Double-Taxation Agreements: briefing; Financial Advisory And Intermediary Services Bill: deliberation

Meeting report

FINANCE PORTFOLIO COMMITTEE
29 January 2002
DOUBLE-TAXATION AGREEMENTS: BRIEFING; FINANCIAL ADVISORY AND INTERMEDIARY SERVICES BILL: DELIBERATION

Chairperson: Ms B Hogan (ANC)

Documents handed out:
Double Taxation Agreements (please email [email protected])
Correspondence from Minister of Health to Speaker (see Appendix 1)
Correspondence of Medical Schemes Council to Portfolio Committee on Health (see Appendix 2)
Amendments proposed by the Financial Services Board (see Appendix 3)

SUMMARY
The Committee was briefed on a number of new and revised double taxation agreements. The most important was the treaty with New Zealand. The Minister is arriving in SA next week and it is due for his signature. The Committee has received correspondence from the Speaker relating to the inclusion of health brokers in FAIS and the process followed so far. Although the Committee agreed that they were procedurally correct and had consulted sufficiently, the Chairperson would consult the Parliamentary Law Advisers on whether they could amend an Act under the jurisdiction of the Health Department.

MINUTES
Double Taxation Agreements
Mr Andrew (DP) asked how many countries South Africa has double taxation agreement with.

Mr van der Merwe (South African Revenue Services) said that there are 49 treaties operational and a number are being renegotiated. They may stop at 65.

Treaty with Belarus
The treaty may not be so important economically but there has been some political pressure for ties due to previous ties with the country. The initiative for the treaty came from Belarus, who are keen to establish a presence in SA.

Article 2
Next to each reference to 'capital' the word 'property' has been inserted. In Belarus there is no concept of capital. These treaties are the first of a batch of treaties to be renegotiated to ensure that they are gender sensitive and conform with residence based taxation.

Article 4
Residence is defined; the treaty provides benefits only to a 'resident of a Contracting State'.
Art 4(3) deals with dual residence. Usually where there is dual residence, the country where the effective management is, would be the place of residence. In the treaty it states that where there is dual residence the countries will decide by mutual agreement where the place of residence is. Where there is no mutual agreement certain benefits will be denied.

Article 5
Permanent establishment is defined. There was some negotiation over the periods required for permanent residence.
In terms of Art 5(3)(a) a building site, construction, assembly or installation project is a permanent establishment and the supervisory activity must continue for twelve months. In terms of (b) and (c) the time test for consultancy services, professional services or services of an independent nature, is 120 days in a twelve month period. A new 3(c) replaces a previous practice, which was governed by Article 14. Permanent establishment has now been extended in 3(c) to bring in a specific time test, that is 120 days.

Article 11
There is a dual rate at which interest is taxed in the source state, whereas in all other countries the limit for the source state is 10%.

Article 21
Deals with the taxation of capital, which is practiced in Belarus but not in SA. This provision protects South Africans who may have capital in Belarus.

Article 23
This is the non-discrimination article. Paragraph 5 takes into account the practice of taxing branches of non-resident companies at a rate which is higher than domestic companies. In practice, however, domestic companies are taxed as soon as they declare dividends, so they often pay as much or more than these companies. However, it could be considered discrimation not to charge these branches secondary tax (STC). Para 5 therefore provides that SA could impose a tax on profits which does not exceed the rate of normal tax on companies by more than five percentage points.

Discussion
Professor Engel: Director, Tax Policy, commented that the rate of taxation on royalties in OECD countries is o%, while in the Treaty it is 5-10%. Why was this rate decided on?

Secondly, did Belarus want investment in SA?

Mr van der Merwe said that compared with the OECD provision, the United Nations model states that source states may ask for a limited rate of taxation model. In respect of the dual rate; it is because of their domestic law which provides that payment for the use of certain industrial, commercial and technical equipment is a royalty. Belarus asked for 10% while SA agreed on 5%. They agreed to 10% on normal royalties, which is a reduction on normal rates.

The request for the Treaty came from Belarus.

Mr Pheko (PAC) said his understanding was that Belarus was part of the Soviet Union and that there were no trade relations between SA and the Soviet Union.

Mr van der Merwe said that trade with Belarus was increasing because of diplomatic and political ties. Although they may have been part of the Soviet Union, the links with their government has been established and the relationship between the countries now go further.

Treaty with Bulgaria
The initiative for the treaty came from Bulgaria.

For some reason, Bulgaria has a problem with the use of the word 'enterprise', which is widely scattered in international treaties. The owrd has been replaced by 'resident of the state'. This term is only used in a treaty with Canada, which has been successfully operating for some years.

Article 5
The time limits for construction, assembly or installation project, is greater than six months.

Passive Income
Article 10, covering dividends, follows the international standard. Article 10 covers interest, the rate negotiated for the source state is 5%. In terms of Article 12, covering royalties, which includes the right to use equipment, is taxed at the negotiated rate of 5% and is 10% in all other cases.

Article 20
Covers the activities of teachers and researchers. With regard to swapping between countries, there have to be incentives. Teachers and researchers will be except in the other state provided their remuneration is paid by their home state.

Ms Hogan asked why Article 20 was specifically brought in.

Mr van der Merwe said that the request came from Bulgaria, who are very interested in exchange.

MsJoemat (ANC) asked whether this meant that all professionals were out of the agreement.

Mr van der Merwe said that this Article specifically covers teachers and resaerchers. Professionals would be taxed under the business income article or the article on income from employment, if employed by a university or such institution.

Treaty with Sultanate of Oman
Many South African companies are involved in Oman, especially in the construction industry, and are currently working on a big port project. Oman has a massive fund for investments around the world but will only consider investing where there is a double taxation agreement. This provides an incentive for this treaty.

Article 5
The period for furnishing of services, including consultancy services, has been reduced to 90 days. Independent services, in paragraph 3(c) ; the period could not be raised from 180 days. Oman was rigid in this regard, as it had been ripped off by other countries before.

Article 5 states that a permanent establishment is needed before a country may impose tax. However, paragraph 4 (a) and (b) sets out a number of activities which are not deemed to be included in 'permanent establishment'. Activities where there is no selling, only delivery, storage and display, which are regarded as auxiliary activities. At the request of Oman 'delivery' has been deleted.

Mr van der Merwe explained that Oman is moving away from a non-tax system, which it had in the past and is moving to a more standard system. They are also beginning to tax their residents in a more standard way and beginning to phase out higher taxation of non-resident companies. The harmonisation of their own tax system will result in the phasing out of these practices.

Treaty with New Zealand
The inclusions agreed to are things which are used in practice and follow the normal interpretation.

Article 2
Seeks to eliminate double taxation, but not penalties. This is the normal practice.

Article 7
New Zealand brought in an agreement on taxes paid on trusts and specifies that a country has a right to tax the income from trusts. If a trust is carrying on business in the country and it is a permanent establishment, it can tax the income.

Article 8
Governs the income on ships and flights. New Zealand and Australia have a practice, that if you have picked up goods and passengers at one point in your country and offloaded them at another point in your country and the country has a right to tax that income. This cuts both ways and SA can do the same.

Mr Pheko asked when the other treaties were being signed, as the treaty with New Zealand was being signed the following week.

Mr van der Merwe said that there were no fixed dates for the other treaties, and was dependent on visits from Ministers, but he hoped it would be as soon as possible.

Mr Pheko asked why, with regard to the operation of ships, SA does not abide with the principles of international law? Why subject itself to domestic law?

Mr van der Merwe said that it was true that SA does not normally follow the interpretation asked for by New Zealand and Australia. There are only about five other countries which follow this practice. As members of the OECD Australia and New Zealand have stated reservations on this position in official OECD commentary. If they go back on this position they would be flooded by countries wanting the same concession as SA. In any case, SA could use this right with respect to their carriers.

Treaty with Rwanda
This is a very important treaty, in terms of falling in line with other Departments who are trying to uplift Rwanda because of the position of Rwanda. Due to the position of Rwanda and the limited tax base, they agreed to exceptions but within the boundaries of the agreement with SADC members (although Rwanda is not a SADC member).

Passive Income
In terms of the rights given to the source state, these are higher than normal, but Rwanda has a limited tax base and their tax authority has limited resources for collecting tax.

One of the changes in this treaty is the model for exchange of information. Usually information had a limited use; only in respect of tax being covered by the treaty. Now the tax authorities want to be able to use the information for all taxes imposed by the State. SA has been trying to do this in the region for some time. This is the first time it was used in international format in this treaty.

Treaty with United Kingdom and Northern Ireland
SA has had a treaty with the UK for many years, it was signed in 1968. It has been renegotiated because it is more than 30 years old and the language used is outdates and created certain interpretation problems for both countries. The decision was therefore taken to modernise the treaty.

Article 5
In terms of paragraph 3(a) the UK agreed to bring supervisory activities into the test. If it is done by consultants, as long as they are part of the project, they can be taxed, even if they are not a permanent establishment.

Article 14
Covers the secondment of employees. Normally an employee will continue to contribute to a pension fund in the UK when seconded to SA but would not be given a deduction if it is not to an approved fund. The employee would therefore be disadvantaged. The Treaty therefore provides that contributions will be a deduction against income as if the fund were an approved fund.

Mr Andrew (Tax Policy) asked Mr van der Merwe to explain how, if a UK resident owns shares in a company which owns property in SA, and they were to sell their shares in the UK company, this seems to provide an opportunity for taxation. But how would SA know about this change of ownership?

Mr van der Merwe said that this was brought to the attention of the capital gains tax team by the tax profession. He said that in most cases the immovable property would be part of an income venture and the business would then have to be registered. If it was a holiday property he was unsure how this would be enforced.

Professor Turok (ANC) questioned SARS on capacity. Have there been many complaints arising from the treaties? How do they affect companies? Is there a separate department dealing with treaty commitments?

Mr van der Merwe said that in the past the number of queries were usually limited. Often there was a lack of understanding of branch offices and, understandably, people never used them. Now the problems with double taxation arise almost every day. They are trying to increase the capacity in their branch offices, who have the expertise to deal with queries. They also need to train a compliance team, which is not a new practice. Overall, queries are increasing.

He explained that there is a small section at SARS which deals with queries, negotiation and debate over interpretation. However, it does not take away the right to go to a court of law. His section is comprised of three staff members and their workload is increasing.

Prof Turok asked how much money comes out of the treaties.

Mr van der Merwe said that no cash comes out of it, as the treaties do not impose tax, this flows out of domestic law. The treaties rather gives benefits.

Mr Martin Groote asked whether the fact that negotiations resulted in the provision for broader exchange of information in Article 25 was raised by the UK?

Mr van der Merwe said that the UK were unfortunately still bound by domestic legislation and this made it impossible for the UK to follow the new international procedure. However, they are pushing for full disclosure and sharing of information amongst OECD members.

Financial Advisory and Intermediary Services Bill
The Committee has received correspondence relating to the FAIS Bill from the Speaker's Office, relating specifically to the coverage of health brokers.
The Speaker has requested Ms Hogan to table the Minister's letter in the Committee and consider whether to confer with the Portfolio Committee on Health and then to keep her advised of developments. The Minister of Health addressed a letter to the Speaker, which refers to various matters around the inclusion of health brokers and repeal of certain sections of the Medical Schemes Act. The Medical Schemes Council has also written a letter to the Portfolio Committee of Health expressing their views but the Chairperson, Dr Nkomo, never forwarded this letter to the Ms Hogan.

Ms Hogan asked members for guidance on whether they wanted to confer. Did they need to request further information?

Mr Andrew (DP) said there seemed to be two issues. Which is the correct body to make a recommendation to the Portfolio Committee? He said it would be extraordinary if such legislation, introduced by the Minister of Finance, could not appropriately be decided on by the Portfolio Committee on Finance. Secondly, the Medical Council have made extensive recommendations and given oral evidence at the hearings and their perspective has been taken into account. On 10 October a letter was written to Dr Nkomo in which they expressed their concerns but this was not sent to Ms Hogan. Although Dr Nkomo should have approached Ms Hogan he has not done so, therefore he cannot be very seized of this matter. Why should they therefore do anything, if the Committee was confident that the Bill would not have undesirable consequences for health and medical industry, although they know there is no agreement?

Ms Joemat (ANC) asked whether the letters had been written prior to changes being made. With the new amendments did the Medical Schemes Council still feel there was an infringement of the Medical Schemes Act?

Ms Hogan explained that the letter refers to amendments proposed during the hearings. At these hearings the Banking Council, Medical Schemes Council and Insurers made submissions on different aspects of FAIS which affected them. They reached agreement with the Banking Council and are still working on the PPR issues, with respect to insurers. Yet the Minister refers to a 'unilateral attempt to amend the provisions of the Medical Schemes Act'. This is one issues, relating to the repeal of certain sections of the Medical Schemes Act.

Parliament is not subject to 'the consent of the Health Ministry', they are merely bound to listen. The Committee received thick submissions on the implications of FAIS for health policy and this has been vigorously debated. This has not been a unilateral attempt but part of a systematic process.

The only outstanding issue was therefore the Committee amending a Bill falling under the Health Ministry. This is a sensitive matter and they needed to apply their minds to the issue, Did they wish to interact with the Portfolio Committee on Health. There was also no Chair of that Committee at present.

Mr Wessels said he agreed with Mr Andrew, that the Committee needed to resolve this matter as a legislative organ. They might wish to consult further as the Medical Schemes Act fell within the health sector.

Ms Hogan asked the FSB whether the current proceedings was procedural. There was much discussion on the impact of the Bill on the Medical Schemes Council and the implication of repealing those sections.

Mr Wessels said that there was consultation and an extensive procedural process was followed.

Prof Turok asked what Cabinet's role was and whether they knew of the proposed amendments.

Mr Wessels said that when Cabinet saw the Bill health brokers were excluded from FAIS. Yet they are fully aware of what's happening.

Ms Hogan thought that the contentious issue was whether to repeal sections of the Medical Schemes Act, which was not in the original Bill tabled in Parliament. When the Bill was revised, the repeal of the clauses was proposed. What powers does the Committee have to repeal clauses of Acts outside its jurisdiction? She needed to get guidance from the Parliamentary Law Advisers.

Mr Andrew said that as a Member of the Committee since 1994, he saw the Medical Schemes Act being introduced. When they considered covering consultancy the Committee was not consulted, although this falls under the responsibility of Finance. While two wrongs do not make a right, in terms of good governance, it makes sense that they are applying their minds to this issue.

Ms Hogan said she would have thought that if the Ministry of Health had a deep interest they would have used the intervening three months to sort out the issue. She felt that they have met procedural requirements. But she still wished to consult with Parliamentary Advisers. They needed to move ahead with this matter.

Ms Hogan summarised the developments regarding health brokers. In the Bill approved by Cabinet a health service benefit is defined as a financial product and the Bill covers people who market financial products. Clause 45(1)(a) (b) exempts medical administrators and health brokers, to the extent that the Medical Schemes Act provides for the market conduct of these persons. Therefore they fall under FAIS to the extent that the Act does not cover them. There would, in effect, be dual regulation. Where the Act does not cover them, by default they fall under FAIS. There is no need for amendments if dual regulation is decided on.

During the proceedings both the FSB and the Council objected to a dual regulation regime. The FSB proposed an amendment which would bring persons under regulation of the FSB. By amending certain provisions in the Act which referred to health brokers needing accreditation with the Medical Schemes Council and to health schemes not being handled as an intermediary. Section 65(3) and (4) would be repealed. The Council would continue to regulate medical schemes, this would be left untouched. Only matters relating to brokers would be repealed. The accreditation of a person selling a scheme would fall under the FSB.

Mr Wessels explained that Section 65(3) and (4) relates to the introduction of a client to a medical scheme. It is only for this facet that accreditation is necessary, for which registration under FAIS is necessary. The Minister of Health therefore objects to the accreditation being under FAIS; rather it should be done under the Medical Schemes Council.

MS Hogan said the Committee needed to take a view whether the regulation of the market conduct of brokers should fall under FAIS or under the Medical Schemes Council. If a dual regime is undesirable, which regime would best serve the protection of the consumer best? Who has the strongest market conduct regulations? Whose regulations protect the customer best? The Council have stated that if brokers fell under their Act, there would be issues not covered in terms of market related conduct regulations. These include the behaviour of intermediaries, compliance officers, the power to sue for compensation for damages and so forth.

The regulatory regime for health care providers under the Council would be much more relaxed than under FAIS. The implications are that brokers would want to register under the Council rather than FAIS and could therefore not be held accountable. The consumer therefore remains unprotected.

The arguments by the Council also need to be looked at. In terms of their critique of FAIS, some of the issues raised have been addressed. Amendments have been made to ensure the independence of the ombud. They are also concerned about high commissions and price collusions between brokers to keep prices high. The regulation of brokers would still fall under the Council. On the question of price collusion, on advice from the Competition Commission, Ms Hogan said that the Medical Council would not have jurisdiction in the matter. It would have to be referred to the competition authority.

Mr Andrew said this was one aspect; who has tougher regulation and can enforce it. If it was accepted that a health service benefit is a financial product, this impacts on which regime covers it. Why is it a financial product?

Mr Wessels said it is because it is a product with financial implications. Health brokers are in the financial services business and see themselves as financial advisors.

Mr Andrew said that exclusing some grander medical schemes, most schemes are a form of insurance against the possibility of falling ill.

Mr Wessels referred him to the Medical Schemes Control Act and its definitions. He said that products in the insurance industry are so close that there are demarcation problems and it is difficult to decide whether it is a health business or insurance products.

Dr van Zyl (FSB) said it was all about investment in an intangible asset. FAIS is about regulation of this kind, which is why there are multi-agents, selling products of a similar nature.

Ms Hogan said that there are other jurisdictions where there will be self-regulation by a registrar and market conduct will fall under FAIS.

Mr Wessels confirmed this.

Ms Hogan said there should be a co-operative relationship between the two registrars. How is the relationship regulated?

Mr Wessels referred to Clause 3(3) and Clause 42.

The Committee would convene on 12 February and continue deliberations on the FAIS Bill. Ms Hogan said that she would get advice from the Parliamentary Law Advisers.

The meeting was adjourned.

Appendix 1:

Dr Frene Ginwala
The Speaker: Parliament
P 0 Box 15
Cape Town
8000

Dear Dr Ginwala
21 January 2002

LEGISLATIVE DEVELOPMENTS IN RELATION TO HEALTH BROKERS

I refer to the attached Business Report article, dated 17 January 2002 (Annexure A), in which reference is made to a "crucial parliamentary meeting" this week "to decide on which regulatory authority should control brokers of medical aid schemes."

This development follows on events toward the end of 2001, when the Financial
Services Board introduced to the Portfolio Committee on Finance proposed amendments
to the Medical Schemes Ad through the Financial Advisory and Intermediary Services
(FAIS) Bill.

These proposals were made without consultation with myself, the Department of Health or the Council for Medical Schemes. The full process leading up to this debacle is outlined in a letter addressed to the Chairperson of the Health Portfolio Committee by the Registrar of Medical Schemes, dated 10 October 2001 (Annexure B).

Regulation of health care intermediaries is a crucial issue of health policy, as explained in the attached bound document prepared by the Council for Medical Schemes. It will be evident from this document that removing regulation of health broker conduct from the regulatory scope of the Ministry of Health and the jurisdiction of the Council for Medical Schemes will have far-reaching implications for our capacity to achieve the objectives of the Medical Schemes Act.

We do not dismiss the possibility that, over time, it may be feasible to make use of structures provided in terms of the FAIS Bill for the regulation of health brokers. This cannot happen, however, until conditions in the medical schemes environment and health broker market have been adequately stabilized within the context of health policy. When these conditions are in place, the Health Ministry will consider making appropriate amendments to the Medical Schemes Act to allow for the necessary rationalization of regulatory powers.

A unilateral attempt to amend the provisions of the Medical Schemes Act by parties extraneous to the health sector, without the consent of the Health Ministry and without an understanding of the implications of this for the implementation of health policy, cannot and will not be tolerated.

Your intervention in this matter would be appreciated. Kind regards

Dr Manto Tshabalala-Msimang

Appendix 2:

COUNCIL FOR MEDICAL SCHEMES
10/10/2001
The Chairperson
Portfolio Committee on Health
ATTENTION: LYNETTE SAIT

Dear Dr Nkomo

FAIS Bill Hearings

1. Arising from the unfortunate proceedings in the Portfolio Committee on Finance (PCOF) yesterday, I thought it appropriate to provide you with details of the process giving rise to those events (quite aside from the merits of the matter, which have been canvassed in our submissions to PCOF):

a. In its initial draft of the Financial Advisory and Intermediary Services Bill (FAIS Bill), the Financial Services Board (FSB) proposed the inclusion of health brokers under the auspices of the FAIS Bill, and the corresponding repeal of provisions in the Medical Schemes Act and regulations dealing with broker accreditation.

b. Following representation from the Council for Medical Schemes I Department of Health, the Policy Board for Financial Services and Regulation, at its meeting on 17 August 2000, amended the FAIS Bill to remove the repealing provisions in relation to the Medical Schemes Act.

c. Our understanding of the effect of the FAIS Bill as it stood, following this change, was as stated in a clarifying memorandum compiled for us by the FSB, and faxed to us on 27 February 2001. I quote relevant portions:

i. "A person accredited under the Medical Schemes Act, 1998 as a health broker and who renders only health broker services as regulated under that Act, will not he subject to FAJS."

ii. "A person who renders health broker services and other services falling within 'financial services' as defined in FAIS, will have to be accredited by the Council for Medical Schemes and the Registrar of Financial Services Providers, respectively. The person will have to comply with the regulations made under the Medical Schemes Act 1998 in respect of the health broker
services and the provisions (including subordinate measures) of FAIS regarding the other services."
(emphasis added)

d. At a meeting on 27 February 2001 between the Financial Services Board and the Council for Medical Schemes, it was agreed that greater cooperation between the two regulatory bodies was desirable, and four liaison committees were established, including a committee on brokers. There was also discussion about the desirability of development of a Memorandum of Understanding (MOU) in time, although to date no such MOU has been put in place.

e. Following discussion between officials of the two offices, the broker committee convened on 13 June 2001, at which the Registrars of both offices were present. This meeting was to discuss pressure experienced by the FSB for inclusion of health brokers under the auspices of the FAIS Bill. At that meeting, an understanding was reached between the two Registrars that health brokers would continue to be excluded from the provisions of the FAIS Bill, but that there would continue to be interaction between the two regulatory bodies on broker issues. Furthermore, that over time it may be possible to bring both sectors of brokers under a single framework, once the preconditions for such framework in relation to stabilization of broker activity within the health sector had been achieved.

f. On 31 August 2001, a staff member in the office of the Registrar of Medical Schemes inadvertently chanced upon the information that the FSB had made a recommendation to the Portfolio Committee on Finance (PCOF) that health brokers should be brought within the ambit of FAIS.

g. The Council for Medical Schemes immediately responded to the Registrar of the FSB expressing grave dissatisfaction with the reversal of prior agreements without consultation with the Council, the Department of Health, or the Minister of Health - and maintained its position that such inclusion was unacceptable.

h. The Registrar of the FSB wrote back sincerely apologizing for their failure to have consulted with the Council prior to the change, but indicating with hindsight that the exclusion of health brokers had been a "mistake".

The Council for Medical Schemes subsequently made arrangements to make presentation to PCOF to make its position clear on this matter. During the process of developing a position to put to PCOF in relation to the FSB submission, legal opinion was obtained which suggested that the ambit of the existing wording of FAIS for health brokers (quite aside from the FSB amendments) was far greater than that which we had understood in terms of the interpretation given to us by the FSB (referred to in para (c) above), and that the coexistence of the FAIS Bill, as presently worded, and the Medical Schemes Act, would result in great legal uncertainty and an impediment to regulatory function.

j The recommendation made to PCOF by the Council for Medical Schemes on 9 October 2001 was therefore that any reference to "health benefits" in the FAIS Bill should be entirely removed to prevent this confusion.

k. During the course of the presentation by the Council to PCOF on Tuesday, 9 October 2001, it became apparent that the FSB had gone further (without any consultation with the Council or the Department or Ministry of Health), and proposed to PCOF the repeal of portions of the Medical Schemes Act and regulations dealing with brokers. On questioning, the FSB claimed to have sent the Council a copy of all proposed amendments on Friday, 5 October. The Council for Medical Schemes has no record of having received this document. In any event, even if such document had been received, the time frame to have evaluated its impact on the Medical Schemes Act without any consultation on the issue would have been completely unreasonable.

2. I would like to emphasise the bona fides of the Council for Medical Schemes in all the above processes.

Sincerely

TP Masobe
REGISTRAR OF MEDICAL SCHEMES

CC: Dr A Ntsaluba

Appendix 3:

PROPOSED AMENDMENTS BY FSB TO FINANCIAL ADVISORY AND INTERMEDIARY SERVICES BILL
[B 52 ------2001]

TABLE OF CONTENTS

1. On page 4, in line 4, after "registrar" to insert "and Minister".

CLAUSE 1

1. On page 4, in line 13, after "proposal" to insert "of a financial nature".

2. On page 4, in line 42, to omit all the words after "means" and to substitute:

a specific person or group of persons who is or may become the subject to whom a financial service is rendered intentionally, but excluding the general public

3. On page 4, in line 46, to omit "2001" and to substitute "2002".

4. On page 4, in line 48, to omit all the words after "complaint" up to and including "representative" in line 49.

5. On page 4, in line 51, to omit "an authorised" and to substitute "a".

6. On page 5, from line 21, to omit subparagraphs (v) and (vi) and to substitute:

(v) any "securities" as defined in section 1 of the Securities Services Act, 2002;

7. On page 5, in line 52, after "provider" to insert:

, including any category of such service

8. On page 5, in line 56, to omit "part of a regular" and to substitute "a regular feature of the".

9. On page 6, in line 23, to omit "or which".

10. On page 6, in line 33, to omit paragraph (a) and to substitute:

(a) any organ of state as defined in section 239 of the Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996);

11. On page 6, in line 37, to omit "to clients".

12. On page 7, from line 24, to omit subparagraph (iv).

13. On page 7, after line 43, to insert:

The provisions of this Act shall only apply to the rendering
of a financial service in respect of a deposit referred to in paragraph (f) of the definition of "financial product" in subsection (1) with a term not exceeding 12 months by a provider which is a bank as defined in the Banks Act, 1990, or a mutual bank as defined in the Mutual Banks Act, 1993, to the extent that such application is regulated in the code of conduct contemplated in section 15(2)(b).

CLAUSE 3

1. On Page 8, after line 15, to add:

(3) The registrar must in connection with the application of any provision of this Act to or in respect of any financial product or financial service, consult with any regulatory or supervisory authority in the Republic or Registrar referred to in section 42, who is by law empowered to perform a regulatory or supervisory function in respect of such product or service.

CLAUSE 4

1. On page 8, in line 25, to omit all the words after "misleading," up to and including "interest" in line 26 and to substitute "confusing".

2. On page 8, in line 27, to omit "the".

3. On page 8, in line 28, to omit all the words after "thereto" to the end of the paragraph.

CLAUSE 5

1. On page 9, in line 23, to omit "that committee" and to substitute "the Committee".

CLAUSE 6

1. On page 9, in line 32, after "Act" to insert:

, excluding the power to make regulations under section 35,

2. On page 9, in line 38, after "Act" to insert:

, excluding the power to make rules under section 26


CLAUSE 8

1. On page 10, in line 50, to omit all the words after "that", up to and including "soundness" in line 3 on page 11, and to substitute:

the applicant complies with the requirements for fit and proper financial services providers or categories of providers, determined by the registrar by notice in the Gazette, after consultation with the Advisory Committee, in respect of-

(a) personal character qualities of honesty and integrity;

(b) the competence and operational ability of the applicant to fulfill the responsibilities imposed by this Act; and

the applicant's financial soundness:

Provided that where the applicant is a partnership, a trust or a corporate or unincorporated body, the applicant must, in addition, so satisfy the registrar that any key individual in respect of the applicant complies with the said requirements in respect of-

(i) personal character qualities of honesty and integrity; and

competence and operational ability,

to the extent required in order for such key individual to fulfill the responsibilities imposed on the key individual by this Act.


2. On page 11, in line 17, to omit "the registrar may deem" and to substitute "are".

3. On page 11, from line 18, to omit subparagraph (i) and to substitute:

(i) all facts and information available to the registrar pertaining to the applicant and any key individual of the applicant;

(ii) the type of financial service which the applicant could appropriately render or wishes to render;

(iii) the category of financial services providers in which the applicant will be classified in relation to the fit and proper requirements mentioned in subsection (1); and

4. On page 11, in line 21, to omit "(if any)".


CLAUSE 9

1. On page 12, in line 41, to omit all the words after "must" up to and including "consider" in line 42 and to substitute:

within a reasonable time after receipt of

2. On page 12, in line 42, after "," to insert "consider the response".

CLAUSE 13

1. On page 14, in line 6, to omit "ensure" and to substitute "be satisfied".

2. On page 14, in line 8, to insert after "requirements" the words "similar to those".

3. On page 14, in line 9, to omit "(i) and (ii)" and to substitute "(a) and (b)".

CLAUSE 14

1. On page 14, in line 34, to omit "13(2)" and to substitute "13(2)(a)".

Clause 15

1. On page 15, in line 4, after "(2)" to insert "(a)".

2. On page 15, after line 6, to add:

(b) A code of conduct must be drafted for the rendering of a
financial service in respect of a deposit referred to in paragraph (f) of the definition of "financial product" in section 1(1) with a term not exceeding 12 months by a provider which is a bank as defined in the Banks Act, 1990 (Act No. 94 of 1990), or a mutual bank as defined in the Mutual Banks Act, 1993 (Act No. 124 of 1993).

CLAUSE 20

1. On page 17, after line 44, to add:

(4) When dealing with complaints in terms of sections 27 and 28 the Ombud is independent and must be impartial.

CLAUSE 21

1. On page 17, in line 47, to omit "or" and to substitute "and".

2. On page 17, in line 49, to omit ", 28, 29, 31 and 39" and to substitute "and 28".

3. On page 17, in line 50, to omit "or" and to substitute "and".

4. On page 17, from line 52, to omit paragraph (a).

5. On page 17, in line 54, to omit "(b)".

6. On page 17, in line 55, to omit all the words after "Board" up to and including "Office".

7. On page 18, in line 4, to omit "at any time" and to substitute "on good cause shown".

8. On page 18, in line 6, after "incompetence" to insert:

, after affording the person concerned a reasonable opportunity to be heard

CLAUSE 23

1. On page 18, from line 33, to omit subsection (4) and to substitute:

(4) The Ombud is accountable to the Board only in matters
relating to the administration of the Office.

CLAUSE 27

1. On page 20, in line 5, after "instituted" to insert "by the complainant".

2. On page 20, in line 15, to omit all the words after "parties" to the end of the paragraph and to substitute:

have been provided with such particulars as will enable the parties to respond thereto; and

3. On page 20, in line 24, to omit "both" and to substitute "all".

4. On page 20, after line 31, to insert:

(d) may, in a manner the Ombud deems appropriate, delineate the functions of investigation and determination between various functionaries of the Office;

(e) may, on terms specified by the Ombud, mandate any person or tribunal to perform any of the functions referred to in paragraph (d).

CLAUSE 28

1. On page 20, after line 60, to insert:

(3) Any award of interest by the Ombud in terms of subsection (2) must not exceed the rate which a court would have been entitled to award, had the matter been heard by court.

2. On page 21, in line 4, to omit "with" and to substitute "to".

CLAUSE 34

1. On page 23, in line 2, to omit all the words after "(1)" up to and including "(2)" in line 3 and to substitute:

Subject to subsections (2) and (3)

2. On page 23, after line 5, to insert:
(2) The following principles must guide the registrar in considering whether or not a declaration contemplated in subsection (1) should in respect of the relevant business practice be made:
(a) That the practice, directly or indirectly, has or is likely to have the effect of-
(i) harming the relations between authorised financial services providers or any category of such providers, or any such provider, and clients or the general public;
(ii) unreasonably prejudicing any client;
(iii) deceiving any client; or
(iv) unfairly affecting any client; and
(b) that if the practice is allowed to continue, one or more objects of this Act will, or is likely to, be defeated.

3. On page 23, in line 7, after "declaration" to insert:

, giving reasons therefor

4. On page 23, in line 18, to omit "(4)" and to substitute "(5)".

CLAUSE 35

1. On page 23, in line 47, to omit "criminal".

CLAUSE 36

1. On page 23, in line 56, to omit "34(3) or (5)" and to substitute "34(4) or (6)".

CLAUSE 41

1. On page 24, in line 49, to omit all the words after "The" up to and including "Committee" and to substitute:

Minister must, after consultation with the registrar

2. On page 25, in line 3, to omit "so".

3. On page 25, in line 4, after "registrar" to insert "by notice in the Gazette".

CLAUSE 44

1. On page 25, in line 50, after "registrar" to insert "and Minister".

2. On page 26, after line 23, to add:

(5) The Minister, after consultation with the registrar, may, on such conditions as the Minister may determine, by notice in the Gazette exempt a financial services provider or representative, or category of financial services providers or representatives, from any provision of the Policyholder Protection Rules made under section 62 of the Long-term Insurance Act, 1998 (Act No. 52 of 1998), and section 55 of the Short-term Insurance Act, 1998 (Act No. 53 of the 1998), respectively.

CLAUSE 45

1. On page 26, in line 25, to omit "Subject to subsection (2), the" and to substitute "The".

2. On page 26, from line 27, to omit subparagraphs (i), (ii) and (iii) and to substitute:

(i) any "authorised user", "clearing house", "central securities depository" or "participant" as defined in section 1 of the Securities Services Act, 2002, or exchange licensed under section 10 of that Act;

3. On page 26, in line 39, to omit "(iv)" and to substitute "(ii)".

4. On page 26, in line 40, to omit "2001" and to substitute "2002".

5. On page 26, in line 41, to omit "(v)" and to substitute "(iii)".

6. On page 26, in line 44, to omit "(vi)" and to substitute "(iv)".

7. On page 26, in line 44, to omit "or 65".

8. On page 26, from line 46 to omit all the words after "in" up to and including "respectively" in line 49 and to substitute "that section".

9. On page 27, after line 15, to add:

Until such time as the Collective Investment Schemes
Control Act, 2002, referred to in sections 1(1) and 45(1)(a)(ii) of
this Act comes into operation, any reference in this Act to-

(a) a collective investment scheme, manager and an authorised agent, must be construed as references to a unit trust scheme, management company, and an authorised agent referred to in the Unit Trusts Control Act, 1981 (Act No. 54 of 1981), respectively; and

(b) any word or expression defined in the Unit Trusts Control Act, 1981, shall, unless clearly inappropriate or inconsistent with this Act, have that meaning.

(4) Until such time as the Securities Services Act, 2002, referred to in sections 1(1) and 45(1)(a)(i) of this Act comes into operation, any reference in this Act to-

(a) an authorised user, exchange, a clearing house, central securities depository and participant, must be construed as references to a member, stock exchange, clearing house, financial exchange, recognised clearing house, central securities depository and depositary institution referred to in the Stock Exchanges Control Act, 1985 (Act No. 1 of 1985), Financial Markets Control Act, 1989 (Act No. 55 of 1989), and Custody and Administration of Securities Act, 1992 (Act No. 85 of 1992), respectively; and

(b) any word or expression defined in the Stock Exchanges Control Act, 1985, Financial Markets Control Act, 1989, and Custody and Administration of Securities Act, 1992, shall, unless clearly inconsistent with this Act, have that meaning.


SCHEDULE


1. On page 35, after item II(c), to insert:

2. On page 35, to omit items II(d) and II(e).