Financial Markets Bill [B12-2012]: adoption: Credit Rating Services Bill [B8-2012]: consideration; adoption deferred

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Finance Standing Committee

04 September 2012
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

The Committee adopted its Report which stated that “The Committee, having considered and examined the Financial Markets Bill [B12-2012], had agreed to the Bill with amendments”.

The Committee considered Clauses 1 to 4 of the Credit Rating Services Bill [B8-2012]. The DA proposed amending the definition of 'credit rating services' in Clause 1 as it was too broad. The DA suggested specifying that the data and information analysis was 'in relation to credit ratings'. An ANC Member found nothing wrong with the current definition. National Treasury proposed the wording '”credit rating services” means data and information analysis, evaluation, approval, issuing or review, for the purposes of credit ratings'. Members agreed.

A DA Member conceded that the definition of 'this Act' in Clause 1 had been narrowed somewhat, but still felt that it was too broad, and it should be narrowed, in line with the Public Finance Management Act (PFMA) to include only the regulations and instructions. National Treasury replied that it had, with the Parliamentary Legal Adviser, considered this question very carefully. The definition was wider than that included in the PFMA, but legislation might vary as to the kinds of subordinate legislation that needed to be given authority. In the financial sector, the nature of the regulation was more complex than in some other sectors. The definition appropriately reflected the nature of the subordinate legislation and was in line with the Constitution. It also simplified the drafting of the Bill. The major change from the previous draft was the introduction of the words 'that have general application'. This aligned more closely with the PFMA wording. An ANC Member moved that the Committee adopt this definition as it was, on the basis that it did not do any harm, and was in line with other legislation, and was in line with the Constitution. An IFP Member argued that the point was very simple and had been entirely missed. National Treasury was giving broad powers. The rule of drafting was that a definition should be capable of being cut and pasted throughout the Act. This did not work in this Bill. There was nothing to be gained textually from including rules, notices, directives, exemptions, determinations, conditions, and decisions of the Registrar. A Senior State Law Adviser said that the same definition had been used in other legislation, for example, the Financial Advisory and Intermediary Services Act. There was even such a definition in the Financial Markets Bill. An ACDP Member asked why, if the Committee had agreed to such a definition in the Financial Markets Bill, there was a problem now. The same IFP Member argued that there was always a hierarchy in any kind of law. This definition destroyed the hierarchy and presented 'an inescapable legal, linguistic, semantic, grammatical problem'. The Senior Parliamentary Legal Adviser said that the concerns expressed in his legal opinion had been addressed. The definition was workable. The same DA Member remained unconvinced and its proposal still stood. The IFP Member put on record that he was not satisfied with the opinion rendered. The same ACDP Member said that normally one would refer only to the regulations and had not read a formulation like this before. A COPE Member was comfortable with that definition in the Financial Markets Bill, but thought that in the Credit Rating Services Bill one was taking it too far. The Financial Services Board said that the purpose of including this definition was purely to simplify the definition of this Act. Members voted: six in favour of the definition as amended in the latest draft; four against; no abstentions.

The Committee agreed to Clause 2.

The DA Member proposed deleting Clause 3(1)(b) as ratings were available free of charge by way of publication on an agency's website. Therefore any credit rating was, by default, published in South Africa. The Sub-Clause was unreasonable. The IFP Member agreed for technical reasons without any political agenda. The definition of 'publishing' in the Bill was too broad. He supported, however, the retention of Clause 3(1)(a) which captured fully what the Committee wanted. National Treasury said it was implicit in the wording that the Bill applied to ratings for use in South Africa. The DA Member was satisfied that National Treasury's offer of adding the words 'for use in the Republic' resolved his concern. The Financial Services Board said care must be taken in any rewording of Clause 3(1)(b). The ACDP saw no problem with the formulation. Were there some unforeseen consequences? The Financial Services Board pointed out that one could not restrict the use of ratings by adding the words 'for use in the Republic' as ratings were used internationally. The Chairperson asked National Treasury and the Financial Services Board to resolve their differences on Clause 3(1)(b). The DA Member flagged for later consideration introducing transitional measures, which would render Clause 3(2) redundant.

The DA Member saw Clause 4 as the heart of this Bill. To fulfil South Africa's Group of 20 (G20) obligations, there needed to be some regulation of credit rating agencies. There was no such thing as costless regulation, but the Bill's endorsement mechanism was overly onerous. He proposed amending Clause 4 to specify that ratings of external credit rating agencies could simply be approved for use in South Africa in the way, for example, that the USA, Hong, Kong, Singapore, and Australia had done, which was much simpler. It would be much simpler just to require the publication of a list of external credit rating agencies, which were covered by these regulations. An ANC Member pointed out the opportunity costs of not regulating properly. The Senior Parliamentary Adviser emphasised that a minister or regulator was bound by the principle of rationality. An ACDP Member asked what international best practice was in the regulation of foreign credit rating agencies. Was it along the lines of a list, as suggested by the DA Member, or a process of validation and endorsement as provided for in the Bill as it stood? National Treasury noted that it was only the tougher approach to regulation that would satisfy the EU.

The Committee deferred consideration of Clauses 5 to 37 and adoption of the Bill until 12 September 2012.

Meeting report

Opening and welcome
The Chairperson had two sets of documents before him: on the Financial Markets Bill [B12-2012] and the Credit Rating Services Bill [B8-2012]. In the last meeting there had been a substantial engagement on the first of these two Bills. There would be no presentations, unless National Treasury had anything compelling to clarify on the first item. If not, Members would have to indicate, in terms of the documentation circulated, whether there was any issue that needed to be ironed out. The Committee's first agenda item was basically to consider and adopt the Committee's Report on the Financial Markets Bill.

Financial Markets Bill [B12-2012]: adoption
Dr M Oriani-Ambrosini (IFP) was given to understand that the Committee had not yet voted on the Financial Markets Bill. Did not the Committee have to deliberate formally and vote on the Bill first and then adopt its Report, as all other committees did?

Ms Z Dlamini-Dubazana (ANC) said that today the Committee was doing exactly that.

The Chairperson inferred that Members were satisfied that the matter had been clarified.

Mr T Harris (DA) sought to confirm that the version of the Bill from the Government Printer that Members had in their possession was with amendments. It did not seem to be.

Ms Jeannine Bednar-Giyose, National Treasury Director: Fiscal and Intergovernmental Legislation, clarified that the version from the Government Printer was the tabled version as introduced into the National Assembly [as listed in Relevant Documents as Financial Markets Bill [B12-2012]]. This had been circulated today because 'the A list' which had been circulated referred to that particular version of the Bill, and the page numbers and the line numbers that were referred for each of the items in the 'A list' of the Bill where the amendments were proposed to be made – those referred to the tabled version of the Bill. The 'A Bill' had to refer to the tabled version of the Bill.

Mr Harris was satisfied.

The Chairperson inferred that Members concurred.

Mr E Mthethwa (ANC) moved the adoption of the Bill.

Dr Oriani-Ambrosini objected. It was unknown to him, in his experience on many committees, for a Bill to be adopted as a whole. The procedure in this Parliament, since 1910, was that a Bill was voted on Clause-by-Clause, after a motion of desirability. This was not a money bill. In respect of the money bills, this Committee had a tradition, until the enactment of the Money Bills Amendment Procedure and Related Matters Act (No.9 of 2009) of just voting for a bill 'up and down'.

The Chairperson assured Dr Oriani-Ambrosini that the process to which he referred had been followed.

Dr Z Luyenge (ANC) seconded.

The Chairperson read the Report that the Committee, having considered and examined the Financial Markets Bill [B12-2012] had agreed to the Bill with amendments.

Credit Rating Services Bill [B8-2012): consideration
The Chairperson referred to the Standing Committee on Finance Proposed Amendments to the Credit Rating Services Bill [B8-2012] 04 September 2012 for meeting of 5 September 2012 [as listed in Documents handed out].

Mr N Koornhof (COPE) was sure that deliberations on this Bill would be Clause-by-Clause.

The Chairperson asked Members to go through the Bill Clause-by-Clause.

Adv S Swart (ACDP) was not sure if the National Treasury was still advising on amendments. He was not sure if there were any further amendments on which National Treasury wished to advise, or if Members should proceed and vote Clause-by-Clause.

Mr Roy Havermann, National Treasury Chief Director: Financial Markets and Stability, confirmed that National Treasury had circulated the original Bill as tabled. It had also circulated the 'A version'. Also, for Members assistance, it had circulated a version that incorporated the 'A Bill' [which version therefore combined the Bill as tabled and the 'A Bill']. He apologised for the error the previous week in the 'B Bill' then circulated to Members in which National Treasury had consolidated the proposed amendments.

The Chairperson noted that the proposed amendments were in a separate document [Standing Committee on Finance Proposed Amendments to the Credit Rating Services Bill [B8-2012] 04 September 2012 for meeting of 5 September 2012]. There were Clauses that had not been amended at all. He began Clause-by-Clause deliberations.

Clause 1: Definitions
'Credit rating services'
Mr Harris proposed amending the definition of 'credit rating services', as it was too broad. He suggested specifying that the data and information analysis was 'in relation to credit ratings'.

Dr Oriani-Ambrosini said that Mr Harris had pointed out what was merely a linguistic difficulty and wanted to ensure that the language was tightened to avoid any erroneous interpretation.

Ms Dlamini-Dubazana understood Mr Harris and Dr Oriani-Ambrosini but said that the word 'services' included data and information analysis, evaluating that service, and included approving that service. Therefore she did not find anything wrong with the definition.

Mr Koornhof said that one had to read 'of credit ratings' with evaluation, information analysis and approval, and with issuing or review. It was covered.

Mr Ismail Momoniat, National Treasury Deputy Director-General: Tax and Financial Sector Policy, suggesting inserting a comma after the word 'review'. It should then be 'as clear as fiscal water if the initial one was as clear as mud'. Mr Harris's concern was a fair one.

Dr Oriani-Ambrosini said that putting a comma before a gerund would not work. The difficulty which arose was that that the data and information analysis of the credit ratings that one might perform for a client could not be a credit service. It was necessary to take those words and refer them back to the purpose of formulating a credit rating. He would prefer to say 'for the purpose of formulating a credit rating'.

Mr D van Rooyen (ANC) observed the legal minds arguing the commas and the full stops, which, to him as a politician, did not change the content. He asked if National Treasury considered international standards in defining such services or if it created its own South African definitions.

Mr Momoniat replied that generally National Treasury tried to follow international standards, but there was always a South African nuance.

Mr Harris sought to confirm that the wording would be a comma, followed by 'for the purposes of credit ratings'. This wording would satisfy him.

The Chairperson noted Members' agreement.

Mr Momoniat read '”credit rating services” means data and information analysis, evaluation, approval, issuing or review, for the purposes of credit ratings'.

Mr Havermann wanted to suggest '”credit rating services” means data and information analysis, evaluation, approval, issuing or review, for the purposes of issuing, publishing, etc., of credit ratings'.

Dr Oriani-Ambrosini asked if Mr Havermann meant issuing or reviewing.

Mr Havermann then said that the definition should read as read by Mr Momoniat.

Ms Bednar-Giyose read the definition again for the record: '”credit rating services” means data and information analysis, evaluation, approval, issuing or review, for the purposes of credit ratings'.

Adv Swart said that the data and information analysis, evaluation, approval, issuing or review must be 'of' credit ratings, not for the purpose of; the word 'of' must come in somewhere. The Committee was near to agreement; it was just the formulation of the definition that remained.

Ms J Tshabalala (ANC) thought that the original wording, as in the Bill as tabled, was sufficient.

Adv Swart now suggested keeping the original wording as far as and including 'review', but adding, after a comma, 'for the purposes of credit ratings'.

The Chairperson inferred Members agreement.

'This Act'
Mr Harris conceded that the definition had been narrowed somewhat, but he still felt that it was too broad, and it should be narrowed, in line with the Public Finance Management Act (No. 1 of 1999) to include only the regulations and instructions.

Dr Luyenge wanted a clearer response to Mr Van Rooyen's earlier question if National Treasury considered international standards in definitions or if it created its own South African definitions.

The Chairperson confirmed that Mr Momoniat had responded to Mr Van Rooyen's question, but softly.

Mr Momoniat replied that the definition was in line with the global approach, in so far as one wanted to give the regulators a lot of 'gory' powers. The big rationale for having regulators was to allow them to make directives. To what extent that might be limited by the Constitution was an issue.

Ms Bednar-Giyose replied that both National Treasury and the Parliamentary Legal Adviser had considered this question very carefully. She agreed that the definition was wider than that included in the Public Finance Management Act (No. 1 of 1999) (PFMA), but legislation might vary as to the kinds of subordinate legislation that needed to be given authority. In the financial sector, the nature of the regulation was more complex than in some other sectors. The definition appropriately reflected the nature of the subordinate legislation and was in line with the Constitution. It also simplified the drafting of the Bill.

Mr Havermann added that the major change from the previous draft was the introduction of the words 'that have general application'. This aligned more closely with the PFMA wording.

Ms Dlamini-Dubazana moved that the Committee adopt this definition as it was, on the basis that it did not do any harm, and was in line with other legislation, and was in line with the Constitution. It was necessary to be clear. What was wrong with the definition being wide and broad while it gave the specifications?

Dr Oriani-Ambrosini argued that the point was very simple and had been entirely missed. National Treasury was giving broad powers. He read the definition and acknowledged that 'approval' had been deleted. The rule of drafting was that a definition should be capable of being cut and pasted throughout the Act. He gave a couple of examples of how this did not work in this Bill – for example, Clauses 2, 5, 6 and 7. There was nothing to be gained textually from including rules, notices, directives, exemptions, determinations, conditions, and decisions of the Registrar.

Adv Mongameli Kweta, Senior State Law Adviser, Office of the Chief State Law Adviser, said that this definition made clear that all the items included were to be interpreted in terms of this Act and aligned to the rule of law and the Constitution. The same definition had been used in other legislation, for example, the Financial Advisory and Intermediary Services Act (No. 37 of 2002). There was even such a definition in the Financial Markets Bill.

Adv Swart and Mr Koornhof did not see the same definition.

Mr Havermann said that there was some confusion as to versions of the Bill. The tabled version [B8-2012] had obviously been changed. Many of the issues raised by Dr Oriani-Ambrosini had been taken out, for example, the decisions of the Registrar, as would be seen in paragraph 10 of 'the A Bill'. In paragraph 12 had been added 'that have general application'.

Adv Swart then said that that he had seen the definition, and it was correct as Adv Kweta had said. That definition was the same as in 'the present Bill'. It had been inserted. It was in the 'A list'. The Committee had voted on it correctly.

Mr Havemann said that one had to read the 'A list' together.

The Chairperson referred to the 'A list', [paragraph] 48, which, he thought, was what Adv Swart was referring to.

Mr Havemann said that National Treasury had circulated what it called 'the B Bill', which was a version just to assist the Committee, where the definition had been aligned, because this issue had arisen in previous meetings. In this document – 'the B Bill' – National Treasury had included all the amendments in paragraph 11. It had omitted 'any other decision' and 'to substitute by'; and then, on page 5, after 'registrar', to insert 'that have general application'. This reflected his earlier point that the definition had been amended following earlier engagement with National Treasury's legal counsel and with Adv Frank Jenkins, Senior Parliamentary Legal Adviser.

He confirmed that the Credit Rating Services Bill 04 September 2012 for meeting on 05 September 2012 [B- 2012] [as listed in Documents handed out] was now being circulated to Members. This was the version that reflected all the changes made by the Committee over the past few weeks.

Adv Swart asked why, if the Committee had agreed to such a definition in the Financial Markets Bill, there was a problem now.

Dr Oriani-Ambrosini, if he counted correctly, still found nine items in the definition, and, he pointed out, there was always a hierarchy in any kind of law. The hierarchy was established by the Act. By using this definition one destroyed the hierarchy. If one said that the regulations must be made in terms of this Act, and one substituted 'this Act' with its definition, which was the purpose of the definition, one reached the conclusion that the regulations must be made in terms of the notice, of the exemptions, and of the conditions. This was 'an inescapable legal, linguistic, semantic, grammatical problem'. Even if this definition had been used in legislation, this Committee was not here to repeat the error. The second problem was that Members did not know how the hierarchy worked. He explained at length.

Dr Luyenge said that Adv Kweta had clearly explained the reasons for this broad definition. It was impossible to have a regulation which did not find resonance in the Act. He encouraged the Committee to prevent a deliberate attempt to block the process of the Bill. There were people to whom other Members had listened patiently, but such people did not want to listen to others. Such people would continue to consult outside [the meeting] while not hearing what the officials were saying [within the meeting].

Mr Van Rooyen suggested that Adv Frank Jenkins, Senior Parliamentary Legal Adviser, speak on the basis of the above deliberations.

Adv Jenkins said that the definition included certain administrative findings which applied to an individual credit rating, which, in his opinion, might be challenged constitutionally. Section 101 of the Constitution said that instruments of delegated legislation must be accessible to the public. It had to be asked how an administrative decision was made accessible to the public. Also, legislation must apply generally. Section 36 of the Constitution said that one could limit certain rights. In this instance one was trying to regulate trade, and this might be a limitation, which could be only by done by law of general application. Therefore one wanted regulations to apply generally. In his view, the concerns expressed in his legal opinion had been addressed, because, although there was still a broad scope to the definition of 'this Act', all those instruments must be applied generally and made accessible to the public, and some of them must be submitted to Parliament for scrutiny as well. When a court looked at legislation, it looked at a word and tried to understand what it meant if there was a dispute as to whether someone had complied or not. If there was not a definition in the Act, the court would refer, in the context of the word, to a dictionary. The same would happen with the definition of 'this Act'. The court would ask if there had been compliance with any of those instruments, the relevant ones, not all of them at once, in the context of the specific provision. He was not concerned on this issue. Lastly, he said that Dr Oriani-Ambrosini's point about hierarchy was valid, but not a concern. The impact of this wider definition was that one was doing away with some of the hierarchy, but it was his understanding that this was part of the move towards the twin peaks issue – to have those two regulatory points. It was not, in his view, a legal or a constitutional problem. The definition was workable for the purpose of this specific piece of legislation.

Ms Dlamini-Dubazana asked that the Committee move on this definition.

The Chairperson said that the Committee had been working on Clause 1 for some considerable time. He was satisfied with this definition as crafted. Nothing could be exhaustive. Law continued to develop over a period of time.

'Registered credit agency'
Mr Koornhof asked why the definition of 'registered credit agency' was included. Was this not repetition?

Ms Bednar-Giyose replied that it had been included for the sake of consistency in the criteria applied in the registration of both external and domestic credit rating agencies.

Mr Koornhof said that National Treasury had not indicated in the amendments that it was changing the definition of 'credit rating agency'. He read the definition as in the Bill as tabled [B8-2012]. In the new version of the Bill - Credit Rating Services Bill 04 September 2012 for meeting on 05 September 2012 [B- 2012] - 'credit rating agency' meant a person who provided credit rating services.

Mr Havermann said that National Treasury had explained everything in considerable detail in the response document that it had submitted for the meeting held on 08 August 2012. [National Treasury Response Document Treasury Comments Received on the Credit Rating Services Bill to inform the Revised Credit Rating Services Bill Parliamentary Hearing 8 August 2012; this document was not available to PMG at the time of compiling the report on the 08 August 2012 meeting but is now available and listed in Relevant Documents]. The change just helped to streamline certain issues in the Bill; it did not change much in the definition. It was just for clarity purposes.

Mr Koornhof said that his question now fell away.

Further discussion on 'this Act'
Dr Oriani-Ambrosini had seconded Mr Harris's proposal to amend the definition of 'this Act'. As a matter of procedure, the Committee should decide on that proposal before the Clause could be approved.

Ms Tshabalala thought that the Committee was moving on the premise of Adv Jenkins' views above. The issue of the hierarchy had nothing to do with what the Committee was dealing with now.

Mr Harris remained unconvinced and his proposal still stood. The constitutionality of the entire Act was imperilled by the possibility of one of these instruments being unavailable to the public. Secondly he had doubts about the general application of things like conditions imposed by the Registrar. Simply adding at the end 'general application' did not mitigate his concern. He had not been convinced by the arguments against [the downside of] narrowing the definition to regulations and instructions.

The Chairperson said Members must be aware of the possibility of practical difficulties in implementation in the future. He wanted to persuade Members that Adv Jenkins' explanation gave a certain level of comfort. He emphasised that one could not legislate for everything. He wanted to accept the definition as it stood.

Dr Oriani-Ambrosini put on record that he was not satisfied with the opinion rendered. Moreover, Ms Tshabalala's and the Chairperson's understanding of it did not flow from what had been said. His additional concern, from what Adv Jenkins had said, to Dr Oriani-Ambrosini's 'great shock and horror', was that there could be restraint on trade only by virtue of a law of general application. He explained at length.

Ms Dlamini-Dubazana wanted to note the dissatisfaction of Mr Harris and Dr Oriani-Ambrosini and then move on.

The Chairperson said agreed that the Committee proceed, but it was important to hear their views.

Adv Swart said that much time had been spent on this issue but it was a critical part, as this was about the application of the Act and what that implied. Normally one would refer only to the regulations. He had not read a formulation like this before. The empowerment lay with the Act and the Regulations. Why was it necessary to add notices? Now one was facing a legal dilemma, although he appreciated the arguments from both sides.

Mr Koornhof was comfortable with that definition in the Financial Markets Bill, but thought that in the Credit Rating Services Bill one was taking it too far. Why was it needed here?

The Chairperson asked if it needed to be spelled out.

Mr Momoniat said that Adv Swart and Mr Koornhof had raised important questions. There was a philosophical issue. The financial sector was like a nuclear facility and the Regulator needed to have strong powers to act with speed. Their directives had to have force equal to those of the Minister's regulations. Thus National Treasury was not apologising for pushing to have regulators with teeth. It was certainly needed for many of the financial bills, but whether it was needed for the Credit Ratings Services Bill was a fair point.

Ms Bednar-Giyose said that National Treasury had inserted in the amendments included in the 'A list' provisions in respect of exemptions, directives and rules that there would be publication requirements. In respect of the rules, there would also be provision for comments and tabling in Parliament of draft rules and the final rules. Exemptions and directives, once issued, would also be tabled in Parliament to give it oversight over the Registrar's powers exercised.

The Chairperson inferred that Members agreed.

Ms Retha Stander, FSB Senior Legal Adviser, said that with this Bill, as with the Financial Advisory and Intermediary Services Act (No. 37 of 2002), which included a much broader definition, and with the Financial Markets Bill, the purpose of including this definition was that purely to simplify the definition of this Act. So where one wanted to refer a contravention to the Enforcement Committee it would include contravention of a directive that had general application. Where the Registrar had to issue a notice, and have in mind the Objects of the Act, it would also be those exemptions that had general application. In other words, FSB's purpose was merely to simplify the interpretation of each and every Clause that referred to 'this Act'. She had difficulty seeing the distinction between the financial advisory services industry, the financial markets industry, which included the exchanges and so forth, and the credit rating industry, and why there should be different definitions for these industries. The PFMA had only regulations issued in terms of that Act, whereas in this Bill had all the different subordinate measures that the Registrar could issue.

The Chairperson proposed that the definition in the Bill as tabled and as reflected in 'the A Bill' itself should stand.

Dr Oriani-Ambrosini insisted on voting on Mr Harris's proposal.

The Chairperson had noted the reservations and concerns. Moreover, Dr Oriani-Ambrosini should not anoint himself as a spokesperson for Mr Harris, who was quite capable of speaking for himself.

Dr Oriani-Ambrosini insisted on following procedure to the letter.

The Chairperson said that he had noted the reservations and concerns.

Dr Oriani-Ambrosini was perturbed that the Committee was not voting.

Ms Tshabalala said gently 'We don't vote in this Committee',

Dr Oriani-Ambrosini began to lose his temper: 'What does this mean - “We don't vote in this Committee”? This is an assault on the procedure of Parliament!' He threatened to take up the matter with the Speaker.

Dr Luyenge, not for the first time, found Dr Oriani-Ambrosini's behaviour unacceptable. It was unfortunate that this Honourable Member continued to deliberately absent himself from this Committee, and when he did attend, he was completely out of order and there was no unity in the Committee.

Dr Oriani-Ambrosini interjected that it was because he forced the Committee to follow rules.

The Chairperson told Dr Oriani-Ambrosini that, if he must behave and conduct himself in a parliamentary manner; as a Member of this Committee, he must not interject and howl at other Members, but speak through the Chair.

Dr Luyenge felt that Dr Oriani-Ambrosini continually undermined the position of the Chairperson.

Ms Dlamini-Dubazana shared Dr Luyenge's sentiments. The Honourable Member in question hardly attended a single meeting, and when he came, all he did was to disrupt the debate and destroy cohesion. Secondly, the Chairperson had acknowledged and put on record the concerns of those Members who disagreed. She did not know why Dr Oriani-Ambrosini must raise his voice in front of the Chairperson. Perhaps he sought to impress the media because the media was present with him.

Mr Mthethwa said that listening was a skill. If one wanted other people to listen, one had to listen to them in turn. Secondly, he wanted it put on record that Dr Oriani-Ambrosini must be given 'this document' and 'the previous document' and must read them now, because the Committee was on the final version. It must be noted that Dr Oriani-Ambrosini could not always arrive at the conclusion of deliberations on a bill and take the Committee back to the beginning. One could not deliberate on one issue for more than two hours.

The Chairperson put on record Dr Luyenge's concern about Dr Oriani-Ambrosini's behaviour. The Committee would address the matter in due course.

Mr Harris stood by his proposal to amend the definition of 'this Act' and asked the Committee to take a decision.

Mr Van Rooyen, after listening to the Senior State Law Adviser and to Adv Jenkins, was comfortable with the definition in the Bill, and was not comfortable with Mr Harris's proposal.

Dr Oriani-Ambrosini said that a discussion was being held about him.

The Chairperson said that the Committee was, on the contrary, dealing with the amendments.

Dr Oriani-Ambrosini said that he had been present at the Committee's first discussion on the Bill, and was now present at the voting stage. He insisted that this Committee, 'like any other committee', must vote.

Dr Luyenge supported Mr Van Rooyen's view.

Adv Swart and Mr Koornhof did not support this definition of 'this Act' for this Bill, although it was acceptable in the Financial Markets Bill.

Adv Swart noted also that it was too broad.

Ms Dlamini-Dubazana observed that there were two views – that the definition was too broad, and that it was not appropriate to this Bill.

Mr Van Rooyen asked, if the definition was too broad, what should be put in its place.

Mr Harris clarified that his proposal was that the definition of 'this Act' be amended to read that 'this Act includes any regulations and instructions in terms of this Act'.

Ms Bednar-Giyose said that there were definite requirements in the legislation for how rules, directives and notices, and exemptions, which were quite specific terms used specifically in the legislation, were to be issued and published for comment. Those terms were clearly understood and utilised in the Act. 'Instructions' was a broader term.

Mr Havermann agreed. Mr Harris's proposal was broader than the definition as at present.

Mr Harris took the point. He was happy to take out the word 'instructions' from his proposal.

Mr Van Rooyen noted that one was living in a dynamic financial environment and there was no space for ambiguity. Just to refer to the regulations would lead to problems in future.

Mr Momoniat said that from a legal perspective this definition was important in this Bill. It was important to be even-handed on all players, and this approach was appropriate across all the bills.

Ms Tshabalala preferred the existing definition, but suggested the words 'in this Act' instead of 'that have general application', since the former words made it general in approach.

The Chairperson said that everyone should be alert to the aim to position South Africa to be resilient in the world economy and one should not take half-measures. Clearly there were two views on this definition, not three. This was a Committee of Parliament, not a committee of parties. In the interests of the country Members should find themselves at that level. In this regard perhaps he, the Chairperson, was perhaps over- tolerant.

The Chairperson took a vote: those Members in favour of the definition as espoused and explained by Adv Jenkins and National Treasury and represented in the 'A Bill' were six in number; there were four against; there were no abstentions.

Clause 2: Objects of the Act
Mr Havemann said that, although the format was unconventional, the 'A Bill', the Standing Committee on Finance Proposed Amendments to the Credit Rating Services Bill [B8-2012] 04 September 2012, helped greatly to understand the changes to the Bill as tabled [B8-2012]. There were no changes to Clause 2 from the Bill as tabled.

The Committee agreed to Clause 2.

Clause 3: Application of the Act
Mr Havermann said that there were very minor changes. There was the addition to clarify the reference to registered credit rating agencies.

Mr Harris proposed deleting Clause 3(1)(b) as ratings were available free of charge by way of publication on an agency's website. Therefore any credit rating was, by default, published in South Africa. The Sub-Clause was unreasonable.

The Chairperson asked why it was unreasonable.

Mr Harris explained that, by publication on the internet, any credit rating was universally available, and therefore published in South Africa. So this Act would apply to any credit rating.

The Chairperson asked if there was anything wrong in stating the obvious.

Mr Harris said that this Act's intention was not to apply to every single credit rating in the world, but every credit used in South Africa.

Dr Oriani-Ambrosini had no consultation or caucus with Mr Harris, but concurred for technical reasons, as happened when people with common sense read a Bill and identified problems. There was no political agenda. He sought to fix problems. The definition of 'publishing' in the Bill was too broad. He supported, however, the retention of Clause 3(1)(a) which captured fully what the Committee wanted.

Mr Havermann said that this had occupied the drafting team for some time. It was implicit in the wording that the Bill applied to ratings for use in South Africa. If so desired, one could introduce the words 'for use in the Republic', which might make it clearer. He referred to Clause 3(4) which specifically excluded the use of private credit ratings or private credit rating services pursuant to an individual order or provided exclusively to a person who placed the order. This excluded the possibility of accidentally creating a credit rating service.

Dr Oriani-Ambrosini preferred to the wording explicit by including the words 'for use in the Republic' but he preferred to add the words 'by a credit rating service'.

Ms Tshabalala thought that Dr Oriani-Ambrosini's concerns were covered by Clause 3(1)(a), which contained the words 'performed in the Republic'. Moreover, she did not understand the objection to Clause 3(1)(b). Was it a question of English usage? Moreover, on the front page of the Bill was written 'Republic of South Africa'. Unless Members were sitting in another parliament, they were legislating for South Africa.

Mr Van Rooyen asked Dr Oriani-Ambrosini to clarify his proposal. The problem was in the definition of 'publishes'

Dr Oriani-Ambrosini said that the problem went away if one made explicit what was implicit. Any repetition, even writing on a wall, was covered.

Mr Harris was satisfied that by adding the words 'for use in the Republic' resolved his concern.

Mr Roland Cooper, FSB Board Senior Specialist: Credit Ratings, noted the proposal but asked Members to bear in mind that there were Memoranda of Understanding (MoUs) internationally in place which allowed that, when South Africa was a signatory, for action to be taken against an unregistered credit rating agency which published ratings in South Africa. Care must be taken before rewording Clause 3(1)(b).

Adv Swart did not understand the problem with the formulation. Were there some unforeseen consequences?

Mr Cooper pointed out that one could not restrict the use of ratings by adding the words 'for use in the Republic' as ratings were used internationally.

Dr Oriani-Ambrosini confirmed that everyone was content with Clause 3(1)(a). Clause 3(1)(b) was beyond Clause 3(1)(a) so needed to define something else. The problem here was not to make this Act applicable to people who were not credit rating services, which was not the intention, and Clause 3(1)(b), as it stood, would do that, because it did not require this Act to apply to credit rating services or agencies. It applied to the credit rating, and by consequence to anyone who provided a credit rating. The act applied consequently to conduct, and conduct included publishing, which was extremely broad and everyone present was at some or other point in time bound to do it.

Mr Havermann referred to the definition of 'deposit' in the Banks Act (No. 94 of 1990). Everyone was covered by the Banks Act, even if one took at loan from one's grandmother. It was important to understand this. The Banks Act was almost slightly too wide in its application, while it gave the Registrar of Banks quite extensive powers of exemption. National Treasury had taken the same approach in this Bill. It was better for the application of the Bill too be slightly too broad rather than too narrow.

Dr Luyenge said that the Bill's intention of being broad in application was because of South Africa's global standing. South Africa's participation was broad in its very nature. He fully supported National Treasury's position.

Mr Harris shared the point about the exemptions being generous, but felt that it seemed unworkable to expect that exemptions could mitigate the problem with the fact that every credit rating was effectively published in South Africa.

Dr Oriani-Ambrosini saw a problem with this Bill similar to that presented by the Protection of Personal Information Bill [B9-2009], on which as a Member of the Justice and Constitutional Development Portfolio Committee was deliberating. The latter Bill would, potentially, criminalise everyone in how he or she used information. There was a big regulator who decided how wide to cast the net of enforcement. The Banks Act was, to an extent, similar. He accepted that there was a trend with this kind of legislation, but it was a bad way to write law. From the Government's side, it might be comfortable, since it had as wide a scope of application as it might wish. However, from the viewpoint of the citizens, whom Members represented – not the Government, it was a problem.

Mr Momoniat had always acknowledged this problem. Such legislation was premised on the regulators' being sensible, acting in good faith, and being accountable. The other side of the coin was to find mechanisms for the regulators to be held more accountable so that they would not abuse their powers. However, such legislation did protect the citizens. It raised the question of how protective the state should be. Nevertheless, the world was moving in a particular way, and this approach was a particular fashion now. If South Africa, a small player, did not fall in line, its financial institutions would be punished. This was not to dismiss the issue.

The Chairperson's understanding was that the FSB said that there was a need to be a little cautious on how it finalised the definition here or the area of application. He had listened to everyone, but did not derive a sense that one was moving closer. He feared that the Committee would spend another hour discussing this particular issue without making any progress.

Mr Koornhof thought that Members could agree with Mr Havemann's proposal. However, the FSB had objected, and must resolve its difference with National Treasury rather than expect the Members to resolve it.

The Chairperson confirmed that Mr Havemann had made a proposal, which to a certain extent incorporated Mr Harris's earlier concerns. Then the FSB had said that it needed to be cautious. The FSB and National Treasury must find each other.

Mr Harris would propose later an additional Clause which would have implications for Clause 3(2). This additional Clause would introduce a standard transitional measure which would render Clause 3(2) redundant. He would be happy to deal with this later, but wanted to flag it. The law needed to prescribe a period of time (six months) for compliance with the legislation rather than leaving it to the Minister to do by way of Clause 3(2). This would be by introducing a new Clause – to be numbered Clause 36 - at the end of the Bill. He had drafted the wording, and could submit it to the Chairperson – it was quite long.

The Chairperson confirmed that this would be under Amendment of Law (Clause 36 in the Bill as tabled [B8-2012]), and the Committee would deal with it in due course.

The Committee agreed to move on to Clause 4.

Clause 4: Use of credit ratings
Mr Havemann said that the Association for Savings and Investment South Africa (ASISA) had proposed a slight rewording. National Treasury now proposed a new Clause to the effect that a regulated person must, for regulatory purposes only, use credit ratings that were issued or endorsed by registered credit rating agencies. The Registrar might prescribe additional requirements in respect of the use of credit ratings for regulatory purposes.

Mr Harris saw Clause 4 as the heart of this Bill. In order to fulfil South Africa's Group of 20 (G20) obligations, all agreed that there needed to be some regulation of credit rating agencies. However, the Committee must be aware that the more onerous the regulations, the bigger the cost to the credit rating agencies. It was not simply a cost which they absorbed, but one passed on to the issuers of debt. Ultimately, those costs were likely to be passed on to consumers. More than 50 per cent of debt in South Africa was issued by the state, which would then pass on the cost of regulatory compliance to the taxpayer. There was no such thing as costless regulation. Compliance with the G20 should be in a way that imposed appropriate costs. The Bill's endorsement mechanism, which emulated the European Union (EU) and Japan, was overly onerous. He would therefore propose scrapping the endorsement Clause and amend Clause 4 to specify, the way in which many markets had done, that external credit rating agencies' ratings could simply be approved for use in South Africa in the way, for example, that the USA, Hong, Kong, Singapore, and Australia had done, which was much simpler and cheaper. The EU and Japanese model imposed far too many costs, especially for a small market like South Africa's.

Mr Harris read his proposed amendment in full.

Dr Oriani-Ambrosini said that recognition of external credit rating agencies on the lines of an international driving licence would diminish costs, provide reciprocity, and be conducive to credit rating agencies being conducted in South Africa and their services being sold abroad. There was nothing to be lost by doing it this way.

Ms Dlamini-Dubazana understood what Mr Harris proposed, but was not privileged to the information on which he had based his proposal.

Ms Dlamini-Dubazana agreed with Dr Oriani-Ambrosini that uniformity was, too a large extent, good. In formulating its laws, South Africa needed to apply international standards, but not to the extent of complete uniformity, because South Africa was a unique country with its own needs.

Mr Harris had no additional information but had based his proposal on the logic of how a credit rating agency would have to comply with the current endorsement framework. He explained in detail. It would be much simpler, as Dr Oriani-Ambrosini had put it eloquently, just to require the publication of a list of external credit rating agencies which were covered by these regulations.

Mr Havermann thought that there was a misunderstanding of Clause 4, perhaps derived from his not having explained the definition of 'registered credit rating agency' adequately. He read Clause 4(1) and the definition for 'registered credit rating agency' (Clause 1). Ms Dlamini-Dubazana had made a very good point. He read also the definition of 'external credit rating agency'. He was not sure what Mr Harris's proposal would add that was not already in the Bill. There was also a misunderstanding about endorsement.

Mr Cooper said that endorsement was not on a rating-by-rating basis, but was of a credit rating agency as part of a group. He would explain further later.

Mr Momoniat pointed out that there were only a few credit rating agencies. The external agencies were effectively the parent companies.

Dr Oriani-Ambrosini argued in favour of Mr Harris's proposal which, he thought, would avoid the need to apply for registration and for exemption, enhance reciprocity, and reduce costs. He pointed out that costs would ultimately by borne by the taxpayer. He referred again to his international driving licence analysis. He explained in detail.

Mr Havermann agreed that for the Registrar to keep a list was a very good suggestion. He referred to Clause 5(10) which said that the Registrar must maintain a list of registered credit rating agencies on the FSB website.

Dr Oriani-Ambrosini said that this still did not allow the Public Investment Corporation (PIC) to buy Ford stock that had been given a credit rating by an agency unless that agency had registered in South Africa and obtained an exemption.

Mr Havermann was uncomfortable with this suggestion. The Bill required that when a pension fund invested its money in Ford, for example, it must do so on the basis of an external credit rating that the Registrar had approved as equivalent to the ratings regime in South Africa.

Mr Van Rooyen noted that the Bill's purpose was to ensure compliance with G20 obligations.

Ms Tshabalala rejected a one-size-fits-all approach. Clause 5(10) captured the requirements well. There was no need to change it.

Mr Van Rooyen noted the need to contain cost implications, but one had to consider the opportunity costs of not regulating properly.

Adv Jenkins emphasised that a minister or regulator was bound by the principle of rationality. They could not just assume that appropriate legislation and regulation was in place in another country. Under the Constitution and judgements of the Constitutional Court, he or she must apply his or her mind. If one expected the Minister to do what one expected the external credit rating agency to do, it would in any case be taxpayers' money that would have to be used to make that assessment so that the Minister could discharge his or her functions.

Mr Harris agreed with Adv Jenkins about the rationality of the Minister, but apart from that, the Committee had already approved the definitions, and the definition of an external credit rating agency required the regulatory authority to assess the laws of the country and to establish that the regulatory framework in that country was equivalent to that established by this Act. All that Mr Harris was suggesting was that a foreign credit rating agency would, by virtue of its sister agency in South Africa, appear on the list of what he was proposing would be included in his amended Clause 4, and therefore be eligible for use by regulated persons in South Africa. This was a much simpler way of endorsing external credit rating agencies than that huge edifice of endorsement established in Clause 4, which required a rating-by-rating endorsement.

Adv Swart asked what international best practice was in the regulation of foreign credit rating agencies. Was it on the lines of a list, as suggested by Mr Harris, or a process of validation and endorsement as provided for in the Bill as it stood? He was not sure if it was endorsement on a rating-by-rating basis. It seemed to be endorsement of an agency on a once off basis. How were foreign credit ratings agencies regulated in other countries?

The Chairperson thought it would be necessary to narrow the discussion on this issue in terms of credit ratings domestically and what one intended to achieve in terms of external credit ratings or agencies in South Africa.

Mr Momoniat acknowledged that the USA and the EU had different approaches. When either of them had provisions, South Africa was obliged to adopt the tougher of the two, because it had to meet both. This was a dilemma. South Africa had to meet some time lines. It was not a rating-by-rating approach but one of agency by agency. There would be once-off costs too. National Treasury did not want a rating-by-rating approach. He acknowledged that there were many approaches. It was only the tougher approach to regulation that would satisfy the EU. It was similar with oil imports from Iran, for which South Africa had obtained an exemption from the USA, but not from the EU. South Africa was in this case also obliged to follow the tougher line, that of the EU. This was the dilemma.

Mr Havermann explained that South Africa had chosen the EU approach. Russia was the only G20 country without any credit rating agency regulation. Without endorsement, it would not be possible to sue in case of loss, as the South Africa agency concerned would not have taken on any risk and would be blameless. In the Response Document [See Relevant Documents] National Treasury had given considerable detail on how the Dodd-Frank Wall Street Reform and Consumer Protection Act 2010 (H.R.4173) [USA] had gone about the regulation of credit rating agencies.

Postponement of further deliberations and adoption of Bill
The Committee agreed to continue its consideration until next 12 September 2012 (to be confirmed). The present documentation would be sufficient.

Mr Momoniat apologised that he would be unable to attend as he was scheduled to attend a meeting of the G20's Financial Stability Board.

Adv Swart suggested that Mr Harris should circulate to National Treasury and Members his proposals in writing ahead of the next meeting.

The Chairperson said that any Member could make proposals in writing and send them to the Committee Secretary for circulation.

Ms Bednar-Giyose asked that the Committee send all the proposed wording to National Treasury promptly to assist the drafting team to complete its work.

Mr Bert Chanetsa, Registrar of Securities, asked if others could do the same.

The Chairperson agreed.

Mr Harris reserved his right, in addition to the above, to raise anything in the Committee's deliberations. .

Ms Bednar-Giyose wanted to complete 'the A list' of the Bill promptly and have all the documentation ready well before the next meeting. It was of immense help if significant changes could be notified in advance, just for practical purposes.

The Chairperson agreed.

Mr Mthethwa observed that Dr Oriani-Ambrosini had left the room. Maybe he was dealing with the media. This was unfortunate. When the Committee reconvened, Dr Oriani-Ambrosini would want to start afresh.

The Chairperson said, with good humour, that the Committee would delegate to Mr Harris the task of briefing Dr Oriani-Ambrosini on the way forward.

Mr Harris did not have Dr Oriani-Ambrosini's number.

There was laughter.

The Chairperson said that it would be easy to find Dr Oriani-Ambrosini's telephone number and email address.

The Chairperson adjourned the meeting.

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