Financial Services Laws General Amendment Bill [B29-2012]: Adoption

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Finance Standing Committee

15 October 2013
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

The Committee met to consider and adopt the Financial Services Laws General Amendment Bill. It was reported that the Bill was considered and approved by the Minister of Finance and Cabinet on 22 February 2012, and was thereafter published for public comment. The public comment period was extended to 2 May. The Bill was amending eleven financial sector laws, to address legislative gaps highlighted after the 2008 financial crisis, and to align these laws with the Companies Act, No. 71 of 2008, and other legislation. Many of those gaps were noted in the policy paper. An outline was presented of the laws that were being amended.

National Treasury, the Council for Medical Schemes (CMS), Department of Health and the Parliamentary Legal Advisers commented briefly on the amendments that were being effected in relation to the Medical Schemes Act. This was generally agreed to be a positive piece of legislation, as it was essential to have regulation of the medical schemes, but it was noted that because it was not concerned with the public health system, it must be read in the context of the Constitution. National Treasury made the point that it was trying to promote and regulate medical schemes more efficiently and effectively, to ensure that they looked after the people and enabled access to private healthcare, through spreading the risk by pooling and cross-subsidisation. The Council for Medical Schemes said that this would allow for promotion of the interests of members and the schemes themselves. Medical schemes were sensitive to individual beneficiary needs offered sound financial protection, and could also promote broader social considerations. Tax deduction was allowed on contributions. The Department of Health said that the medical schemes would facilitate emergence of affordable medical scheme products for low income beneficiaries, and would promote improved corporate governance and cross-subsidisation. Public sector hospitals and solvency of medical aid schemes would also be addressed. It was noted that no patient could be discriminated against, irrespective of his health, other than under certain regulations. The Parliamentary Legal Advisers suggested that Members should read the Helen Suzman Foundation opinion on the Medical Schemes Act.

National Treasury then outlined the latest amendments on which Members had raised concerns earlier, and explained their effect. Most of these were being effected for clarity, to align with other legislation and to ensure that powers were being accorded as needed to regulators. The objectives of the Bill were to ensure that, even during the transition to the twin peaks system, South Africa had a sounder and better regulated financial services industry which would promoted financial stability by strengthening the financial sector regulatory framework, improving the supervisory powers of the regulators and improving the powers of the government to address potential risks to the financial system.

A DA Members suggested changes to clauses 67 and 140, to limit the powers of the Regulator, and that in clause 140 the word “registrar” be replaced with “Minister”. The ANC Members did not agree. When voting on the Bill, the majority voted in favour of the Bill, but the DA wished to note its specific objection to the Bill, and called for its withdrawal.
 

Meeting report

Financial Services Laws General Amendment Bill
Chairperson’s opening remarks

The Chairperson tabled the bill to Committee Members, National Treasury and Council for Medical Schemes delegates. He then announced that first and foremost, the National Treasury, National Department of Health and the Council for Medical Schemes would be given a chance to make final comments on the relevant Medical Schemes Act, No 131 of 1998, then the Committee would go through the Bill, page by page.

He noted that the Bill was divided into the following 12 parts, which dealt, in turn, with the amendments to various other pieces of financial sector legislation (see attached Bill, Contents section for details).

National Treasury Input
Mr Ismail Momoniat, Deputy Director General, National Treasury, said the Medical Schemes Act had nothing to do with the public health system. What that Act was trying to do was to promote and regulate medical schemes more effectively and efficiently. It was well understood that there should be regulations in place to encourage good running of medical aid schemes in South Africa. It would always be very important that the Medical Schemes Act did not contravene the Constitution of the South Africa. Therefore, the medical schemes should look after the people. Medical schemes were important for enabling access to private healthcare. The risk-pooling and cross-subsidisation achieved through medical schemes would help to spread the healthcare to every citizen, and thereby enable greater affordability. The regulation of such risk pooling was important, and similar provisions also were found in many countries to achieve social welfare, and not only individual welfare.

Council for Medical Schemes input
Mr Craig Burton-Durham, Head: Legal Services, Council for Medical Schemes, said that the Medical Schemes Act 1998 would allow the Council for Medical Schemes (CMS) an opportunity to promote the interests of members of the medical schemes and the interests of medical schemes. A strong Medical Schemes Act should be in place to strengthen the governance provisions. Most importantly, medical schemes were sensitive to the specific needs of beneficiaries, and were financially sound and offered protection against catastrophic financial incidents. It was reported that the Medical Schemes Act allowed Schemes to be sensitive to broader social considerations, through the introduction of appropriate regulatory measures and their enforcement. It was very important for the CMS to have a well functioning system to cater for the electronic filing of scheme rules, near real-time financial monitoring, and composite risk index system. With the right legislation in place, the Council for Medical Schemes would contribute to ensuring that members, their dependants, and the public were informed of their rights. In addition, most schemes’ marketing material would be analysed before release, and scheme communication with members would be monitored.

Mr Burton-Durham said that the Medical Schemes Act was based on the principles of open access and community rating. That meant that medical schemes had to accept all individuals, irrespective of their state of health, and the premium rate had to be determined on the same basis for everyone. As an incentive for the young and healthy to join a medical scheme, the state allowed for up to two thirds of contributions to be tax deductible.

Department of Health input
Dr Anban Pillay, Deputy Director-General: Health Regulation and Compliance Management, National Department of Health, said that the Medical Schemes Act was good as it would facilitate emergence of affordable medical scheme products for low income beneficiaries, promote improved corporate governance among medical schemes, and it would redesign benefits and contributions to reduce complexity and promote cross-subsidisation. The Medical Schemes Act and Regulations aimed to broaden access to private health care. The Act also aimed to help improve public sector hospitals, and to maintain the solvency of medical schemes. The Act did not allow any unfair discrimination, either directly or indirectly, against any person, based on their age, gender, claims experience, or past or present state of health. That meant that medical schemes could not exclude people for being HIV-positive. Exceptions to those prohibitions were found in the Regulations (Chapter 4) and were aimed at protecting against opportunistic behaviour.

Parliamentary Legal Adviser input
Adv Frank Jenkins, Senior Parliamentary Legal Adviser, said that the Medical Schemes Act was a good initiative but it did not fall within the health services, and it was very important for the Committee to deal with the Medical Schemes Act 1998 in the context of the South African Constitution. It tried to promote good health schemes in the country. The Helen Suzman Foundation opinion on the Medical Schemes Act should be presented to Members before the comments could be made. He said that the Medical Schemes Act’s definition was clear as it was.

National Treasury input on amendments to other legislation
Ms Jeannine Bednar-Giyose, Director: Financial Sector Legislation and Regulation, National Treasury, said that there were various amendments being dealt with in the Financial Services Laws General Amendment Bill. Clauses dealt with the Registrar and Deputy Registrar of the Pension Fund. Clause 7 amended section 12 of the Principal Act to make the clauses clear and unambiguous. Clause 13  related to the valuator of a registered fund, whilst clauses 13(d) and 14(a) made amendments to make the meaning more clear. She also highlighted that clauses in the Bill dealt with business rescue. The clauses amending the Companies Act were intended to clear ambiguity (see the attached document).

The Committee agreed with these comments.

Ms Bednar-Giyose said that the clause 35 amending the Inspection and on-site visits was amended to make the Act more clear and to allow the Registrar to operate more effectively and efficiently. She noted that the same applied to clauses 37 and 38, for clarity and to ensure consistency around the Registrar. There was a small amendment to section 44 (b) to make it more clear.

Ms Bednar-Giyose said that further clauses clarified the functions of the Board, and the requirements for consultation with the Minister and Financial Sector regulators was amended, so that there would be norms and standards for consultation. The powers on delegation were being amended.

She continued that some of the changes were to ensure alignment. The ability of the Registrar was being improved. There were also various re-definitions of words, or rephrasing, that were intended to clarify points. Online visits were now dealt with. There were amendments in relation to the Inspection of Financial Institutions, and greater clarity was not provided on whom the Registrar should appoint in clause 140.

The DA registered an objection on clause 140.

Ms Bednar-Giyose said that clause 160(c) related to the online visit and what constituted online visit, and clause 170(1) had been deleted as it was found not necessary. The committee agreed.

In summary, Ms Bednar-Giyose said that the Bill was considered and approved by the Minister of Finance and Cabinet on 22 February 2012. The Bill was therefore released for public comment on 9 March 2012.  The public comment period was extended from 13 April 2012 to 2 May 2012 to accommodate stakeholders’ requests for an extension. The Bill amended eleven financial sector laws, to address legislative gaps highlighted after the 2008 financial crisis, and to align these laws with the Companies Act, No. 71 of 2008, and other legislation. Many of those gaps were noted in the policy paper.

Ms Bednar-Giyose said that the objectives of the Bill were to ensure that, even during the transition to the twin peaks system, South Africa had a sounder and better regulated financial services industry which would promoted financial stability by strengthening the financial sector regulatory framework, improving the supervisory powers of the regulators and improving the powers of the government to address potential risks to the financial system.

Discussion
Mr T Harris (DA) suggested that there should be an amendment to clause 67 “Limitation of liability” because it gave the Regulator more power. He suggested that in clause 140 “Protection of policyholders”, under subclause (1) the word “registrar” should be replaced by “Minister”. He wished, then to note his objections to clauses 67 and 140.

Ms J Tshabalala (ANC) suggested that the word “registrar” in clause 140 should not be replaced, and she was supported by Mr Z Luyenge (ANC).

Mr T Harris (DA) further suggested that clause 208 (4) and (5) should be amended, as they were not clear.

The Chairperson asked Committee members if they agreed with the all the clauses and amended clauses, as well as the summary of the Bill.

Ms J Tshabalala (ANC) replied that she agreed with all the clauses of the bill, all the amended clauses and the summary of the bill.

Mr Z Luyenge (ANC) seconded Ms J Tshabalala, and then other ANC members agreed.

The majority of the Committee approved the Bill, throughout all clauses 1 to 259.

However, the Chairperson noted that the DA had specifically noted that it wanted to reject clauses 67 and 140 as they felt it gave the registrar too much power.

Mr Harris noted that the Democratic Alliance (DA) did not agree with the consideration and adoption of the Financial Services Laws General Amendment Bill. Therefore, DA called for the withdrawal of the bill. He asked the Chairperson to register the DA’s objection to the bill.

The Chairperson registered the DA’s objection to the Bill, and said that the majority f the Committee having adopted the Bill, with amendments, it would be referred to the House.

The meeting was adjourned.

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