Financial Services Laws General Amendment Bill [B29-2012] public hearings: Day 1

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Finance Standing Committee

22 April 2013
Chairperson: Mr D van Rooyen (ANC) (Acting)
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Meeting Summary

The Association for Savings & Investment South Africa (ASISA) supported the greater part of the Financial Services Laws General Amendment Bill, save for the Clauses set out in Annexure 1 of its submission. It understood and welcomed measures to protect consumers, and understood the need for the Financial Services Board (FSB) to have powers to act swiftly in the case of a crisis. Its submission contained substantive and technical comments. It had considered the Bill from a user’s perspective. It had made proposals for alternative wording where it believed that the intended outcome would be better achieved.

ASISA’s main concern was with the consultation process and with the liability of the FSB. ASISA proposed that the Bill should be changed to place an obligation on the Minister to prescribe a consultation process with certain minimum requirements and there should be an explanatory memorandum to accompany any draft amendments and a requirement to respond to comments. It was of utmost importance for the industry to have legal certainty. ASISA believed that its proposal would allow the FSB to consult on a consistent basis.
ASISA believed that the Financial Services Board's liability should be proportionate to the powers that the Board exercised. Those powers must be exercised with due skill, care and diligence. The FSB could not have unfettered discretion. Again from an industry perspective, the legal certainty was of utmost performance.   
A bona fide [in good faith] exercise of power or carrying out of any duties or performance of any functions was not sufficient. Bona fide signalled a mere intention of good faith. It was possible to exercise power in good faith but still to do so in a negligent manner. The Financial Services Board should exercise any power, carry out any duty or perform any function in a bona fide manner and with due skill, care and diligence similar to the general requirement by law of regulated entities to act with due skill, care and diligence.

The Principal Officers Association of South Africa (POA) explained the expanded role, function and responsibilities of Principal Executive Officers through legislative interventions. The Pension Fund Circular, 130 (PF130) as well as the King III Code of Good Governance for South Africa place increasing demands on Principal Executive Officers to be accountable, transparent and to conduct themselves in an ethical way. The POA explained the importance of the board of trustees supported by principal executive officers. The role of the Principal Executive Officer (PEO) within the governance system was central in the proper performance of the Board of Trustees. The Principal Executive Officer had statutory obligations to ensure that all aspects of legislation were complied with and to report directly to the FSB should non-compliance be detected. The retirement industry was transforming at different levels and intervals as could be seen by the changes to the taxation provisions, promotion of compulsory preservation, focus on trustee training and the implementation of a National Social Savings Fund. The new generation Principal Executive Officers would have to step up, to be more professional, independent, accountable, transparent and ethical in their behaviour. It was the business of a retirement fund to provide retirement and ancillary benefits for the beneficiaries of the fund by deploying capital. The Principal Executive Officer fulfilled a vital role in ensuring that fund administrators and other service providers delivered on their mandates whilst maintaining legislative compliance. There must be separation of roles and responsibilities. The POA noted especially the professionalisation of the PEO role, consolidation - fewer funds, liability driven approach to managing funds, focus on individual member, focus on governance, role broader than that of compliance officer, role broader than company secretary, and different resource requirements.

The POA assumed that the Bill was fair and relevant in achieving its objectives; that there were no additional or onerous administrative and costs burdens imposed on the retirement funds; that provisions were practical, implementable and enforceable; and that the policy maker had indeed applied its mind. Thus the POA commented only on a few changes. 

The POA recommended replacing the definition of “Principal Officer” with: '“Principal Executive Officer” means a person who exercises general executive control over and management of the business and activities of the Fund.' All references to “Principal Officer” would be replaced by “Principal Executive Officer” in the Bill.

The POA recommended inserting in the Pension Funds Act (No 24 of 1956) a new Section 8(2) that provided for a list of the duties of the Principal Executive Officer as well as the power to delegate authority. The POA suggested wording for a new Section 8(2). 

The POA noted that the Pension Funds Act was silent on the non-statutory duties of the Principal Executive Officer. This impacted on his or her ability to offer a comprehensive service to the Board of Trustees, beneficiaries and all other stakeholders. The POA set out what providing for the duties of the Principal Executive Officer would achieve.

The POA welcomed the fact that trustees would be required to blow the whistle should they become aware of any material matter that might prejudice the fund and its members. The establishment of an appropriate delegation of authority framework would go a long way to bring about administrative and operational efficiencies. The POA supported the inclusion of compulsory training and continuous development requirements for trustees. The amendment on joint and several liabilities brought relief to the concern of trustees; however, the amendment that related to Section 7F(1)(b) required clarification.

ANC Members asked delegates to be consistent and always refer to Clauses when discussing a Bill, agreed on the need for a clear definition of Principal Executive Officer, asked if ASISA and the POA compared notes with National Treasury and other stakeholders in the financial sector, and what they felt was the position of the FSB around its alleged failings. Would the Bill add value to the work of ASISA and the POA and help them add value to the entire sector? An ANC Member asked ASISA to clarify its recommendation with reference to the wording Clause 151(d), to explain further its recommendation on Clause 156 which dealt with recovering the cost of investigations, and for the POA to clarify its definition of the deputy principal executive officer and the ability of that office holder to be a caretaker in the absence of the principal executive officer.

A COPE Member saw that the crux of the Bill was around the powers of the FSB. There was an unfortunate perception that the FSB was not acting swiftly and that it was not doing its job in regard to certain matters. The Committee on many occasions had offered the FSB assistance in legislation to give it all the powers that it needed to do its job. Why was ASISA against giving the FSB more powers to do its job properly? He was 'sick and tired' that members of the public had to suffer because the FSB did not take sufficiently swift action and corrective measures when required.
 
A DA Member asked if ASISA held consultations with the insurance companies and noted its concern about the constitutional right to consultation. This was a serious omission in the Bill. How would the FSB be held accountable and responsible? Was one relying only on good faith. Had the ASISA spoken to the industry about the concern that the FSB could dictate the wording of policy contracts? Was the constitutionality of the proposed amendments a concern to ASISA? In terms of Section 55 the Registrar would be able to make the rules and the rules might provide for quite substantial interventions by the FSB. Was ASISA concerned? The Regulator could announce rules providing for norms with which all insurers had to comply. 'Norms' was simply another name for 'law'. Did anyone know what these norms were because the Bill did not specify them? Moreover, the norms could perhaps be specific to particular insurers, not to all. Was that correct and was ASISA happy? Also it appeared that the powers that the Bill gave to the Registrar were taken away from Parliament.  Was ASISA happy with this approach? A second DA Member asked ASISA to explain why acting in good faith (bona fide) was not sufficient and removing gross negligence would actually create a problem. ASISA had commented that National Treasury had agreed to amend the text. This left the Committee exposed, as it did not know what the agreement between National Treasury and ASISA was. He referred to Clauses 102 and 140, on consumer policy protection. Numerous entities had a problem with these Clauses. He sought to simplify these Clauses by stipulating that the powers rested with the Minister rather than the Registrar and making it clear that every rule had to apply generally. Would ASISA be satisfied with that or would it seek further amendments?
 

Meeting report

Introduction
The Acting Chairperson said that there were major lessons that South Africa could continue to learn from what was happening in the Eurozone countries. Also South Africa was better placed to celebrate the resilience that had been shown by its financial markets in dealing with shocks and challenges that were apparently engulfing the global space. One observed this in the context of the broader commitment of South Africa to respond to challenges and changes taking place in the financial markets. The contribution of stakeholders was highly appreciated as it was up to all of us to make sure that South Africa’s financial systems were improved and responded appropriately to the challenges of the day, and put South Africa in a better position to remain competitive in the global space.  

Association for Savings & Investment South Africa (ASISA) submission
Ms Adri Messerschmidt, ASISA Senior Policy Advisor, gave a background to ASISA with reference to ASISA’s annual review, explained how it had consulted with its members and with National Treasury and with the Financial Services Board (FSB), told Members how it supported the Bill, and indicated its main concerns.

ASISA, a non-profit company, represented a majority of life insurance companies, asset management and collective investment schemes, management schemes, and linked investment providers. These included financial service groups such as SANLAM, Old Mutual, Liberty, Coronation, and others. It was mandated by its members proactively to engage with policy makers and regulators on policy matters and common concerns of members. As to the structure of ASISA, all its members had one vote irrespective of size. ASISA’s activities were structured in seven board committees. She listed them. Her primary responsibility was with the regulatory affairs board committee but with her colleagues supported all the activities happening in those structures.  

Household savings regulated products totalled R5.34 trillion. Of that R5.34 trillion, ASISA members managed R4.64 trillion. (See ASISA Annual Review 2013). For retirement funds, ASISA members managed R1.7 out of R2.4 trillion. The main difference there was the assets managed by the Government Employees Pension Fund. The long term insurance industry was worth R1.7 trillion and ASISA members managed all of that. It was important to remember that, even though it might appear that ASISA or its members owned the assets, that was not the entire truth, as those assets were held on behalf of ordinary citizens. These were retirement fund members, or holders of unit trusts, or holders in a collective investment scheme, or policyholders.

Consultation
ASISA had consulted with its members by establishing a working group under its regulatory affairs board committee. Members had the opportunity to nominate representatives to serve in this working group. All members, not just those serving in the working group, had the opportunity to submit written comments, which were considered, discussed, debated, and reviewed by the working group. The ASISA submission was the product of the deliberations of that working group and representative of ASISA membership views.

Discussions with National Treasury and the Financial Services Board
She thanked National Treasury and the Financial Services Board (FSB) for the time that they had allowed ASISA for discussing its comments with them and for the information sessions that they had hosted. She explained the process whereby National Treasury and the FSB had issued a draft Bill in the early part of 2012, invited comments, and held information sessions at which ASISA was able to air its views. After the tabling of the Bill late in 2012, ASISA had tabled a submission to the National Assembly, and discussed its draft submission with National Treasury and the FSB in February 2013. ASISA’s working group considered feedback from the National Treasury and the FSB and included this feedback in its present submission.

ASISA's support for the greater part of the Bill
ASISA supported the majority of the Clauses in the Bill, save for the Clauses set out in Annexure 1. It understood and welcomed measures to protect consumers, and understood the need for the FSB to have powers to act swiftly in the case of a crisis with an institution or in the industry as a whole. ASISA had not included comments on Clauses where it agreed with the proposed wording. Its submission contained substantive and technical comments. It had considered the Bill from a user’s perspective. It had made proposals for alternative wording where it believed that the intended outcome would be better achieved with that alternative wording. The detailed comments were set out in the annexure, motivated and described hopefully in enough detail. (See Annexure 1)

Main concerns: consultation
ASISA’s main concern was with the consultation process and with the liability of the FSB. There was a much greater concern at the start of the process at the extensive powers that the Bill would grant the FSB. To balance that there should be an appropriate and robust consultation process preferably obligatory and not enabling. It must not merely exist and be available if required. ASISA proposed that the Bill should be changed to place an obligation on the Minister to prescribe a consultation process with certain minimum requirements and there should be an explanatory memorandum to accompany any draft amendments and also the requirement to respond to comments. ASISA believed that for the industry it was of utmost importance to have legal certainty.  The industry must be sure that it would be consulted and that if it were consulted it would be consulted in an appropriate and consistent manner. This was crucial to ASISA.  ASISA believed that its proposal would allow the FSB to consult on a consistent basis. The various departments in the FSB had different consultation processes, sometimes with limited response to comments that ASISA had submitted. ASISA thought that its proposal would alleviate the uncertainty brought about by these kinds of situations.

ASISA was aware that the Promotion of Administrative Justice Act (No. 3 of 2000) applied but ASISA had heard differing opinions from different people in the FSB as to whether it applied or not. It also did not offer any real comfort in that it was available as a remedy, even though one had to follow a court process. 

Main concerns: liability provision
ASISA believed that the Financial Services Board's liability should be proportionate to the powers that the Board exercises and that the Board should be appropriately responsible and accountable in exercising the extensive powers granted to it by the legislation that it administered in a way similar to the Board's expectations of the industry.  ASISA proposed that the FSB's powers must be balanced with its liability. Those skills must be exercised with due skill, care and diligence. The FSB could not have unfettered discretion. Again from an industry perspective, the legal certainty was of utmost performance.   

An exercise of power or carrying out of any duties or performance of any functions bona fide [in good faith] was not sufficient. Bona fide signalled an intention of good faith. It was possible to exercise power in good faith but still to do so in a negligent manner. The Financial Services Board should exercise in any power, carry out any duty or perform any function in a bona fide manner and with due skill, care and diligence similar to the general requirement by law of regulated entities to act with due skill, care and diligence.

Principal Officers Association of South Africa (POA) Submission
Ms Anne-Marie D'Alton, POA Chief Executive Officer, said that the POA was a non-profit organisation that aims to promote the common interests of Principal Executive Officers of retirement funds, beneficiary funds and associate members of retirement funds. As such it was the only of its kind in South Africa. The POA was registered as an Association Incorporated under Section 21 of the Companies Act 1973 in August 2002.

Governance, organisation, and purpose
A Board of Directors was responsible for the legal aspects of the company. The Board was supported by sub committees as well as regional committees. A Secretariat, headed by a Chief Executive Officer, attended to the day-to-day activities of the organisation. The POA aimed to improve the general standard of the governance of retirement funds. It provided a forum for direct interaction between Principal Officers. It collaborated with the regulatory authorities to develop practical measures that would facilitate more effective management and supervision of retirement funds. It aimed to be the voice of Principal Officers when consulting with the National Treasury and the Regulators. It raised issues and concerns with the appropriate industry bodies, trade unions and other relevant stakeholders. It oversaw that continuous learning, up-skilling and self-development of its members took place on an ongoing basis.

Membership
The POA had a membership of 425 Principal Executive Officers and other associate members. The majority of the top 100 funds were members. The total assets under management ran into billions of rands.

Expanded role, function and responsibilities of Principal Executive Officers
The POA noted that the role and function of Principal Executive Officers had been expanded through legislative interventions. The Pension Fund Circular, 130 (PF130) as well as the King III Code of Good Governance for South Africa place increasing demands on Principal Executive Officers to be accountable, transparent and to conduct themselves in an ethical way.

The importance of the board of trustees supported by principal executive officers
Similarly, the governance structures of the new generation retirement fund presupposed in the King III Code was one that was headed by boards of trustees who were appropriately qualified, independent, and who had access to resources that enable them to conduct their responsibilities effectively. The Board of Trustees was the focal point of the governance system. The role of the Principal Executive Officer (PEO) within the governance system was central in the proper performance of the Board of Trustees. Therefore, an equally qualified Chief Executive or Principal Executive Officer should provide the necessary executive support. The Principal Executive Officer had statutory obligations to ensure that all aspects of legislation were complied with and to report directly to the FSB should non-compliance be detected.

Transformation of the retirement industry and the vital role of the principal executive officer
The retirement industry was transforming at different levels and intervals as could be seen by the changes to the taxation provisions, promotion of compulsory preservation, focus on trustee training and the implementation of a National Social Savings Fund. The new generation Principal Executive Officers would have to step up, to be more professional, independent, accountable, transparent and ethical in their behaviour.

It was the business of a retirement fund to provide retirement and ancillary benefits for the beneficiaries of the fund by deploying capital. Retirement fund members required and expected funds to operate within sound governance standards, reduce risk of non-compliance, and receive a client centric service that was efficient, swift and current. The Principal Executive Officer fulfilled a vital role in ensuring that fund administrators and other service providers delivered on their mandates whilst maintaining legislative compliance. There must be separation of roles and responsibilities.

The POA noted especially:
Professionalisation of PEO role
Consolidation - fewer funds
Liability driven approach to managing funds
Focus on individual member
Focus on governance
Role broader than that of compliance officer
Role broader than company secretary
Different resource requirement.

Assumptions on the Bill
The POA assumed that the Bill was fair and relevant in achieving its objectives; that there were no additional or onerous administrative and costs burdens imposed on the retirement funds; that provisions were practical, implementable and enforceable; and that the policy maker had indeed applied its mind. This was why the POA would comment only on a few changes. 

Recommendations
Firstly, the POA would make recommendation in respect of provisions related to the role and function of the Principal Executive Officer that the Bill had not addressed.  Secondly the POA would comment on specific amendments contained in the Bill.

Recommendations on issues not addressed in the Bill
Recommendation 1: define 'principal executive officer'

The POA recommended replacing the definition of “Principal Officer” with the following:
 
'“Principal Executive Officer” means a person who exercises general executive control over and management of the business and activities of the Fund.'

The POA recommended replacing all references to “Principal Officer” with “Principal Executive Officer”.

The POA gave its view on the definition of the Principal Executive Officer. The POA recommended that the Pension Fund Act provide for a single definition that appropriately encompassed the functions, roles and responsibilities of this important officer, i.e. the Principal Executive Officer. (See paragraphs 4.1.3.1 to 4.1.3.3 of the submission).

Recommendation 2: Duties of Principal Executive Officers
The POA recommended inserting in the Pension Funds Act (No 24 of 1956) a new Section 8(2) that provided for a list of the duties of the Principal Executive Officer as well as the power to delegate authority. The POA suggested wording for a new Section 8(2).  (see paragraph 4.2.1)

View of the POA on the duties of the Principal Executive Officer
The POA noted that the Pension Funds Act was silent on the non-statutory duties of the Principal Executive Officer which impacted on his or her ability to offer a comprehensive service to the Board of Trustees, beneficiaries and all other stakeholders. The POA set out what providing for the duties of the Principal Executive Officer would achieve. (See paragraph 4.2.2.2)

Comments on proposed amendments
Comment 1: appointment of acting principal executive officers. (See paragraph 4.3) The POA set out its proposed amendment to Section 8. (See paragraphs 4.3.1 to 4.3.5)

Comment 2: The Bill's proposed amendment on delegation of authority. (See paragraph 4.4) The POA set out its proposed amendment. (See paragraph 4.4)

Comment 3: The Bill's proposed amendment on delegation of authority. The POA set out its proposed amendment (See paragraph 4.5)

Comments in respect of trustees
The POA welcomed the fact that trustees would be required to blow the whistle should they become aware of any material matter that might prejudice the fund and its members.

The establishment of an appropriate delegation of authority framework would go a long way to bring about administrative and operational efficiencies.

The POA supported the inclusion of compulsory training and continuous development requirements for trustees.

The amendment on joint and several liabilities brought relief to the concern of trustees; however, the amendment that related to Section 7F(1)(b) required clarification. (See paragraph 5.4).

Discussion
Ms Z Dlamini-Dubazana (ANC) asked delegates to be consistent and always refer to Clauses when discussing a Bill. Not to do so created confusion and waste of time.

She agreed on the need for a clear definition of Principal Executive Officer.

Mr D Ross (DA) commented that Ms Messerschmidt had not really highlighted ASISA's concerns with the Bill. It was quite a daunting task to evaluate this Bill. Had ASISA held consultations with the insurance companies? He noted ASISA's concern about the constitutional right to consultation.  He clearly sensed that ASISA thought that this right was not reflected in the Bill. This was a serious omission in the Bill. He also noted ASISA's concern that the FSB have a clear and transparent process in this regard. How would the FSB be held accountable and responsible? Was one relying only on good faith.

He noted the proposed replacement of Section 55 of the Short Term Insurance Act (No. 53 of 1998) and the equivalent replacement in the Long Term Insurance Act (No. 52 of 1998), that the FSB could, among other things, be empowered to take over the essential skills of the insurers by also empowering them to write the policy in the policy contracts. Was this proposal not somewhat far-fetched? Had the ASISA spoken to the industry about the concern that the FSB could dictate the wording of policy contracts? Was the constitutionality of the proposed amendments a concern to ASISA? 

In terms of Section 55 the Registrar would be able to make the rules and the rules might provide for quite substantial interventions by the FSB. Was ASISA concerned?

The Regulator could announce rules providing for norms with which all insurers had to comply. 'Norms' was simply another name for 'law'. Did anyone know what these norms were because the Bill did not specify them? Moreover, the norms could perhaps be specific to particular insurers, not to all. Was that correct and was ASISA happy?

Also it appeared that the powers that the Bill gave to the Registrar were taken away from Parliament.  Was ASISA happy with this approach?

Was it correct that the National Treasury had made its submission on behalf of the FSB. Should the FSB not have taken the lead in this regard?

The general application of those laws and that the Regulator could then make specific rules for specifically nominated insurers or businesses or specifically nominated policies was of huge concern.

The National Treasury had attempted to justify the proposed amendments on the basis of the financial crisis and that the light-touch approach would give way to a tougher, more intrusive, draconian approach. Did ASISA agree that such an approach was necessary? Did it think that such an approach, with calls for drastic measures, technically known as the doctrine of crimen exceptum [a crime excepted from normal processes of law], was really reflected in the Bill? 
ASISA was not concerned about 'swift' intervention. Did ASISA think that the FSB needed to be able to intervene swiftly without consultation?

Mr N Koornhof saw that the crux of the Bill was around the powers of the FSB. There was an unfortunate perception that the FSB was not acting swiftly and that it was not doing its job in regard to certain matters. The Committee on many occasions had offered the FSB assistance in legislation to give it all the powers that it needed to do its job. He quoted from ASISA's letter to the Chairperson that the FSB should exercise any power, carry out any duty or perform any function in a bona fide manner and with due skill, care and diligence, similar to regulated entities generally being required by law to act with due skill, care and diligence. Was it ASISA's perception that the FSB was not doing so? If ASISA was saying that this was not the case, then why was ASISA against giving the FSB more powers to do its job properly? Even one mistake would obviously affect many others. He was 'sick and tired' that members of the public had to suffer because the FSB did not take sufficiently swift action and corrective measures in case of abuse in the industry.

Dr Z Luyenge asked if ASISA and the POA compared notes with National Treasury and other stakeholders in the financial sector. What was the position of the FSB around its alleged failings? 

Dr Luyenge asked if the Bill would add value to the work of ASISA and the POA and help them add value to the entire sector. 

Mr Harris saw a disconnect between ASISA's letter to the Chairperson which summarised the submission and ASISA's very detailed suggestions for amendments to the laws, many of which the National Treasury had not adopted. 

ASISA appeared to imply, in its summary and letter, that it was no longer concerned about the powers of the FSB, and that it believed that the FSB would act in good faith. Was that enough? Did ASISA not stand behind the proposal that it had made in its detailed submission?  The summary and the letter represented something of a concession.

The Committee had requested that Adv Frank Jenkins, Senior Parliamentary Legal Adviser, give a written briefing on the liability concern. He asked ASISA to explain why good faith (bona fide) was not sufficient and removing gross negligence would actually create a problem.

ASISA had commented that National Treasury had agreed to amend the text. This left the Committee exposed, as it did not know what the agreement between National Treasury and ASISA was. 

Mr Harris was not aware of the issue around Clause 54 on the definition of Financial Services Board legislation and ASISA's efforts to change the reference to financial institution legislation in order to broaden the application. 

Mr Harris referred to Clauses 102 and 140, on consumer policy protection. He was aware of numerous entities, which had a problem with these Clauses. He sought to simplify these Clauses by stipulating that the powers rested with the Minister rather than the Registrar and making it clear that every rule had to apply generally. Would ASISA be satisfied with that or would it seek further amendments?

Mr Harris asked ASISA to provide detailed information about the extent of any agreement with National Treasury on investigations. 

The Acting Chairperson welcomed Mr T Mufamadi (ANC), Chairperson, who had been delayed. However, he, Mr D van Rooyen (ANC), remained in the Chair.

Ms J Tshabalala (ANC) asked ASISA to clarify its recommendation on page 23 of its Annexure 1 with reference to Clause 151(d) where it spoke about the inspector being of an opinion or having reasonable belief that the document contained information. ASISA wanted to delete ' the inspector is of the opinion'.  ASISA was saying that the inspector should reasonably believe that the document contained information.  What would inform the inspector's opinion or reasonable belief? In the end it might come to an individual conclusion on the part of the inspector. 

Ms Tshabalala asked ASISA to explain further its recommendation on Clause 156, which dealt with recovering the cost of investigations.

Ms Tshabalala asked the POA to clarify its definition of the deputy principal executive officer and the ability of that office holder to be a caretaker in the absence of the principal executive officer. 

Ms Messerschmidt replied that the submission highlighted ASISA's main concerns, which had to be addressed to give effect to its other recommendations.

She explained that ASISA had an understanding with National Treasury and the FSB on what they were trying to achieve with the different Clauses. 

The way in which ASISA approached its comments was in such a way as to assist National Treasury and the FSB to achieve those intended outcomes so as to balance between what the industry required and the needs of the Regulator.

The Clauses highlighted in the submission were 56 and 67. Clause 56 was the consultation Clause. Clause 67 was on liability. She explained the highlights. ASISA had also submitted comments on Clause 12 with reference to proposed amendments to Section 8(2) of the Pension Funds Act. Also the greater part of the POA's submission was around this Section.  What ASISA's proposal tried to achieve was to say that in practical circumstances one needed somebody else to be able to step in as a principal executive officer fairly quickly. At the moment the process was very onerous. The FSB wanted only one person accountable at a time. ASISA sought to streamline the process.

The next piece of legislation was the Financial Services Board Act (No. 97 of 1990) and the definition of financial institution legislation. It was a very broad concept but all the pieces of legislation referred to in paragraph (a) of the definition of financial institution were all administered by the FSB. The definition of financial institution was in two parts. Firstly, everything administered by the FSB, and secondly banks. So if the definition was limited to paragraph (a) it would cover all the financial institutions administered by the FSB and this was what National Treasury and the FSB wanted to achieve. ASISA just thought that the words financial institutions created a more appropriate impression than FSB legislation.  

Most of the major concerns with Clause 56 would be alleviated if there were an appropriate, robust, consistently applied, transparent consultation process.

There were concerns about the extensive powers given to the FSB, but ASISA understood that in some cases the FSB had to act swiftly to protect consumers from harm from an industry player or from systemic harm.  However, if a balance and consistent process were achieved the concern would not be so great.

She reiterated that the legal uncertainty caused by different approaches of different departments of the FSB to consultation was a concern. 

As to Clause 67 on liability to amend Section 23 of the Financial Services Board Act, ASISA did not believe that it was good enough for the FSB to act in good faith (bona fide) alone.  Acting in good faith (bona fide) signified a good intention. So one could intend to do good, but still do so negligently. The good intention must be balanced with proper care.  This was why ASISA wanted the words with due skill, care, and diligence included.  ASISA had accepted that a requirement for higher professional standards might be problematic in a court of law and thought that a simplified proposal would serve the purpose. 

It was difficult for ASISA to express an opinion on whether or not the FSB acted swiftly if one lacked all the relevant information about the case.  However, there was indeed a perception that the FSB was not acting swiftly. Legislation sometimes curtailed what the FSB could do in certain circumstances. On the other hand, there was a perception that there were enough laws but that they should be enforced and their application monitored more strongly. 

ASISA represented long term (life) insurers so it did not comment on amendments to the Short Term Insurance Act.

ASISA had also not seen National Treasury's redrafting of the amendments on the powers of inspection and on-site visits. ASISA's proposal was worded with reference to the Credit Rating Services Act (No. 24 of 2012). Its concerns remained similar to those raised in the consultation process on the then Credit Rating Services Bill in 2012.

General versus specific powers were in Clause 102 on the proposed Section 62(5) and (6). This was the Clause that would allow the FSB to make rules for emergency circumstances. ASISA members were unable to envisage the circumstances that would require to FSB to publish on an emergency basis a rule of general application. The FSB had enough power to deal with specific situations. The impact on industry could be dramatic if the FSB could make rules with general application without consultation. However, ASISA could understand why the FSB should want that power since international associations had suggested that regulators have that power. Moreover, it was difficult to implement rules that had been introduced without consultation and were then overturned subsequently. One must never underestimate the practical difficulty of implementing laws from time to time.

Members would see in Clause 102 on Sections 62(1) to (4) on the protection of policyholders that ASISA had indicated that although it was legally not necessary to subject the Registrar to the consultation, ASISA thought that this area specifically was of such high importance that it needed to be balanced with specific indications and stipulations to give comfort to the industry that if rules were made it would be done on the basis of proper consultation.

In the end it was Parliament's discretion to assign authority to the Minister, the National Treasury, or to the FSB and to decide who should get what power. For ASISA it was important that whoever had the power should at least consider the industry during the exercise of that power. ASISA also understood that making the Minister part of the process made it difficult in the sense that from a practical point of view one often got the sense that the Minister would be informed by the FSB and that the Minister's role could be perceived to be that of a rubber stamp in many cases. In saying this, ASISA meant no disrespect to the Minister, who was a minister of the highest calibre who would always apply his mind properly. Nonetheless that perception could be created. ASISA could understand that that the FSB would want to exercise that power by itself. However, it must be done with the appropriate consultation. 

The next part of the amendments was on the Inspection of Financial Institutions Act (No.80 of 1998). The reason for this proposal was that from a legal and technical point of view, the 'reasonably believe' was at a slightly higher level so that the inspector must be able to substantiate his decision to request a document.

On Clause 156 ASISA had originally commented to National Treasury that the liability for cost recovery could not extend to a director, employee, partner, member or shareholder, if those people had absolutely nothing to do with what went wrong. Subsequently the National Treasury and the FSB had clarified that the intention was to be able also to recover costs of inspections from people who were guilty of wrongdoing. ASISA had not changed its proposal, as it had no indication of how National Treasury would reword it to achieve that outcome. The wording as originally proposed did not achieve the intended outcome and there still needed to be some redrafting in that respect. 

On page 25 of Annexure 1 was ASISA's recommendations on the Financial Institutions (Protection of Funds) Act (No. 28 of 2001). ASISA was very concerned about the provisions on statutory management. It was difficult to understand why this additional remedy was required. The Explanatory Memorandum and ASISA's discussions with the FSB had indicated that the FSB wanted an intermediate step before curatorship to help an institution or business out of difficulty. This matter of a statutory manager might require more consultation as to its effects on a business.  

ASISA had a small concern, similar to that on on-site visits, with the Financial Advisory and Intermediary Services Act. It also had a concern with the Collective Investment Schemes Control Act (No. 45 of 2002) and the impact of the duties of the manager on existing arrangements after promulgation.  There had been no discussion on how to deal with that. 

Ms Anna Rosenberg, ASISA Senior Policy Advisor, added, with reference to Clause 102, on Section 62(1) to (4) that ASISA had discussed this with its members. ASISA understood the viewpoint of National Treasury. This was quite similar to the rules in the Consumer Protection Act (No. 68 of 2008) around norms and standards and standardised wording. ASISA felt that this was warranted as long as there was a prescribed consultation process.

Ms D'Alton replied that the first comment was on the definition of the principal executive officer. It was close to POA's heart that there was a mismatch between the statutory duties contained in the Pension Funds Act and what was actually happening in practice around the role of the principal executive officer.

Ms Cheryl Mestern, Independent Principal Executive Officer: Old Mutual Superfund, and one of POA's members, explained what she was doing over and above the normal statutory duties. Historically the principal executive officer as defined in the Act had a number of fixed duties typically equated to the role of the company secretary. Over time this had been built up as the principal executive officer's role. However, with retirement fund reform, one found that retirement funds were getting bigger and bigger. The one aspect that was missing in the retirement fund industry was the chief executive officer role. The logical place to put it was with the principal officer hence the development of the role of the principal executive officer.  The focus on the executive side was very much in line with what King III looked at. So in the company secretarial role, one would find servicing, upskilling and governance infrastructure for the board. On the other hand, on the chief executive officer side one would find the roles of carrying out the instructions of the board and ensuring that the company or organisation was run in accordance with its legislation, negotiating with service providers, ensuring that service providers acted in accordance with their mandates. In the future one envisaged this combined role that was far more strategic in nature and acted as a go between the board and the fund and its service providers.

Ms D'Alton replied that the POA should consider more extensive engagement with the National Treasury and the Financial Services Board.

Ms D'Alton replied that when the principal executive officer was absent the responsibility had to be delegated to somebody as competent as the principal executive officer. It would be prudent to appoint the deputy principal executive officer prior to the principal executive officer's being absent so that the deputy could take that responsibility at any time. It was a matter of planning.

Ms D'Alton emphasised the importance of elaborating the definition of the principal executive officer.

The Acting Chairperson said that the hearings were a step in the right direction and would go a long way to ensure that organisations like ASISA and the POA continued to play their role in shaping the financial market space in South Africa. South Africa was playing a critical role in shaping the economy of the continent. Much was being learned from South Africa's efforts. He thanked ASISA and the POA.

The hearings would resume the following day. After the hearings the Committee would receive a report-back from National Treasury, which was appropriately represented in today's meeting by the presence, as observers, of Ms Jeannine Bednar-Giyose, National Treasury Director: Financial Sector Regulation and Legislation, Dr Reshma Sheoraj, National Treasury Director: Insurance (in the Financial Sector Policy Unit), Ms Retha Stander, FSB Senior Legal Advisor, and Mr Dawood Seedat, FSB Chief Financial Officer.

The meeting was adjourned.
 

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