Credit Ratings Services Bill: deliberations; Money Bills Amendment Procedure & Related Matters Act: Committee progress report: adoption

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Finance Standing Committee

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

The Committee revisited Clause 19: Liability of Credit Rating Agencies, and, having reached consensus on deleting Clause 19(3), was now satisfied. The effect would be, as indicated by the Senior Parliamentary Legal Adviser, that it would be left to the courts to decide whether a contracting-out provision in a contact between a credit rating agency and an issuer would be valid or not.

National Treasury and the Financial Services Board (FSB) had appealed to the Chairperson that they wanted to present a stronger motivation for Clause 25: inspections and on-site visits. He had agreed.

National Treasury noted the Committee's concerns that 'on-site visits' and 'inspections' were not appropriately delineated. Treasury submitted that on-site visits were better described as 'compliance visits' in so far as they were meetings with regulated persons to assess their compliance with the law and described the purpose and main difference in the powers. Regulators needed the power to make on-site visits and inspections. An inspection was a much more ad hoc process and was driven by clear reasons for investigation. It might well be that an on-site visit uncovered something that warranted an inspection. The issue was how seamless was the transition from one to the other. Treasury and the FSB proposed that the power required was to ensure that the registrar might conduct on-site visits, which were normally carried out every year. The issue of the composition of the team and inclusion (if any) of other experts did not have to be stated there, because the powers of delegation were already given. It was also necessary to ensure that the registrar had the powers of inspection in terms of the Inspection of Financial Institutions Act. If the Committee agreed with these powers, Treasury and FSB asked that the Committee agree to their being retained in the Bill. In the future, Treasury and FSB would endeavour to centralise these powers and simplify the legislation. However, that would be a process over four or five years, and, in the meantime, Treasury and FSB did not want there to be any gaps in the transition. This issue would arise with the Financial Services General Laws Amendment Bill [B21B-2008] as part of the general approach. These powers were 'draconian', but this had become the lesson of the financial sector and had become the international trend. Of course, it was necessary and very important to check against the Constitution.

Treasury and FSB proposed removing from Clause 25(1), 'authorise any suitable person to' so that the Clause would begin 'The registrar may conduct an on-site visit of the business of a credit rating agency to determine compliance with this Act'.

A COPE Member was happy with the above, but not with retaining Clause 25(2). The Chairperson agreed. The powers provided by Clause 25(2) were almost like those of an inspectorate.

FSB explained how an on-site visit actually became an inspection, with a seamless transaction from one to the other, should circumstances dictate. These powers were necessary for the FSB to fulfill its regulatory role and proactively enforce regulation.

An ANC Member said that Clause 25(2) contained the powers delegated by the registrar to anyone appointed to carry out the on-site visit. Another ANC Member compared an on-site team without powers to non-commissioned officers in the army who could not bring a charge without first referring the matter to a commissioned officer, with the result of wasted time and effort. Treasury and FSB failed to convince a DA Member who argued that the definition of 'draconian' was 'excessively harsh and severe'. Clause 25(2) as proposed did not provide the appropriate checks and balances. If FSB required further powers, it must invoke the Inspection of Financial Institutions Act 1998.

A Member asked if there could be a definition of the duties of 'a suitable person'. An ANC Member urged being very specific on the duties of this suitable person so as to clearly distinguish an on-site visit and an inspection. Treasury and FSB asked for some time to consider alternative wording.

Members eventually reached consensus on Clause 25(2) after Treasury and FSB had proposed a substitution, and, in particular, explained the need for Clause 25(2)(d). The Senior Parliamentary Legal Adviser also gave reasons in support of Clause 25(2)(d). A COPE Member was now happy with Clause 25(2)(d)(ii) as it specified temporary seizure.

The above DA Member wanted to delete Clause 25(4)(c). It was not necessary to publish that the inspection was taking place. A fourth ANC Member disagreed. A fifth ANC Member said that if the registrar received information in the public interest that information must be made known. The Chairperson said that the Committee must balance what was in the public interest. Regulators must be beyond reproach.

Members agreed to Treasury and FSB's proposed insertion at the beginning of Clause 25(4)(c) to the effect that the registrar would be required to consider the interests of the credit rating agency prior to taking a decision that the outcome and details of an on-site visit should be published. So there would be a balancing of the interests of the credit rating agency and the public interest. After protracted deliberations, compromise was achieved on Clause 25.

After some discussion, Members agreed to Clause 26. Members also agreed to Clauses 27, 28, 29, and 30. An ANC Member questioned the use of 'may instead of 'must' in Clause 31(b): Treasury wanted to retain 'may' in order to give the registrar discretion; Members agreed to Clause 31. Members agreed to Clause 32, after an ANC Member convinced the DA Member. Members agreed to Clauses 33, 34 and 35. The DA Member wanted a new Clause 36 to provide for transitional provisions. The Committee did not accept this proposal as such, but the Chairperson noted the need for certain specifics to be taken into consideration, including the need to spell out transitional measures, that should form part of the Committee's report. The Committee agreed to the existing Clauses 36 and 37.

The Committee adopted its draft progress report on its review of the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009).

Meeting report

Introduction
The Chairperson noted that in the 12 September 2012 meeting the Committee had concluded on Clause 25, but National Treasury and the Financial Services Board (FSB) had appealed to him that they wanted to present a stronger motivation for Clause 25. He had agreed. It would also be necessary to revisit Clause 19. He appealed to Members to allow Treasury and FSB to present their case for Clause 25 and anything else on which they felt the need to speak.

Credit Ratings Services Bill [B8-2012]: Committee Deliberations
Clause 19: liability of credit rating agencies

Clause 19(1)
Mr Roy Havemann, Treasury Chief Director: Financial Markets and Stability, said that the intention of the liability Clause was to entrench the common law. Following the Committee's discussion, Treasury proposed a simplified Clause 19(1)

'A registered credit agency may be delictually liable in respect of a credit rating issued or credit rating services performed in the ordinary course of business in terms of this Act, for any loss, damages or costs sustained as a result of such a credit rating or credit rating service.' (See document)

 Mr Ismail Momoniat, Treasury Deputy Director-General: Tax and Financial Sector Policy, explained that Treasury and FSB had just removed the words 'to an investor or member of the public'.

Mr T Harris (DA) agreed to Treasury and FSB's proposed simplified Clause 19(1).

Ms J Tshabalala (ANC) said that the proposed wording for Clause 19(1) should be as follows, with the word 'rating' added:

'A registered credit rating agency may be delictually liable in respect of a credit rating issued or credit rating services performed in the ordinary course of business in terms of this Act, for any loss, damages or costs sustained as a result of such a credit rating or credit rating service'.

Mr Havemann agreed.

The Committee agreed to Clause 19(1)

Clause 19(2)
The Chairperson noted that Treasury and FSB wanted to retain this Clause as it was.

Mr Havemann confirmed that Clause 19(2) remained. It was a safeguard to indicate that there might be other measures such as contracts or other legal obligations that created liability. (See document)

Members agreed.

Mr Harris referred to the proposed wording 'other than to indemnify the credit rating agency through an insurance contract, guarantee or similar for loss incurred as a result of such liability'.

Mr Havemann said that this wording actually applied to Clause 19(3). This proposal was as a result of concerns raised by the Senior Parliamentary Legal Adviser that there was a need to allow for personal indemnity insurance.

Members agreed.

The Chairperson noted that the Committee was now done with Clause 19.

Mr Harris said that the Committee was done with Clause 19(1) and Clause 19(2).

Clause 19(3)
Mr Havemann confirmed that the words 'other than to indemnify the credit rating agency through an insurance contract, guarantee or similar for loss incurred as a result of such liability' should be added to the current Clause 19(3). This was Treasury's proposal.


The Chairperson acknowledged this.

Mr Harris stood by his initial proposal for Clause 19(3) which was in the possession of Members. One could add the reference to insurance, but one had to accept that the size of these deals on which the credit rating agencies were expressing an opinion was as high as trillions of rands. The insurance industry was not a feasible way of mitigating such risk. One could leave it up to the market, but it would not work. He would prefer the credit rating agencies to establish particular terms of liability in the contract. He was convinced that his own proposal for Clause 19(3) was the right way to go.

Mr Havemann understood that Mr Harris's proposal essentially limited liability for credit rating agencies. This was not the international experience. On the contrary, the international experience, as he, Mr Havemann, understood it, was either to be silent on liability or to establish a different procedure on wrongfulness. If one remained silent on liability, then the common law applied. What Treasury had proposed was the common law provision.

Treasury would not support limiting the liability of credit rating agencies.

Mr N Koornhof (COPE) asked 'Why don't we go silent?'. He referred to the Consumer Protection Act (No. 68 of 2008), in terms of which, under certain circumstances, one could enter into a contract with a consumer. Moreover, credit rating agencies dealt with such sophisticated clients. It would be too prescriptive to say that one could not enter into a contract with a client. It was better to be silent: 'let them fight it out'.

Mr Momoniat thought that this was 'a fair point'. He wondered if the FSB had any issues.

Mr Roland Cooper, FSB Board Senior Specialist: Credit Ratings, said that Members and delegates did discuss this previously, where FSB had indicated that the intention of this Clause 19(3) was to eliminate the need for any lengthy litigation. All that FSB wanted to state was that one could not contract out of liability, and thereafter the courts would decide. That was as far as FSB had gone.

Ms Retha Stander, FSB Senior Legal Adviser, said that FSB believed that it needed this provision to protect both the investor and the issuer from being forced into a contract which they would not otherwise have accepted.

Mr Harris quoted Section 49 of the Consumer Protection Act. The point was that South African law did provide for contracting out of liability provided that potential consumers understood this. It was conspicuous and in plain language. It referred to contacting out on liability. Given the sophisticated nature of the credit ratings market, as pointed out by Mr Koornhof, there was no question of that. To specify in the law that consumers and issuers could not contract out of liability was not the right approach. In line with his own drafting, he would give consumers and issuers the protection of the ability to do so. Mr Koornhof's proposal was an alternative to his own and was far better than preventing consumers and issuers from contracting out of liability, which was out of step with the Consumer Protection Act.

 Ms Jeannine Bednar-Giyose, Treasury Director: Fiscal and Intergovernmental Legislation, said that Section 51(1)(c) of the Consumer Protection Act stipulated that 'a supplier must not make a transaction or agreement subject to any term or condition if ( c) it purports to ( i) limit or exempt a supplier of goods or services from liability for any loss directly or indirectly attributable to the gross negligence of the supplier or any person acting for or controlled by the supplier'. So there was, in that instance, a prohibition on contracting out of liability to that extent.

Mr Harris said that this provision applied specifically to gross negligence. His point was that Section 49 of the Consumer Protection Act provided for contracting out of liability in general circumstances, with the obvious exception of gross negligence. What the Bill in its present form sought to do was provide for a general prohibition of contracting out of liability which was out of line with the Consumer Protection Act.

Mr Momoniat, notwithstanding Mr Koornhof's proposal, though that Clause 19(3) provided an appropriate means for credit rating agencies to mitigate their risks.

Mr Havemann distinguished two proposals: Mr Koornhof's and Mr Harris's. He did not have a problem with Mr Koornhof's proposal on 'going silent', as the courts generally did not allow a contracting out of liability. It would be something to which the courts would have to apply their minds. Treasury and FSB wanted to give effect to what the courts had already decided.

Mr Momoniat asked if the Consumer Protection Act would not cause confusion, if the Bill did not contain any provision on liability.

Ms Stander said that the Financial Services General Laws Amendment Bill [B21B-2008], the omnibus bill, would exclude all financial services legislation from the provisions of the Consumer Protection Act. So if one wanted a similar requirement, one would have to provide for it specifically in this Act. Treasury and FSB had referred to the Consumer Protection Act to show that such provisions already existed in South African law. It would seem, from judicial decisions, that disclaimer clauses were, in some instances, deemed to be unconstitutional.

The Chairperson said that Mr Harris was sensitive to Mr Momoniat's tendency to agree with Mr Koornhof.

Mr Momoniat assured the Chairperson that he listened to all reasonable opinion.

Mr D Ross (DA), in the interest of playing it safe, supported Mr Koornhof on 'going silent'. Contracting out of liabilities was dangerous terrain.

Mr Momoniat 'could live with that'. He agreed that the provision could be deleted. The common law still applied. In deleting Clause 19(3), Treasury and FSB was not saying that credit rating agencies were not delictually liable. The common law would still apply and they could mitigate their risks through insurance.

The Chairperson inferred that the application of the common law was inherent and would not have to be written into the Bill.

Mr Harris agreed reluctantly.

The Chairperson laughed.

 Adv Frank Jenkins, Senior Parliamentary Legal Adviser, said that if one deleted Clause 19(3) the effect would be to say that it would be for a court to decide whether such a contracting out provision in a contact between a credit rating agency and an issuer would be valid or not. One proposal was to exclude at least gross negligence. The other proposal was to leave it out. If one left it out, as he inferred that the Committee was now inclined to do, it must be understood that one was not dealing here with general consumer protection. One was dealing with a specific provision for this industry. As mentioned in the discussion on Clauses 5 to 8, one expected this industry to be of a high moral standing. It had to be asked, if the industry was to be held to a high standard, why it should want to contract out of liability. He agreed with Treasury that if one deleted Clause 19(3), it would be left to the courts to decide whether such a contracting out provision in a contact between a credit rating agency and an issuer would be valid or not.

Ms Tshabalala asserted that it was necessary to hold people liable for their actions. It was correct to make reference to the common law. Clause 19(3) could be deleted.

Mr Harris said, in response to Ms Tshabalala, that, if was not mentioned, the common law applied. It was not that there was no protection, it was simply that the Bill had not gone further than the common law. He was happy to concede, and agree to deleting Clause 19(3), and thereby to reverting to the common law.

Mr Momoniat asked for clarification if all of Clause 19 was to be deleted, or just Clause 19(3).

The Chairperson noted that the Committee had agreed on the deletion of Clause 19(3); otherwise the Committee was now satisfied with Clause 19.

Clause 24: rules
Clause 24(1)(f): rating assumptions – design of methodologies and models
The Committee had proposed deletion. Treasury had agreed. (See document).

Clause 25: inspections and on-site visits
Treasury and FSB's proposal
Mr Momoniat referred to a note which he circulated (Treasury responses raised by the Standing Committee on Finance following its meeting on 12 September 2012). He noted the Committee's concerns that 'on-site visits and 'inspections' were not appropriately delineated. Treasury submitted that on-site visits were better described as 'compliance visits' in so far as they were meetings with regulated persons to assess their compliance with the law. He described the purpose and main difference in the powers. (See document).

Every player in the financial sector must be regulated in some way. Secondly, if a player was regulated, it thereby agreed that it would be subject to certain processes, so that if at any stage it failed to comply, its licence could be taken away or some sanctions could be used against it. He reminded Members that with the move towards twin peaks, the approach was to centre many of these powers in one bill, but Treasury and the FSB were not ready to do this just yet. In the financial sector legislation the same Clause recurred in similar form, notably in the Financial Markets Bill [B12-2012]. It was a parallel process that once the twin peaks legislation was in place, then it would be possible to start rationalising the legislation. It would not have been impossible to do so now, but it would have caused much confusion to try to do so simultaneously with trying to deal with the gaps. This did make the process somewhat unwieldy.

Regulators have to have the power to make on-site visits and inspections. On-site visits were normally annual visits that the FSB did in a friendly environment. Every regulated entity knew that the FSB would arrive and conduct an on-site visit and would obviously check for compliance.

An inspection was different, and would be conducted if there was an allegation that something was wrong with a particular company. An inspection was a much more ad hoc process and was driven by clear reasons for investigation.

It might well be that an on-site visit uncovered something that warranted an inspection. The issue was how seamless was the transition from one to the other. The FSB had conducted on-site visits and in the course of the visit people had started destroying documents before the on-site visit became a formal inspection. The Committee had not doubted the need for those powers. Surely an on-site visit was led by the FSB, which indeed brought in experts, but surely such a visit would generally not be led by 'any suitable person'.

As a way forward, Treasury and the FSB proposed that the power required was to ensure that the registrar might conduct on-site visits, which were normally carried out every year. The issue of the composition of the team and inclusion (if any) of other experts did not have to be stated there, because the powers of delegation were already given. The registrar him or herself did not go physically in person to exercise those powers. It was also necessary to ensure that the registrar had the powers of inspection in terms of the Inspection of Financial Institutions Act (No. 80 of 1998). If the Committee agreed with these powers, Treasury and FSB asked that the Committee agree to their being retained in the Bill.

In the future, Treasury and FSB would endeavour to centralise these powers and simplify the legislation. However, that would be a process over four or five years, and, in the meantime, Treasury and FSB did not want there to be any gaps in the transition.

This issue would arise with the Financial Services General Laws Amendment Bill [B21B-2008] as part of the general approach.

In the previous meeting Mr Koornhof had raised the provision on 'this Act'. If one had this in a centralised bill, Treasury and FSB did want to give wide powers, and, indeed, these powers were 'draconian'. This had become the lesson of the financial sector, in which one operated under a draconian regime. This had become the international trend. Of course, it was necessary and very important to check against the Constitution, but generally the aim was not to limit powers. It might seem that for today the power was out of proportion, but it was really in dealing with those 'unknown unknowns'. Hence, the standards that applied in banking, insurance, and the securities markets, and the general provision for on-site visits, inspections, and other draconian powers. If one considered activity by activity it became a complex process, and there was a risk of leaving things out. So the approach taken was that generally these powers should be given to the regulators in all instances. It was to be hoped that the registrars would be accountable and use their powers wisely. If there were any abuse, it would be necessary to have measures to keep the registrars in check.

Ms Jeannine Bednar-Giyose, Treasury Director: Fiscal and Intergovernmental Legislation, said that if the Committee wanted to remove from Clause 25(1) 'authorise any suitable person to', Treasury and FSB would accept 'The registrar may conduct an on-site visit of the business of a credit rating agency to determine compliance with this Act'.

Discussion

Mr Koornhof was happy with the above, but was not happy with retaining Clause 25(2). He did not want to give the registrar those powers. He could see Ms Bednar-Giyose shaking her head - that was a concern, he said. His major concern was that Treasury and the FSB wanted the same powers as the inspector in terms of the Inspection of Financial Institutions Act 1998. Why? Treasury and the FSB did not want to be the Hawks, but wanted all their powers: this was a big concern. He was very happy to give that to the FSB, which knew that he was happy to give it even more powers, even draconian powers, 'if you can stop some of the nonsense that's going on in that sector', but for this specific Bill the precedent was going too far. This was the concern of the Committee, not that the FSB could go on-site and check for compliance, but to give it the same power was going too far. That was the Committee's concern the previous week.

The Chairperson agreed. The powers provided by Clause 25(2) were almost like those of an inspectorate. This was where the problem lay.
 
Mr Momoniat replied that this was a power with regulated entities. With an unregulated entity it was necessary to use the powers of an inspectorate directly. This was where problems arose as people destroyed documents in the course of an on-site visit. On such occasions, the FSB had told Treasury, an on-site visit actually became an inspection, with a seamless transaction from one to the other, should circumstances dictate.

Ms Wendy Hattingh, FSB Head: Financial Advisory and Intermediary Services (FAIS) Supervision, explained. As a supervisor, the FSB must be continually monitoring. In the process of monitoring, on-site visits were very important. If the supervisor had limited powers when performing an on-site visit, and those conducting the on-site visit realised that there was something suspicious, before moving over to an inspection, those conducting the on-site visit would apply their minds carefully and obtain all information. If those conducting the on-site visit wanted a document from an informant and that informant refused, then, in the absence of powers, those conducting the on-site visit would have to call in the inspectorate. From the time that those conducting the on-site visit left the office, there was now a process that had to take place, if that entity was not in the same place as the inspectors, since the inspectors would have to understand the background. Therefore the powers of seizing documentation was given to the on-site visit team to ensure, that, as the regulator, the FSB could, if necessary, take that documentation and not run the risk that at a later stage it would be unavailable and in a court of law the FSB would not be able to prosecute for want of sufficient evidence. The FSB performed some 500 to 600 on-site visits a year. In 99 per cent of on-site visits, entities cooperated. However, there were instances, usually when fraud had been committed, that the entity wanted to withhold information, and without those powers at that stage, it could happen that the FSB, as a regulator, could not take swift action. Prior to 2008, the FSB had experienced this problem, when it did not have those powers. Currently, if an entity was uncooperative, the FSB could take documentation and issue a receipt. It was important to obtain the information on the spot, and not at a later stage, for fear of tampering with evidence. These powers were necessary for the FSB to fulfill its regulatory role and proactively enforce regulation.

Ms Z Dlamini-Dubazana (ANC) said that if the Committee accepted Treasury and FSB's proposal, then Clause 25(2) would not be a problem as it contained the delegated powers – the powers delegated by the registrar to anyone appointed to carry out the on-site visit. Therefore Clause 25(2) need not be removed, as Mr Koornhof required. At the end of the day, the buck stopped with the registrar.

Dr Z Luyenge (ANC) said that to Members of Parliament who had not had experience in the public service it might seem as if Clause 25(2) was duplication. Without appropriate powers, the on-site team could not enforce its authority to obtain authentic and legitimate information that might be used in a court of law, just as, in the army, a non-commissioned officer (NCO) had a responsibility to monitor and evaluate but could not charge on the basis of what he or she had found, but would have to make a submission that a commissioned officer instruct an inspector to ascertain afresh what had been done by that NCO. This would result in a waste of time, money and effort, only to have at the end a report without legitimacy. It was necessary for the on-site team to have the authority to obtain the information needed for the inspector to take the matter further.

Mr Harris had agreed with Mr Koornhof but was not convinced by Treasury. He rejected draconian laws, as the definition of draconian was 'excessively harsh and severe'. Laws should be appropriately strong but never excessively harsh or severe. Clause 25(2) as proposed did not provide the appropriate checks and balances. If FSB required further powers it must invoke the Inspection of Financial Institutions Act 1998. This latter Act was very carefully written, and required the registrar to go through certain processes in order to obtain approval for an inspection. Once that approval had been obtained, the registrar had extensive powers to enter, copy and seize. This was the appropriate way. One could not give the registrar powers approaching the draconian merely on the basis of a suspicion that a credit rating agency might begin to shred documents during an on-site visit. To give the state powers to do anything – to enter anywhere, seize anything, monitor anybody, arrest anybody, was to establish a totalitarian state. That was how dictatorships worked. The point was that the state's powers needed to be balanced. Mr Koornhof had proposed that if the FSB wanted those powers that were bestowed under the Inspection of Financial Institutions Act 1998 the FSB would have to work via that Act. The Committee could not agree to give the FSB these powers for just an on-site visit. It would go to far. He affirmed the proposal to delete Clause 25(2). Let the FSB conduct these 'friendly', monitoring on-site visits, but if it wanted to go further it must invoke the Inspection of Financial Institutions Act 1998. To him this was crystal clear.


Mr Ross to some extent agreed with Ms Hattingh in so far as time was of the essence. He gave the example of the municipalities. He supported the details in Clause 25(2). He was not sure exactly what the Inspection of Financial Institutions Act 1998 contained. Perhaps the balance that Mr Harris wanted could be found in that Act. Without the detail of Clause 25(2) it would be difficult to implement the proposed Act.


He fully agreed that the registrar might conduct an on-site visit, but that the words 'authorise any suitable person to' could be deleted from Clause 25(1)(a).

The Chairperson asked Mr Momoniat if he still wanted to insist on his proposal.

Mr Momoniat replied that this was a critical issue. One either wanted a regulator with teeth, or one wanted a toothless regulator. He was not looking at the specific activity of credit rating, but this general approach was to be found in the Financial Markets Bill, yet it had not been raised as an issue then. If one agreed on this approach in the Financial Markets Bill, one had to ask if one should not be even handed. If one was to regulate the financial sector, all entities should be equal. The reality was that the financial sector was like a nuclear facility. Without strong regulation, massive problems were likely, with consequences affecting millions of people, including through job losses. The meeting in Switzerland which he had attended last week was all about strong supervisors should be. Some of us had fought in the struggle for democracy and would resist draconian powers in normal activities, but if one entered the financial sector one accepted the need for regulation and the application of harsh disciplinary measures when necessary. It was important to have balance and for regulators to be accountable. Here regulators were being given more powers than usual. This was because it was a considered case, because of the ability to wreak havoc. However, if the regulators exceeded their powers, they should be fully accountable. This was an important discussion to have. Treasury and FSB had to insist on these powers and on being even handed in the treatment of financial entities. Treasury agreed on the need for balance, but if one agreed on the need for regulation, one had to insist on effective powers. All that Treasury and FSB sought was the power to search and make copies. This was not killing anybody or putting anyone in prison. If anyone was regulated, why would he or she be afraid to provide those documents? It was only that one per cent to which Ms Hattingh had referred which did not want to comply. He left the matter to the Chairperson.

Mr Koornhof asked, with reference to Clause 25(2)(a) if the powers, provided in Clause 25(2)(a)(iii) and Clause 25(2)(a)(iv), to examine and seize a document against the issue of a receipt would not be enough, and thereafter, if necessary, one could invoke Clause 25(3). Then one would have all the powers, and the evidence. He understood Mr Momoniat's argument, but said that it should have been a chapter of the Financial Markets Bill. It was unfair to ask the Committee to have an umbrella vision of legislation.

Mr Harris asserted that no Member of the Committee would deny the registrar these powers, but they resided appropriately in the Inspection of Financial Institutions Act 1998, in which all the checks and balances were present and the powers of the state were balanced. Just pulling out some of those powers from the Inspection of Financial Institutions Act 1998 and including them in this Bill without any checks and balances was going too far. He could consider Mr Koornhof's revised proposal, but he thought that this Act simply needed to provide for on-site visits and, if search and seizure was required, then inspection must be invoked. He rejected including in this Bill powers of search and seizure without the appropriate checks and balances provided in the Inspection of Financial Institutions Act 1998.


Mr D van Rooyen (ANC) said that the Committee's concern had always been about the possibility that 'a suitable person' would suddenly take away the duties and responsibilities of an inspector.

Mr Momoniat acknowledged that there might be better wording, but again argued for even handedness. Maybe a mistake had been made in the Financial Markets Bill, or maybe not. It not been raised in the discussion on that Bill. It was, he pointed out to Mr Koornhof, and approach that Treasury and FSB wanted to take in centralising this legislation, as in the Inspection of Financial Institutions Act 1998. If one had the luxury of time, that was what one would do. He conceded that the legislation for the financial sector was rather overwhelming, and perhaps the world was going 'too much the other way' because of the crisis. However, that was the way things were currently. One wanted to give the registrar such power that, during an on-site visit, if sufficient cooperation was not forthcoming, the registrar could enter the premises. There might even be times when a forced entry was required. This did mean, in effect, that the on-site visit might become an inspection. Even if one still had the powers of Clause 25(2)(a)(iii) and Clause 25(2)(a(iv), if the provisions of Clause 25(2)(a)(ii) were removed, the provisions of Clause 25(2(a)(iii) would be nullified. What then? One could have an exhaustive discussion, but perhaps Ms Hattingh could elaborate.

The Chairperson observed that the Committee had belabored this point for some time. The essential point was that the Committee did not want to conflate an on-site visit with an inspection without checks and balances. No one opposed that an on-site visit must take place or that, at an appropriate time, an inspection must be made. Mr Momoniat's argument was that the inspection could, instantly, follow the on-site visit. This was where the problem was. The two should be decoupled, as Members were suggesting. In order to do that, there were rules and regulations that could actually be adapted to this part of the Bill with which the Committee was dealing at the moment in terms of the inspectorate. Decoupling the on-site visit and the inspection was necessary for moving forward. No one denied the need for the regulator to have teeth, but the Committee wanted a balance.

Ms Dlamini-Dubazana agreed. The Chairperson had anticipated and clarified what she was about to say. She did not have any problem with the proposal to remove 'authorise any suitable person to' from Clause 25(1)(a) because it was for the purpose of 'this Act', but maybe what the Committee needed to do, in relation to Clause 25(2), was to say 'An inspector' instead of 'A person conducting an on-site visit', because what one was saying here was expressed in the Inspection of Financial Institutions Act 1998 in its provisions on the duties and powers of the inspector. For the sake of complying with 'this Act', one needed that to be carried by the inspector. So, removing the words 'A person conducting an on-site visit', [so as to make the inspector the subject of the verb 'may'], would be appropriate. If one was specifying an inspector, for the purposes of 'this Act', it must be stipulated in 'this Act' what one expected from the inspector, so that, ultimately, one was able to monitor, as Mr Hattingh had said.

Mr Momoniat wanted Ms Hattingh to speak, as Treasury and FSB were trying to decouple. In most cases on-site visits were friendly visits. However, Treasury and FSB were trying to anticipate the one per cent of cases where certain evidence was uncovered and cooperation was not forthcoming. In this instance it was difficult to decouple. Treasury had interrogated the FSB quite severely on this matter.

Ms Hattingh said that one was working with a regulated entity, but, unfortunately, with regulated entities, there would always be people who would not comply or who would not be fully open and honest with the regulator. In such instances, the regulator had to act swiftly. Delay might cause more investors to lose money. A responsible regulator always had checks and balances. There were specific procedures in the FSB for on-site visits. It was a trained person, who fully understood what he or she had to do, who was sent to conduct an on-site visit. It was important for him or her, in making assessments of the entity, to be able, in that situation where there was evidently something wrong, to be able to take a decision to search, for instance, a filing room. For example, in one on-site visit, because the team had taken documentation, the result was the establishment of a curatorship which enabled the FSB to protect an investor from losing more money. This was why it was important to have these powers. Deleting these powers might cause the on-site visit team to be unable to fulfill its monitoring and supervisory functions. One could split the two processes, and the FSB did that, but there was a point when more investigation was needed, and it was necessary to carry out an inspection so that the FSB could place people under oath and obtain warrants. The main concern for a regulator was to be able to investigate thoroughly without the fear of being criticised later for not acting swiftly, with the checks and balances always in place.

Mr Momoniat shared the concerns and acknowledged that there could be abuse. This was a good discussion. Maybe Treasury and FSB could consider words to deal with the one per cent of cases when there was non-compliance on the part of a credit rating agency in an on-site visit. One did not want every on-site visit to become an inspection.

The Chairperson said that there were also times when corrective or punitive measures were needed. On-site visits, amongst others, were there to assist. One should not assume that people were malicious at all times. If one moved from that premise, then one actually removed even the ability of a regulatory institution to engage in corrective measures. As one moved towards compromises, it was important to avoid casting doubt about everything that was happening in the financial sector.

Mr E Mthethwa (ANC) said that another element at which the Committee could look was to define explicitly the authority of 'any suitable person' (Clause 25(1)) and his or her duties. The contestation of the other issues was because of the inspectorate. Perhaps one could define the duties of 'any suitable person' in line with what Mr Momoniat was saying. For example, one could say that the duties of any suitable person were to assist that industry, but where there was deliberate non-compliance, then other legislation could be invoked. Thus the on-site visit and the inspection would be separated.

Dr Luyenge urged being very specific on the duties of this suitable person so as to clearly distinguish an on- site visit and an inspection. There was a need for this on-site visit with limited powers. The inspection would be invoked once elements of gross non-compliance were apparent.

Mr Momoniat saw the above as a way forward. He asked the Chairperson if Ms Bednar-Giyose could have some time to consider alternative wording.


The Chairperson agreed.

Clause 25(4)(c)
Mr Harris had an additional, unrelated, concern on Clause 25. His particular problem was Clause 25(4)(c) on the outcome of inspection. He referred Members to Clause 6(4)(c). There was a check and balance built into the cancellation of registration. The Committee had approved that Clause because the reputation of a credit rating agency was at the heart of its business and viability. Similar protection should be provided in Clause 25. Publishing the details of an inspection could cause serious damage to the reputation of a credit rating agency. He wanted to delete Clause 25(4). It was not necessary to publish that the inspection was taking place.

Ms Dlamini-Dubazana failed to understand Mr Harris's proposal.

Mr Van Rooyen said that it was commonplace that if an institution was being investigated and the registrar received information which might to the benefit of the public, it was in the public interest that this information must be made known, even before the conclusion of the investigation. The principle of transparency applied. He cautioned against limiting the registrar's power if it was in the public interest for the registrar to share information with the public.

Dr Luyenge said that accountability and being open to any scrutiny was a cornerstone of democracy. Moreover, if a negative image of a credit rating agency had been given by publishing the details of an inspection, this negative image would be cleared if the results of the investigation were in the credit rating agency's favour and were also published. Whatever the outcome was, it must be published.

Mr Ross agreed with the principle of accountability and transparency but also believed in the principle of fairness. He wanted to insert a provision that if the registered credit rating agency had appealed against the suspension or cancellation of its registration, the registrar must not publish that notice.

Adv Jenkins referred to the regulatory impact assessment: it was an interesting process by which one tried to model the potential effect of legislation. However, there was no regulatory impact assessment with amendments to a bill. However, it was important to think of the possible impact of changes to a bill. If one were thinking of excluding or limiting the on-site compliance visits, there would necessarily be more inspections. The discussion on Clause 25(4) brought this home; there would be many inspections if on-site visits were circumscribed. There would be many questions about reputation. This demonstrated to him the need for the on-site visits. On the issue of fairness of the inspection, he noted that, in terms of Clause 1, all decisions taken in terms of this Act must be in terms of the Promotion of Administrative Justice Act (No. 3 of 2000) (PAJA). Thus if an inspection led to a decision that would affect somebody's rights, that Act was invoked. The credit rating service would have a remedy to say that it could go to court to stop publication and that the credit rating agency should be able to state its case. Thus the Bill provided the required balance.

The Chairperson supported Mr Ross's proposal.

Mr Momoniat acknowledged the concern and said that a malicious regulator could destroy the value of shares. The regulators had to be much more accountable than they were and should not make press statements. Sometimes, however, the FSB was forced to correct the public record. When inspections were completed, the FSB indicated on its website what had happened. He noted Mr Ross's comment and perhaps that Clause should be limited. There was perhaps the need for a code of conduct for the regulators. He asked Ms Bednar-Giyose if it would be possible just to limit that power.

Ms Bednar-Giyose replied that Treasury and FSB could consider appropriate wording to refine that Clause further.

The Chairperson said that the Committee must consider not only the credit rating agency but achieve a balance of what was in the public interest. Regulators by virtue of their work must be beyond reproach.

Clause 25: further deliberations
Clause 25(2)
After short break, Ms Bednar-Giyose proposed a substitution for Clause 25(2). She read slowly: 'When conducting an on-site visit, in terms of sub-section 1(a), the registrar - (a) has a right of access at any reasonable time, to all such documents or records, as may reasonably be required for the purposes of the on-site visit; (b) may require a credit rating agency, associate, or any person holding or who is accountable for any such document or record involved in the management of the business or affairs of the credit rating agency or associate, to provide such information and explanation as may be necessary for purposes of the on-site visit; ( c) examine, make extracts from, and copy any such document or record; (d) may, where a contravention of this Act had been detected during an on-site visit and it may be necessary to commence an inspection in terms of the Inspection of Financial Institutions Act 1998: (i) issue an instruction prohibiting the removal or destruction of any documents or information pending the completion of an inspection in terms of the Inspection of Financial Institutions Act 1998, or (ii) in order to prevent the destruction of information against a receipt temporarily remove the document pending the completion of an inspection in terms of the Inspection of Financial Institutions Act 1998'.

This wording tried more appropriately to focus the powers necessary for conducting the on-site visit and to try adequately to address the issue of the potential for the destruction of information which might be discovered during an on-site visit which would be very important in a subsequent inspection that would be instituted by the registrar.

Mr Momoniat confirmed that the provision for search had been taken out. The important provision for access and preservation of documents had been retained. Thereafter the Inspection of Financial Institutions Act (No. 80 of 1998) would apply.


Mr Harris asked if there was any way in which Members could see the proposed wording on the screen.

The Chairperson commented that the equipment was, temporarily, not Year 2000 (Y2K) compliant. Instead, he asked Ms Bednar-Giyose to read the substitution again.

Ms Bednar-Giyose read again the above substitution.

Mr Harris agreed with everything up to and including the proposed Clause 25(2)(c). Clause 25(2)(d) went too far. Under Clause 25(2)(c) one could copy anything, and that was appropriate for an on-site visit. Seizing documents would require an inspection. In short, he agreed with the substitution, but he would delete sub-clause (d).

Ms Bednar-Giyose commented that Clause 25(2)(d) was focused on ensuring that the original information and documents would not be destroyed. She asked if it would be acceptable to use the words 'issuing an instruction prohibiting the destruction or removal of documents or information'.

The Chairperson asked Ms Bednar-Giyose to read Clause 25(2)(c) again.

Ms Bednar-Giyose read again Clause 25(2)(c).

The Chairperson understood that prevention of destruction or removal of documents or information was something else. However, sufficient protection of information remained to commence inspection.

Mr Momoniat explained the purpose of Clause 25(2)(d) which was really a soft power and did not seem to be over draconian.

The Chairperson that, no matter how softly Treasury and FSB expressed it, the Committee would have problems with any implications of search and seizure.

Mr Momoniat understood the Chairperson but said that many documents might reside in a computer. One wanted to stop an entity from destroying the hardware.

Mr Ross asked Ms Hattingh what she thought, in terms of actual implementation, of the possible deletion of the provision to seize documents.

Ms Hattingh replied that it might, in the one per cent of cases where entities were uncooperative, be very difficult to obtain the original documents. The intention was to seize temporarily, to be sure that the documents were safeguarded against destruction. Copies of documents might not be sufficient as evidence. If Clause 25(2)(d) was to be removed, then there must at least be provision for obtaining receipt and a signed acknowledgement that a specific document was copied in the entity's offices on a particular date. The compromise sought was that if there was reasonable suspicion that something was wrong the Inspection of Financial Institutions Act 1998 would be invoked, but that at that stage it would be possible to protect the documentation by at least temporarily removing it.

Mr Harris supported the direction taken by the Chairperson. The point was that Clauses 25(2)(a) to (c) would allow on-site visits where any information could be examined, extracted or copied. As Mr Koornhof had said, there could be a commissioner for oaths present who could certify the copy as it was made. Then when the inspection itself took place, all those other powers would be invoked. One was trying to design the appropriate system for a site visit, and Treasury and FSB had actually achieved this. However, seizure should be left for the Inspection of Financial Institutions Act 1998.


Mr Havemann said that the intention of Clause 25(2)(d) was not seizure but temporary seizure. If it was found later that an inspection was not warranted, the documentation could be returned, and even if the documentation was seized, and the FSB used that information, the documentation would not be admissible as evidence in court.

The Chairperson said that if anyone seized documentation, after the investigation had been completed, the documentation must be returned. So there was no permanent seizure.

Mr Momoniat offered the suggestion of perhaps leaving out Clause 25(2)(d)(i) and Clause 25(2)(d)(ii).

Mr Harris appreciated the efforts to make progress but again said that the Chairperson's line of thought was more acceptable than that of Treasury and FSB. Copies were enough for an on-site visit. If one wanted more, it was necessary to invoke the Inspection of Financial Institutions Act 1998. He insisted that Clause 25(2)(d) was not appropriate for this Bill.

Adv Jenkins commented that the issue of a certified hard copy was, in practice, not that simple. If one was to make a certified copy in the course of an on-site visit, one would clearly not find a disinterested commissioner of oaths in the firm which one was inspecting, as there would be a conflict of interest. The person performing the on-site visit team would not be able to certify the copy as he or she would have a conflict of interest. So one would have to find a police officer of sufficient rank on the street or a postmaster or a Member of Parliament or the Speaker as commissioners of oaths. It would be necessary to prepare in advance for this contingency and take along a disinterested commissioner of oaths.

Ms Bednar-Giyose supported Adv Jenkins' view, and cautioned that between the determination of the need for an inspection and being able to begin the inspection in terms of the Inspection of Financial Institutions Act 1998 there was the potential for documents to be destroyed. Moreover, the existence of certified copies alone, in the event of the destruction of the original, could jeopardise a successful civil or criminal prosecution or enforcement of the Act.

Mr Van Rooyen asked if there was any practical alternative to Clause 25(2)(d) that the Committee should consider.

Adv Jenkins said that one might make an electronic copy, but such copies had not really been tested in court. The one example of which he was aware was Mr J Arthur Brown. There must be some power given to the registrar at that point to ensure that there was compliance with the Act. The aim was not to protect the industry but to regulate the industry to protect the people. Credit ratings, for him, affected especially pension funds. They affected not so much equity as debt. Investors preferred debt to equity. There must be some power. Clauses 25(2)(d)(i) and Clause 25(2)(d)(ii) did not exceed what the Committee had decided earlier in regard to determining the need for a formal inspection. There had also been discussion on whether one could or could not publish the outcome of an inspection. There had been discussion of decoupling between the on-site visit from the inspection, but there must be some connection where, in that one per cent of cases that Ms Hattingh had mentioned, One could not rely on the possibility of having a certified copy accepted as evidence.

The Chairperson said that what was at issue was whether the information available through Clauses 25(2)(a) to (c) admissible going forward, if the original information was not protected. One did not want a regulator who was Father Christmas and would walk in, find something suspicious, and then have to search for a suitable person in authority who could authenticate copies.

Ms Dlamini-Dubazana, based on what Treasury, Adv Jenkins and the Chairperson had said, stated that after detecting that the law had been contravened, one had to do something. That something had to be on paper and followed step by step, so that in the final reckoning there were no assumptions. Therefore she proposed accepting Adv Jenkins' and Ms Bednar-Giyose's explanation. Clauses 25(2)(d)(i) and (ii) described the steps to be taken after following the steps indicated in Clauses 25(2)(a), (b and (c).

Mr Koornhof was inclined to agree. He was now happy with Clause 25(2)(d)(ii) as it specified temporary seizure.

There appeared to be a consensus.

Mr Momoniat was content.

Clause 25(4)(c)
Ms Bednar-Giyose proposed, in the light of Mr Harris's concern at the publication of the outcome of an on-site visit, an insertion at the beginning of Clause 25(4)(c): 'after having considered the interests of the credit rating agency and impact upon the credit rating agency, the outcome and details of an on-site visit, if disclosure is in the public interest'. Thus the registrar would be required to consider the interests of the credit rating agency and the impact on the credit rating agency prior to taking a decision that the outcome and details of an on-site visit should be published. So there would be a balancing of the interests of the credit rating agency and the public interest.

Members agreed.

Clause 26: directives
Clause 26(1)
Mr Koornhof asked if Treasury and FSB were not becoming the boss on how credit rating service agencies should do their business, since Treasury and FSB wanted such wide powers.

Mr Harris agreed with Mr Koornhof. It was simply adequate to delete the words 'or to protect investors and the public in general'. He wanted to limit the directives to the administration and implementation of the Act.

Ms Dlamini-Dubanzana understand Mr Harris's proposal. However, the directives had two purposes – firstly to ensure the proper implementation and administration of this Act; and secondly to protect investors and members of the public in general.

Mr Koornhof asked if the provision of Clause 26(1) was not too wide.

Ms Bednar-Giyose said that the powers to issue the directives, in terms of the opening phrase of Clause 26(1) clearly indicated that it had to be linked to the proper administration and implementation of the Act so any directive would have to be clearly linked with some aspect or requirement in the Act to ensure compliance. Otherwise the directive would be invalid.

Mr Koornhof was happy with Ms Bednar-Giyose's explanation, but asked why the word 'or' was used in the opening sentence of Clause 26(1). Were there not wide enough powers already in the Act? He remained to be convinced.

Mr Momoniat agreed with Mr Koornhof. He asked Ms Bednar-Giyose to reconsider that sentence.

Mr Havemann said that the use of 'or to protect investors and the public in general' was linked to the objects of the Act. So one could replace that phrase with 'or to further the objects of the Act'.

Members agreed to this wording of Clause 26(1).

Members agreed to Clause 26.

Clause 27: exemptions
Mr Harris asked if it was not necessary to specify that external credit rating agencies could also be exempt.

Mr Koornhof said that Treasury and FSB had changed the definitions, so that, when one referred to a registered credit rating agency, it also meant to be an external one.

Mr Havemann agreed. The exemption power was for any person, and this would include an external credit rating agency.

Members agreed to Clause 27.

Clause 28: fees and penalties

Members agreed to Clause 28.

Clause 29: cooperation with the authorities
Members agreed to Clause 29.

Clause 30: enforcement
Members agreed to Clause 30.

Clause 31: civil action
Dr Luyenge questioned the use of 'may' in the opening sentence. He preferred 'must', especially in relation to Clause 31(b).

Mr Havemann was reluctant to change 'may' to 'must' as the registrar must have discretion. Civil or criminal action was the last resort for the registrar.

Dr Luyenge recorded a serious concern.

Mr Momoniat understood Dr Luyenge's concern, but wanted to keep the use of the word 'may'. The use of 'must' would be too restrictive for the registrar and make his or her work almost impossible.

The Committee agreed to Clause 31.

Clause 32: offences and penalties
Ms Bednar-Gioyose noted that Treasury would not support the proposal to make only deliberate or intentional contraventions of the registration requirement to be offences as it was important the regulator had the ability to take effective enforcement action. Thus any contravention of those requirements must be seen in a very serious manner and treated an offence. So Treasury and FSB proposed to add 'deliberately and negligently'.

Mr Havemann said that this related to criminal convictions. If one contravened this proposed Section, one did not automatically go to jail. Much of the wording reflected the criminal procedure.

Ms Stander said that FSB's concern with Clause 32(a) was that an entity conducting unregistered credit rating business must not be held accountable if it was not aware that there was such a requirement. The FSB's view was that if an entity ventured into a certain line of business, it must be sure to comply with all the legal requirements. This was why the FSB did not want to restrict the provision only to intentional contraventions, but also wanted to include negligent contraventions.

In relation to Clause 32(b), FSB had examined the proposals, but thought that the word 'deliberately' would apply to all those actions mentioned there, and that it was not necessary to repeat the word.

In regard to Clause 32(c), if the credit rating agency provided false information to the auditor, even if not deliberately, it might be held accountable. The reason for this was that the auditor or compliance officer was the registrar's gatekeeper, and the FSB wanted to ensure that the agency provided the correct information. If the agency was not aware that the information was incorrect, then it would not be guilty of contravening this proposed Section.
 
Mr Harris accepted the proposal to amend Clause 32(a) but there was still a case to amend Clause 32(b) and Clause 32(c), even if in a smaller way than he had originally proposed. One could not criminalise concealing material facts that were not related to this Act. If one did not make these amendments to Clause 32(c) one was actually criminalising someone for giving the auditor information that was false even if one did not know it was false. There was still a case for those two amendments – maybe not all of them.

Mr Havemann understood that for a criminal case there was a 'reasonable man' test for negligence. If the audited entity was providing false information to the auditor, then there must be something seriously wrong in that institution, and he would hesitate to say that the person must be deliberate in that case.

Mr Harris was happy to drop his proposal to insert 'deliberately', but felt that one could not hold someone criminally liable for information that he or she gave in good faith. Inserting the words 'where he or she knows it to be false' simply protected one from holding someone criminally liable in that situation. So now he was just proposing his second amendment to Clause 32(c).

Adv Mongameli Kweta, Senior State Law Adviser, Office of the Chief State Law Adviser, explained the issue of criminal liability when it had to be proved in court. Clause 32 imposed a more stringent test on the state when it had to prove the guilt of the person accused. Therefore the test here was that the state must prove, beyond reasonable doubt, that the person was indeed guilty of this particular offence that he or she may have been charged with, and when the state had to prove this criminal liability, all the elements of this offence would have to be proved. The state would have to prove negligence, depending on the facts of the case. On the other hand, the state would have to prove the intent of the accused, though not necessarily at the same time. A person may be convicted for negligence, culpability, or for intentionally or deliberately misleading or giving false information. These were the elements that the state would ultimately have to prove in order to hold someone criminally liable.

Adv Jenkins agreed with his colleague that the state had to go through all those elements to obtain a conviction. One of those elements was the mens rea, the guilty mind, of the accused. Clearly if one included negligence one broadened the scope of protection to the public.

Ms Tshabalala saw no problem with Clause 32(c). This Clause was not confusing, in the light of the explanations given above. This Clause was correct.

The Chairperson said that if a person was charged under this Act, it did not mean that he or she was guilty. The state would have to prove, beyond reasonable doubt, that the person deliberately gave misleading information. It must be proven that the statement given was deceptive or that the person had concealed any fact material to the case.

Mr Harris was convinced by Ms Tshabalala.

Members agreed to Clause 32.

Clause 33: right of appeal
Members agreed to Clause 33.

Clause 34: regulations
Members agreed to Clause 34.

Clause 35: saving of rights
Members agreed to Clause 35.

Mr Harris's proposal for a new Clause 36 to contain transitional measures
Mr Harris proposed a new Clause 36 to contain transitional measures. The existing Clause 36 would become Clause 37. He was happy to debate the period of time. It was necessary to codify the transitional arrangements.

Mr Momoniat was not sure why transitional measures were needed, unless one thought that the Minister would be irresponsible. He was also worried about delay in complying with the European Union (EU) regulations.

Mr Harris said that transitional measures were common. He sought to provide certainty to the market.

Mr Mthethwa suggested the words 'not exceeding' in relation to the period after which the Act should come into effect.

Adv Jenkins said that legislation signed by the President could come into effect only when all the regulations that supported the legislation had been put in place. An Act could be rational only if all the instruments underpinning it were established. It was only after establishing the regulations that one could consider time frames for implementation. There was something lacking as the Bill stood at the moment.

Dr Luyenge argued that it was not for Parliament to specify when a piece of legislation should come into effect, as this was the prerogative of the executive.

Mr Harris asked if Adv Jenkins was referring to the draft Bill or to his, Mr Harris's, proposal for a new Clause 36. What exactly was he proposing.

Adv Jenkins was referring to the draft as it stood. He referred to Section 81 of the Constitution. This Act did not determine a date when it came into operation. It would be very necessary, since the regulations still had to be drafted, to say that this Act came into effect on a date determined by the Minister by proclamation in the Government Gazette. This was what was missing.


Mr Momoniat said that Treasury would defer to Adv Jenkins.

Mr Havemann said that already Clause 3(2) already provided that 'With effect from a date determined by the Minister in the Gazette, a person may not perform a credit rating service or issue a credit rating in the Republic, unless that person is registered as a credit rating agency in terms of this Act.'


Mr Momoniat said that this Clause was more limiting, but this wording would help. It was a standard Clause.

The Chairperson noted that it was a standard Clause.

Mr Harris accepted Adv Jenkins' proposal but argued that one still needed transitional measures.

The Chairperson thought that this was part of the implementation and administration of the law when it came into effect. It would not be correct for the Committee to specify a time by which the Act should come into effect. The Committee would have done its work, and the implementation would have to be taken care of by the administrators, taking into consideration the actual players in terms of communication. This should be left to the executive authority.

Mr Harris argued that the Companies Act (No. 71 of 2008) had transitional measures, as did the Consumer Protection Act.

The Chairperson pointed out that these transitional measures were not made by the committee concerned. The Committee should not assume the responsibility of being an implementer. Its role was that of oversight.

Mr Harris agreed, but said that the Committee could apply its mind to what was a reasonable period for implementation. It was a standard approach.

Ms Dlamini-Dubazana said that if one did not know the processes of implementation, it had to be asked how one could determine the time frames for implementation.

The Chairperson recorded Mr Harris's disagreement which, he thought, did not make any sense.

Mr Ross said that Mr Harris had made an important point with regard to the certainty of the market. If it could help certainty of the market by establishing transitional measures in any way, perhaps one could ask the legal team to find some way of achieving balance. There were great expectations from the market. To codify in terms of a specific time frame would complicate matters, but because there was not a time frame, the transition would be important. If transitional measures were used in other legislation, their use should at least be considered for this Bill.

Dr Luyenge said that it was the role of Parliament to make the law and do oversight but it could not determine the date of implementation. It was for Members to allow the executive authority to decide when to implement and thereafter Members would oversee the Act's implementation.

Mr Van Rooyen said that if the Committee was concerned with maintaining certainty in the market, it should not meddle in matters of which it was unsure of the consequences. Therefore the Committee should not involve itself in transitional measures.
 
Mr Mthethwa said that setting time frames was not the Committee's role. The Committee's role was oversight. The Chairperson's summary had united Members so that they could move forward.

Thus the Committee did not accept Mr Harris's proposal as such.

However, the Chairperson said that the discussion was understandable as the Committee was not dealing with a simple piece of legislation. There were certain specifics to be taken into consideration in the implementation of the proposed Act, including the need clearly to spell out transitional measures so that there would be certainty in the market. These specifics should be part of the Committee's report although the Committee would not state how the transitional measures should be formulated. Then the Committee, when the Act was assented to by the President, could look at the practicalities of the rules, regulations, and transitional measures put in place by the authorities and how the Committee could assist, in its oversight role, in the practical implementation of the Act.

Clause 36: amendment of law
Members agreed to Clause 36

Clause 37: short title and commencement
Adv Jenkins proposed a standard addition to say that this Act would come into operation on a date determined by the Minister by notice in the Government Gazette. This would not detract from the Minister's powers as provided for in Clause 3(2).


Members agreed to Clause 37.

Conclusion of deliberations
The Chairperson appreciated the time that Members, Treasury, the FSB, and legal advisers had invested in the Bill's process. It remained for Treasury and FSB to finalise the 'A list' and return to the Committee early in the next term in order for the Committee to complete the process. This was one of the most exciting bills on which the Committee had worked. It was a pity that Dr M Oriani-Ambrosini (IFP) had not been present at the conclusion. He missed the sound of his voice.

The Chairperson noted that the credit rating agencies were a huge industry with serious implications for many people, some of whom were very innocent, like the contributors to pension funds and pensioners. One had seen what had happened in the past. The regulator had tried his level best but it was necessary to give teeth to the institution that was supposed to deal with that one per cent which could cause maximum damage to the whole of the industry.

Money Bills Amendment Procedure and Related Matters Act: Committee's progress report - consideration and adoption
Adv Jenkins took the Committee through one item that had been referred to the Committee by the House.

He had made a presentation to the Committee on possible amendments to the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009). That was in answer to a resolution of the National Assembly of 24 May 2012 which referred that Act to the Committee for review, and cited certain areas to which the Committee might give attention. He trusted that Members had a draft report in front of them. The resolution required a progress report by 21 September 2012. This was the progress report. The Committee was aware that the only real immediate interaction was that briefing session. The progress report mentioned that these areas were highlighted in the briefing session. The progress report also mentioned that there was a political task team supported by a technical group of officials within Parliament, which group was busy reviewing the Act. It was from that process that the information that he had received and had given to the Committee was derived. He had put that into the report as part of the progress. Specifically on the area of the Parliamentary Budget Office, there was a reference in the progress report to the appointment of Prof Mohammed Jahed, who was seconded from the Development Bank of Southern Africa (DBSA) to examine the establishment of that office and how it could function, since this was part of the progress on the implementation of this Act. The issue of the provinces and the schedule mentioned in the presentation was included in the progress report. The way forward on which the Committee had resolved was to have a workshop with all the stakeholders, including finance cluster committees. He suggested, although this did not have to be in the report, engaging the assistance of all who could assist in the review of this Act. This would include parliamentary officials, Prof Jahed, and the relevant people from the provincial legislatures who were also affected by this Act, especially to submit on how norms and standards were applied to them and at what point that would be an interference with their internal arrangements. Adv Jenkins hoped to put this progress report into a suitable format for inclusion in the Announcements, Tablings and Committee Reports (ATC) before 21 September 2012.

Mr Koornhof proposed that the Committee adopt the draft progress report.

Members agreed.

Committee business
The Chairperson said that Mr Koornhof had submitted a request to invite the FSB, the insurance and broker industries, to come and report to the Committee on progress made in their work in the past three years. He proposed finding a suitable date.

Mr Koornhof said that it was becoming critical that the Minister brief the Committee on the establishment of a procurement office that was envisaged by the Minister. This was critical because of the historic intervention by Treasury in withholding funds to municipalities.

Closure
The Chairperson, with amusement, reminded Members that the National Assembly would sit that afternoon and he would take a register of Committee Members who were present or absent.

Mr Harris said that he would be helping his party win a by-election in Mitchell's Plain.

The Chairperson hoped that Members would have some time to spend with their families during the Constituency Period to avoid unintended consequences for their children and everyone else at home. He adjourned the meeting. He thanked all Members for their support in the work of the Committee and for their support of Mr Van Rooyen, the Committee's Whip, in the latter's service as Acting Chairperson. This showed that the Committee worked as a team. He adjourned the meeting.

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