. Remuneration can be paid to him—and I have already mentioned this—by means of a percentage of the bond which he arranged or by means of one or another properly fixed amount.

However, it does not work in this way. Most intermediate agents are mere parasites, people who want to give vent to their niggardliness, something which cannot be allowed, especially in difficult financial times and times of high costs, like those in which we are now living. However, it still remains a great temptation for some secretaries and other people who deal with money in this way, a temptation to which some inevitably give way. Unfortunately this is true. There are secretaries of some smaller pension funds—I know of one specifically, which I brought to the attention of the authorities concerned—who week after week put up to R250 in cash in their own pockets. This is of course money on which they never pay any tax. In my opinion it is scandalous that people should do things like this but unfortunately the necessary measures in terms of which practices of this type can be effectively controlled do not exist. The introduction of the necessary measures will only be possible once intermediate agents themselves have organized themselves into one specific body. Therefore I want to address the earnest request to the Minister to inquire into the possibility of eradicating this type of practice in some way or another. I am sure that the Registrar has already given this matter a great deal of thought.

Perhaps it is possible to obtain a sworn statement in regard to the granting of a bond, a document in which it is declared under oath that the applicant has not paid a commission anywhere. A sworn statement like this may possibly be obtained from both the applicant for the bond, and the body or persons from which the bond is obtained. Whether malpractices of this type will ever be completely eradicated, I do not know. However, it is cases of this type which are always providing proof that monetary transactions can only be made effectively when the integrity of the people involved can be relied on completely. However, if someone is bent on making as much as possible for himself, it is unfortunately not always possible to restrict him.

It is therefore important that our mass media should also inform the public and to try and persuade them to avoid intermediaries and make their investments and requests for bonds directly to the correct bodies or persons. It is also important for boards of directors and control boards to ensure that their officials who make statutory investments, under no circumstance put aside money for bonds— whether through a friend, or himself, or a subsidiary company—for which they will eventually receive an unlawful commission or levy fee. It is these practices which cause costs to soar. It is not difficult to form an idea of the increase of costs which will be brought about if every bond registered in this country, were to carry an extra premium of 2½% or 3% or more in this way. It is no wonder people can no longer afford houses. Everyone is trying to climb on the band waggon, and just add to the burden in that way. If they had indeed provided a service, one could still put up with them. However, as matters now stand, these people are nothing less than sheer parasites.

Mr. Speaker, I support this Bill with pleasure and I look forward to the day when these malpractices, too, will be completely eradicated.