The Financial Services Laws General Amendment Bill, 2012 is an Omnibus Bill as it intends to amend a series of about 10 pieces of legislation with the objective of regulating the financial services industry. After providing a background to the Bill in the context of the Twin Peaks reforms after the global financial crisis, the Chief Director in charge of Financial Investments and Savings at the National Treasury briefed the Committee on the keys issues raised in the Bill and in public consultations on the Bill.
Members noted that the presentation was a replica of an earlier presentation to the Committee done in November 2012. The officials from the National Treasury replied that it was a very similar presentation as the intention was to refresh the minds of Members of Parliament before deliberations began.
Of major importance was aligning the Bill to the new Companies Act, strengthening the regulatory framework and enhancing enforcement powers. With a focus on policyholder protection rules and broadening of the advisory process, National Treasury stated that the overall intention and overarching principle in the Bill was to protect consumers and investors.
Four major Acts were going be significantly changed by the Bill. The amendments to these Acts were presented to the Committee in detail. The amendments to the following Acts were discussed: the Financial Services Board Act, the Pension Funds Act, the Short and Long Term Insurance Acts, and the Inspections of Financial Institutions Act.
Taking the Committee through a clause-by-clause briefing, the Financial Services Board provided a matrix which categorised the various amendments contained in the Bill. The amendments were classified into six groups. This classification and the establishment of the various categories were informed by the nature and effects of the amendment of the original Acts and the financial services sector as a whole. These categories included technical amendments, addressing regulatory gaps, alignment with existing and original legislation and overarching amendments proposed in respect of all sector specific Acts.
Members of Parliament asked for clear directions to amendments which gave the National Treasury and the Financial Services Board powers to effect the appropriate regulation of the financial services environment.
The position of National Treasury in this regard was that a clearer context had been created with improved definitions and adherence to the Public Finance Management Act. In addition, the categories of the amendments addressed identified regulatory gaps, enhanced alignment with existing legislation and generally clarified the role of regulatory institutions. The Bill was laying the foundation for the Twin Peaks which was aimed at a high-level regulation of the financial services environment.
The discussions and engagements between the Standing Committee, the National Treasury and the Financial Services Board were going to continue in a meeting slated for the 20 March 2013. Hearings were planned for the next session of Parliament.
Introduction by Acting Chairperson
The Acting Chairperson welcomed members of the Committee, the delegates from the National Treasury and the Financial Services Board. He tendered an apology on behalf of the Chairperson, Mr T Mufamadi, who was absent for official reasons. Subsequent to the tabling of the Financial Services Laws General Amendment Bill in September 2012, the Committee deemed it necessary to workshop the Bill which was a very important piece of legislation. It was an Omnibus Bill which encompassed many issues within the financial services industry. The intention of the process was to identify and close gaps in the financial services sector. As a global player, South Africa was expected to ensure that the financial services regulations complied to international standards.
The business of the day was for the National Treasury and the Financial Services Board to take members through the various amendments before the Bill was processed by the Committee. The Acting Chairperson said that it was going to be an interactive session where questions could be asked as the presentation was being delivered.
Financial Services Laws General Amendment Bill: briefing by National Treasury
The delegation from National Treasury (NT) was led by the Chief Director in charge of Financial Investments and Savings, Mr Olano Makhubela. He tendered an apology for the Deputy Director General: Tax and Financial Sector Policy, Mr Ismail Momoniat, who was out of the country.
Mr Makhubela said that the NT had done a formal briefing on the Bill to the Committee in November 2012. The Financial Services Laws General Amendment Bill was an amendment Bill and not a new Bill. The Bill sought to amend a series of Acts. The Bill was intended to amend about ten pieces of legislation. Of the ten Acts which were going to be amended, four contained major amendments while the rest were only minor amendments.
Mr T Harris (DA) said that the document which was being presented was exactly the same as the one which was received by the Committee on the 14 November 2012. What was the purpose of doing a presentation which was done just a few months ago?
Mr Makhubela replied that the idea was to refresh the memories of the Members and because the Committee had already been briefed on the document, he was not going to go into detail. The objective was just to pull out a few key issues. He said that if the Committee was still familiar with the document and its content, then he could skip the presentation and go into the clause-by-clause matrix which gave details on the specific amendments.
Mr Makhubela said that the NT was of the opinion that the Bill was quite urgent and the Bill was going to be aligned to Acts such as the Companies Act and the Competition Act. The Bill tried to address some of the gaps which were identified by the International Monetary Fund (IMF) and the World Bank through the Financial Sector Assessment Programme. It also tried to align the financial sector regulations with the new Companies Act and it tried to ensure higher consumer protection standards. The major and most critical intention of the Bill was to enhance consumer and investor protection.
Mr Makhubela reminded the Committee on the role of the Financial Services Laws General Amendment Bill with regards to the following key issues: aligning to the new Companies Act; strengthening the regulatory framework and enhancing enforcement powers; inspections and on-site visits; policyholder protection rules; broadening of advisory process; publication of subordinate legislation; overlapping regulatory powers; and strengthening emergency powers. The position of National Treasury was that on matters of financial services, there had to be a single lead regulation. This was quite complex as there was the risk of people losing their money as a result of lapses in the regulatory process. This was going to be in the best interest of consumers. The proposal of National Treasury was that the various pieces of legislation under the FSB should override the Consumer Protection Act and that should be on condition that the FSB legislation provides higher standards. This was largely because financial issues were quite complex and this required a special set of standards.
With regards to liability, National Treasury had proposed to remove a particular section dealing with the liability of the FSB. This section read “bona fide, but not grossly negligent”. This gave the impression to the public that the NT was proposing to exonerate the FSB or protect the FSB from any form of liability. In the new amendment, the NT had retained the bona fide part. This was in line with international standards. The liability was now limited to actions which were carried out mala fide. This referred to intentional wrongdoing. This had provided some measure of confidence to the public.
Mr Makhubela said that the clause-by-clause presentations of the amendments were going to be presented by the FSB. The intention was not to present all the Acts which were being amended. Since it was a workshop, the Committee was going to guide the presenter as to how far the presentation was going to go. The four Acts which were being substantially amended by the Bill included: the Financial Services Board Act, the Pension Funds Act, the Short and Long Term Insurance Acts, and the Inspections of Financial Institutions Act. The presentation was going to concentrate on these four Acts and if there was still time after the discussion of these four Acts, the other minor ones could be discussed.
Ms Z Dlamini-Dubazana (ANC) said that for the sake of better understanding, she was proposing that the Acts should be done one at a time.
The Acting Chairperson agreed to the proposal.
Mr Makhubela said that National Treasury had tried as much as they could to simplify the process for the members. A pack had been provided to members where the various amendments had been colour-coded. The various colours indicated the type and nature of the amendment. The amendments were classified into six groups which could be identified by the different colours. This classification and the establishment of the various categories were informed by the nature and effects of the amendment on the original Acts and the financial services sector as a whole. These categories included technical amendments, wordings, definitions, addressing regulatory gaps, alignment with existing and original legislation and overarching amendments proposed in respect of all sector specific Acts. Copies of all the Acts which were going to be amended had also been provided to the members. The document containing the matrices tried to simplify the amendments.
Mr Harris said that the Matrices and the colour-coding which had been done by National Treasury were outstanding and excellent. He had never had to legislate on such a complex Bill with so much assistance from the Department. He thanked the officials for the work they had done.
The Acting Chairperson said that it was important for the Committee to use the assistance provided by Treasury in their understanding of the amendments.
Briefing on Amendments to the Financial Services Board Act
The amendments to the Financial Services Board Act were presented by FSB Head of Legal Department, Ms Nonku Tshombe. She said that the amendments to the FSB Act included amendments to the overarching amendment proposed in respect of all sector specific Acts; alignment with other legislation and amendments to close the regulatory gap to enhance clarity and certainty.
The style and format of the matrix had three columns. The first contained an outline of the original section of the FSB Act, the second gave the proposed amendment and the third column stated the motivation for the amendment.
The first amendment had to do with Definitions. Two new definitions were included. The Bill included a new definition for “Financial Services Board legislation” and the “Public Finance Management Act”.
Mr Harris asked if the PFMA did not already include the FSB under its schedule 3 as an entity governed by the Act. The PFMA was the legislation which stated which institutions were subject to it. This was not the role of the legislation governing the entities.
Ms Tshombe said that the PFMA was the governing legislation but the new Bill was going to reinforce the recognition of the governing status of the PFMA.
Ms Jo-Ann Ferreira, FSB Head of Insurance Regulatory Framework, added that a look at all public entity legislation revealed that reference was always made to the PFMA. The anomaly in this case was that the FSB Act was a 1990 Act while the PFMA was a 1999 Act. In amending the legislation, the FSB felt that it was important to align the Act with other public sector entity legislation and to make the link back to the PFMA. The PFMA also provided that the enabling legislation was supposed to have a link or referral back to the PFMA.
Amendments were also proposed for the Establishment of the Board, Functions of the Board, Committees of the Board, General Powers of the Board, Staff of the Board, Funds of the Board and Accounting Responsibility.
On amendments dealing with the regulatory gap to enhance clarity and certainty, Ms Tshombe briefed the Committee on the proposals relating to Consultation with the Minister, Delegation of Functions, Preservation of Secrecy, Limitation of Liability, and Application of the Act.
Mr Makhubela said that this was a critical amendment area as there was the view that for the NT to be able to deal effectively with household indebtedness and savings, the Bill had to also consider financial literacy and education. This was part of the package to deal with the whole challenge of savings.
Mr E Mthethwa (ANC) said that he was not comfortable with the Bill stating that the Minister had to take the reasons for terminating the functions of the board to the media. Was there not another way to handle it instead of simply taking the matter to the media?
Ms Tshombe replied that the process of the termination of the employment of anybody within the FSB was not complete until it was done with. There was not going to be any termination until part of the entire process was complete.
Ms Dlamini-Dubazana said that if that was the case, then the amendments should state that the code of conduct should reflect the issue of publication.
Mr Makhubela replied that he assumed that the code of conduct which Ms Dlamini-Dubazana was referring to dealt with something different. It dealt with how the FSB was going to interface and interact with the public. The situation at hand was however an internal issue which had to do with how the Minister dealt with the termination of board membership. The essence of the proposal was to have a check and balance on the decisions taken by the Minister. NT was going to go back and reconsider the rephrasing of the amendment.
Dr Z Luyenge (ANC) said that it was important to allow the Minister to decide whether he/she wanted to allow a public discourse on a termination of board membership. As a corner stone of democracy, there was the need to allow for public participation in decision making.
Mr D Ross (DA) asked if it was a good thing to centralise a lot of powers in the office of the Minister. Currently, there was a lot of trust in the Minister but what if in future there was someone who was problematic. The Minister played a critical role so his powers had to be well regulated.
Ms Ferreira replied that the amendments were not aimed at centralising powers but at finding the best ways to enhance consultations and public participation in the decision making process. It was important to realise that this was a unique provision to put into legislation as public institutions were bound by the Constitution to enhance public engagement. It was intended to give comfort to the industry that the involvement and participation in decision making was secure.
The Acting Chairperson reminded members that this was a workshop and no decisions were going to be taken as the intention was to educate members on the contents of the amendments. However, robust engagement was encouraged as proper understanding of the contents was going to guide the members during deliberations.
Mr Harris asked for the logic behind the amendment in Section 10 which proposed that the FSB Board may not rescind or amend a decision of the FSB Enforcement Committee. Was there a case where the Board had amended or rescinded a decision of the Enforcement Committee?
Ms Tshombe replied that the Enforcement Committee was a committee where the board could refer matters to where the Registrar was not empowered in a particular case. The FSB also had the Appeal Board which was appointed by the Minister of Finance. The FSB Enforcement Committee had powers to sanction while the FSB Appeal Board was intended to afford an aggrieved party an opportunity to be heard on issues of merit. With regards to amending or rescinding decisions, once the Enforcement Committee had been put in place, its decisions could not be touched by the Registrar. She was not aware of a situation where such a decision had been rescinded or amended but it was important to reinforce the power of the committee.
Dr Luyenge said that he was uncomfortable with the idea that the decisions of the Enforcement Committee could not be rescinded. Who was to rescind such a decision? A decision could be rescinded at the level where it was taken. Did the proposed amendment mean that even the committee itself could not amend or rescind a decision it made? The legality and implications of such a provision had to be looked into.
Ms Tshombe replied that the Appeal Board remained the body where all aggrieved parties could turn to. The appeal itself was a rehearing of all the merits of the matter. It was a full hearing. The decision of the Appeal Board could undo any decision from the FSB. The existence of the Enforcement Committee did not infringe on the rights of individuals.
Mr Makhubela said that the Appeal Board was made up of independent members and not FSB officials. This guaranteed independence.
Dr Luyenge said that he understood the process but his concern was with the use of the word “rescind”. It was quite a heavy word and the use of such a word had to be clarified. The amendment had to be rephrased as it could be contradictory to the rest of the process.
Mr Makhubela said that the NT was going to take into consideration the concerns of Members.
Mr N Koornhof (COPE) asked if the Committee was only going to look at the Financial Services Board Act because so much time was being taken on the Act and there were nine other Acts to be considered. He asked if National Treasury and the FSB were happy with the developments of the amendments with regards to their ability to crack down on the gaps identified. Were there amendments which reinforced the authority of NT and the FSB to enhance proper regulation of the financial services industry?
Mr Makhubela replied that this was a first step to a bigger challenge, hence NT had indicated that these were urgent proposals which needed to be gotten through Parliament. The proposals did not deal with everything and this was where the twin peaks proposal played a vital role. The twin peaks was going to identify further gaps. Ideally, there was the need for a regulatory system which tried to cover as many products in the financial services environment. The twin peaks were going to deal with the broader issues while the current proposals were going to address the pressing concerns within the sector.
The Acting Chairperson said that there was a long way to go but there was hope as the process was headed in the right direction.
Briefing on the Inspection of Financial Institutions Act
The briefing was done by Ms Reshma Sheoraj of National Treasury.
The proposed amendments were done in regard to Sections 1, 2 and 3A. There were proposed amendments to Sections 4 and 5 which dealt with Powers of Inspectors relating to institutions and Powers of Inspectors relating to other persons. Amendments were also proposed to Sections 6A and 7. Amendments relating to General Disclosure and Costs of Inspections were proposed.
Mr Koornhof said that he remembered that in 2012, there was a big debate in the Committee on search and seizure and there were amendments to the proposal by National Treasury. Were those arguments taken into account as the powers in the Bill were still wide?
Ms Sheoraj replied that the concerns were with regards to the duplications in search and seizures. The Committee was quite happy with the powers contained in the Inspection Act and the concern was rather that the different registrars should have powers to conduct the seizures without all the limitations and prescriptions contained in the Act. However, NT had taken note of the matter and there were investigations currently going on with regards to the powers in the different sectoral Acts. The aim was to amend them to align with what was decided in the Credit Ratings Services Act.
Presentation on the Long Term and Short Term Insurance Acts
Ms Jo-Ann Ferreira of the FSB said that the amendments to both Acts were very similar and she was going to present them together. NT currently had a Long Term and Short Term Insurance Act. Short Term Insurance dealt with indemnification while Long Term Insurance dealt with products such as life insurance, investment products and retirement savings. The Acts read very similar and there were only few provisions which were significantly different.
Proposals for amendments were made to Section 1 which dealt with definitions. Definition changes were made to the following: advisory committees; Companies Act; financial reporting standards; financial statements; prescribe; public company; registrar; subsidiary; and widely held company. Amendments were proposed for Section 2 which dealt with the Registrar of Long-term Insurance, Section 3 dealing with General provisions concerning Registrar, Section 4 dealing with Special Provisions concerning Registrar and his or her powers.
Sections 6, 8 and 10 dealing with the Advisory Committee on Long-Term Insurance. Prohibition on use of certain words, or performance of certain acts by certain persons, and conditions of registration, respectively, were also amended.
Further proposals were made to amend Sections 12, 13, 14, 15, 19, 21, 23, 24, 25, 26, 28, 32, 37, 38, 39, 40, 41, 42, 43, 45, 49, 50, 51, 53, 60, 62, 63, 66, 67 and 71.
Mr Koornhof said that it was important for the Bill to reconsider a definition for the word Executive Officer as there was confusion in terms of the definition, role and powers of officials who were called Executive Officers.
Mr Makhubela replied that the definitions which had been included so far sought to address urgent and critical gaps.
Mr Koornhof said that the process of drafting legislation had to be an interactive one where future problems were addressed before they were even identified. Legislation could not be used as a responsive tool when problems had been identified in the system.
Mr Makhubela said that National Treasury had taken note of the concerns raised and was definitely going to improve Clause 1 which dealt with definitions.
The Acting Chairperson said that the work of the day had to end there but looking at the remainder of the work which was to be done, the process was quite tedious. He congratulated the team from National Treasury for simplifying the process for the Committee. He suggested that the colour matrix method should be adopted by National Treasury in future and by other government departments. There was going to be a follow-up session on 20 March and during the second term, the public hearings on the Bill were going to start and National Treasury was going to give the Committee feedback on submissions received. Armed with the details from this workshop, the Committee was going to deliberate on the Bill accordingly.
What made the process a bit complex was that the Financial Services Laws Amendment Bill was an Omnibus Bill which sought to amend about 10 pieces of legislation. He encouraged members to study the documents which had been given to them so that future engagements could be more interactive.
The meeting was adjourned.
- Co-operative Banks Act: Matrix
- Co-operatives Act, 2005
- Medical Schemes Act No.131 of 1998
- National Payment System Act No. 78 of 1998
- Companies Act, 2008.
- Financial ServicesLaws General Amendment Act, 2008.
- Co-operative Banks Act, 2007.
- Collective Investment Schemes Control Act, 2002.
- Financial Advisory and Intermediary Services Act, 2002.
- Financial Institutions (Protection of Funds) Act, 2001
- Inspection of Financial Institutions Act. 1998.
- Long-term lnsurmx Act, 1998
- Short-term insurance Act, 1998.
- Pension Funds Act 24 of 1956
- Presentation by the National Treasury on the Financial Services Laws General Amendment Bill, 2012
- We don't have attendance info for this committee meeting
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