Financial Sector Regulation “Twin Peaks” Bill [B34-2015: public hearings

This premium content has been made freely available

Finance Standing Committee

10 February 2016
Chairperson: Mr Y Carrim (ANC)
Share this page:

Meeting Summary

The Committee heard submissions during a public hearing on the Financial Sector Regulation Bill [B34-2015], from the Banking Association of South Africa (BASA), Association for Savings and Investment South Africa (ASISA), Centre for Applied Legal Studies (CALS) and Information Governance Consulting. BASA supported the Bill in principle, but noted several points where it felt the Bill gave the regulators powers that were too intrusive and where it lacked sufficient checks and balances. It was also worried that a clause granting regulators the power to issue binding interpretations of law might be subject to constitutional challenge, because it appeared to breach the principle of the separation of powers. It welcomed the risk-based approach to supervision, but pointed to several provisions in the Bill that did not reflect this approach. It was also opposed to the compulsory disclosure of licences, and said it would create significant problems for banks which were required to hold a large number of licences. It also suggested that perhaps there was a need to re-think the disciplinary sanctions, not to base fines on turnover and to consider capping at R5 million.

ASISA also raised several questions about the constitutionality of the powers granted to regulators. It raised a concern about the legal status of the Financial Services Tribunal, insisting that it could not take over the functions of a court of law, and about a clause which appeared to place the directors of a company under an obligation to prove their innocence in certain circumstances, suggesting that the wording be aligned with the Companies Act.

CALS also supported the intentions of the Bill but made a number of recommendations. These included suggestions on the preamble, which should mention in terms that it was intended “to align the financial sector with the Constitution” to emphasise that the country’s financial system works in the interest of financial customers. It also suggested similar wording reflecting constitutional principles in Chapter 7, and clauses 12(1) and (b). New insertions were suggested for insertion into clauses 12(d) and 20(e).
 
Information Governance Consulting raised concerns around the issue of privacy in the Bill, particularly the provisions made in clause 239(c), which effectively granted exemption from compliance with sections of the Protection of Personal Information Act (POPI) in relation to the use and disclosure of information by the financial sector. The main issue globally in the 21st century is cybersecurity. It demanded urgent attention and it suggested that South Africa had been rather dilatory in taking steps to establish appropriate legislative frameworks to deal with novel cybercrimes and the issues of cybersecurity. The Committee was urged to carefully assess the various purposes of the Act and the powers of the Information Regulator in its consideration of the provisions of the Bill that seek to exclude compliance with the Act and avoidance of the authority of the Information Regulator.

Members wanted to know whether there was any logic behind the proposal by Information Governance Consulting to delete clause 239(3) as such deletion could possibly deny the regulators an opportunity to approach the investors, to access the information to be disclosed with proper and effective safeguards in place to protect the information. There was a question whether this would deter investment in the country. Members agreed with some other submissions that a capping of R5 million in fines would be quite insignificant still for some institutions. They also asked if CALS wished to comment on specific clauses in the current Bill which specifically had an impact on human rights, pointing out that whilst nobody could argue with the principle of complying with the Constitution and the Bill of Rights, it was not generally drafting convention to try to make reference to all relevant clauses in all legislation. One Member indicated that the submission that had been made by Information Governance Consulting seemed to be based on gossip from financial circles than factual information which could be backed up by credible facts. Members asked BASA to comment on the issue of illicit financial flight and how this Bill could address it. ASISA was requested to make a written submission that would allow Members to scrutinise all the proposed amendments that needed to be effected.

 

Meeting report

Financial Sector Regulation Bill B34-2015: Public hearings
Chairperson’s opening remarks

The Chairperson welcomed everyone and indicated that it was unlikely that the Committee would be able to finish the Financial Sector Regulation Bill [B34-2015] by the deadline of 27 February 2016. The Committee Programme was set up without realising that there were complicated provisions in the Bill. It was also not expected that some of the issues would be the subject of contestation in courts and in the public domain. The Committee had already alerted the Minister and the Director-General that it would be impossible to finish this Bill, of 224 pages, soon. There would be a need for the Committee to find the right balance between the oversight role and regulatory role and this was to be considered against the  the complexity of the Bill. All the inputs that had been made in the public hearings would be taken into consideration and deliberated by Members and National Treasury (NT). 

Banking Association of South Africa submission
Mr Cassim Coovadia, Managing Director of BASA, indicated that BASA, whilst in favour of the Bill broadly, wanted to draw attention to salient issues in the Bill that needed attention, which included:

- The powers awarded to Regulators to issue standards, making binding interpretations and enforce compliance therewith, and direct a conglomerate to restructure
- The adoption of a risk-based approach to supervision
- The definition of significant owners and investor certainty
- The practical challenges in relation to compulsory disclosure of licenses
- The definition of key person
- The Financial Sector Regulation Bill (the Bill) provided for an opportunity to streamline the current complex regulatory architecture with multiple regulators, but unfortunately addressed this only partially - The calculation of fines based on turnover
- The consequential amendments to the Financial Markets Act

BASA commended National Treasury (NT) and the stakeholder consultations undertaken and the feedback that has been provided. It believed the approach to consulting adopted by NT produced positive outcomes and should be replicated across government. BASA also expressed appreciation to the Committee for its commitment and undertaking to a thorough and in-depth review of the Bill, having recognised the substantive nature and impact of the Bill to the banking industry.

BASA was concerned that the Bill grants Regulators the power to issue standards on almost every commercial aspect of operating a financial institution, including its day-to-day operations. This is construed as highly interventionist and contrary to regulating for the outcome, as standards can be issued on product design, product marketing and distribution, disclosure of information to customers and record-keeping and data management. BASA was recommending that the range of matters on which the regulators may issue standards should be limited to achieve alignment with the outcomes based approach, by referring to the principle of conduct in respect of which standards can be issued. It was also recommended that clause 106(2) should be rephrased to read: “Conduct standards made in terms of subsection (1) may be made on any of the following matters pertaining to principles in relation to...”

Mr Coovadia added that BASA was also particularly concerned that the Bill required the Prudential Authority and the Financial Sector Conduct Authority to follow a risk-based approach in performing their functions and to prioritise the use of  resources in accordance with the significance of risks. There are a number of provisions in the Bill that are not subjected to a materiality and/or reasonable test. An example was clause 4(1)(a). Financial stability means that financial institutions generally provide financial products and services without interruption. There were practical implications; all Information Technology (IT) system downtime -which is inevitable within complex IT systems- will be regarded as a systemic risk and a threat to financial stability. Clause 4(1)(a) should be rephrased to read: Financial stability means that financial institutions generally provide financial products and services without significant interruption.

BASA suggested that clause 120(1)(d) should be rephrased to read: “The licensee has in a foreign country materially contravened” .This was to avoid the fact of a possible impact negatively on South Africa’s financial sector and stability.

Clauses 266(1) and (2) should be rephrased to restrict the liability to material offences and contraventions, and remove the reference to “vicarious” from the clause heading.

Further suggestions related to the suggestion that clause 257 and 258, under Miscellaneous-Offences and Penalties, there should be high penalties and fines for failures to report and get approved on significant ownership and conglomerate structures. The fines are calculated as 5% to 10% of annual turnover depending on the breach. However, there were several problems with this. Turnover is not defined. Turnover as total sales is not a term used in banking. If turnover is considered similar to “total income” the fine/s can be exorbitant and inadvertently create reputation and systemic risks, and this can result in the insolvency of a financial institution and trigger widespread collapse

Mr Coovadia recommended that clauses 257 and 258 should be amended to provide for capped fines as in the rest of the Bill, for instance, not exceeding R5 million. The amount levied should still be significant for a bank, but will be determinable and will not impose unintended consequences such as a systemic risk by wiping out a total income of banks. Alternatively, if a percentage fine is retained, the base for calculation of the fine should be “net income” instead of “annual turnover” with an additional fixed cap, say of a certain percentage, or R5 million, whichever is greater. Additionally, the relevant clauses must be rephrased to apply to material failures and should provide for incremental fines in respect of delays.

Mr Coovadia further noted that it is unclear whether a person is permitted to act as clearing member of a recognised market infrastructure, licensed external central counterparty or an external counterparty that has been exempted from having to be licensed. The recommendation was thus that clause 4(1)(e) should be amended to read: “Act as a clearing member unless authorised by a licensed exchange, a licensed independent clearing house, or a licensed external central counterparty, or an external counterparty that has been exempted from having to be licensed, as the case may be”.

Association for Saving and Investment of South Africa (ASISA) submission 
Ms Rosemary Lightbody, Senior Policy Adviser,  ASISA, presented the submission. Firstly she noted that it was of concern to ASISA that in clause 30(a)(i) the Reserve Bank had broad powers to impose additional obligations on systemically important financial institutions, and also has a broad discretion to declare a financial institution as a systemically important financial institution. ASISA suggested that a provision be incorporated that obliges the Reserve Bank to impose the obligation in clause 30(a)(i) fairly and consistently between all financial institutions. In relation to clause 31(1), ASISA has already submitted that disallowing the application for existing legislative rights, remedies and processes to a financial institution, simply because that financial institution has been designated as systemically important, is not reasonable. These existing legal rights, remedies and processes are an important part of ensuring stability, certainty and consistency. Given the broad powers granted to the Reserve Bank to address a systemic event, it is also submitted that these provisions are not necessary. 

Ms Lightbody discussed various possible constitutional challenges to the Bill in its present form. She described the hierarchy of relevant legal instruments as the Constitution, the Bill, then regulations, and finally regulatory instruments. Where there was a conflict between two levels of the hierarchy, the higher one took precedence. At the same time, the Bill had a provision that would trump older law where there was a conflict. Although there was nothing inherently problematic about this, the way this provision was formulated allowed a regulation or regulatory instrument to overrule a previous Act. She did not think that this could be the intention.

Ms Lightbody referred to clause 141 which stated: “The responsible authority for a financial sector law may issue a binding interpretation on the application of a specified provision of that law” unless overturned or modified by a court. She said that the power of regulators to give a binding interpretation was inconsistent with the principle of separation of powers. A further problem was that if the interpretation was subsequently overruled by a court, this ruling would be only operative prospectively. This was inconsistent with the rule of law insofar as it allowed an invalidated ruling to remain law.

The third issue concerned the Financial Services Tribunal. It could not judicially review decisions made by the regulators because it was not a court, nor did it meet the constitutional requirements of independence that would allow it to act like a court. For instance, the members were appointed by the Minister to review the conduct of regulators for which the Minister was accountable. She stressed that the Tribunal was a good idea, but it could not usurp the powers of the court, and the Bill had to allow its rulings to be appealed in a High Court.

Lastly, Ms Lightbody raised a serious concern about clause 266(1), which stated that “if a financial institution commits an offence in terms of a financial sector law, each member of the governing body of the financial institution also commits the offence...unless it is established that the member took all reasonably practicable steps to prevent the commission of the offence.” This effectively made directors responsible for proving their innocence, and could force a court to convict someone whom it believed was innocent. She suggested modelling the clause on section 214 of the Companies Act of 2008, so that only directors who are knowingly party to a contravention are held responsible.

Centre for Applied Legal Studies (CALS) submission
Mr Ayabonga Nase, Candidate Attorney, CALS; mentioned that financial institutions have rights and corresponding obligations in respect of the human rights of others. The negative obligation is when the financial institutions violate human rights and the positive obligation is when they promote and protect human rights. The financial institutions need to advance human right principles. Non-compliance with human rights is financially highly risky, so that failure to comply with these human rights principles puts financial institutions at risk of increased liability. The financial institutions have the potential to impede the state’s attempt to realise human rights. It was important for financial institutions to advance and protect human rights as people on the ground experience the adverse impact of the violation of human rights.

Ms Nomonde Nyembe, Attorney, CALS, indicated that there are existing international instruments that aim to ensure that the financial institutions are able to obey and advance human rights. These included Equator Principles, United Nations (UN) guarding principles and the United Nations Principle of Responsible Investment (UNPRI). There are also existing regional instruments, like the Protocol of the Amendment to the Statute of the African Court of Justice and Resolution on Illicit Capital Flight. It must be highlighted that although international financial institutions that are investing in South Africa do sometimes tend to violate human rights, there are also South African financial institutions that tended to violate human rights in other African countries. The Truth and Reconciliation Commission (TRC) had noted that “by the very nature of their business, banks were involved in every aspect of commerce during the Apartheid years. Without them, government and the economy would have come to a standstill. Banks were knowingly and unknowingly involved in providing banking services and lending to the apartheid government and its agencies. They were similarly involved in the movement of funds from overseas donors to organisations resisting apartheid”. This once again clearly showed that banks can have both negative and positive impact on people.

Ms Nyembe clarified that CALS was not saying that every single piece of legislation brought to Parliament should include provisions taken directly from the Constitution, but financial institutions should not deviate from the Constitution. The creation of the Protection of Investment Act was done out of recognition that some of the bilateral agreements that had been ratified by South Africa tried to supercede the Constitution. The companies that are investing in South Africa are now compelled to abide with the human rights of the country, as enshrined in the Constitution. The mining sector in South Africa, in many ways facilitated the racially divisive nature of our society, as this sector was and still is largely dependent on migrant labour. Therefore, the development of the Mineral and Petroleum Resources Development Act was intended to ensure that wealth that is derived from the mining sector was to be shared to all South Africans. The Act also makes provision that companies needed to advance human rights of miners and promote the inclusion of women.

In similar vein, CALS recommended that the following additions should be made in the Bill:
- The Preamble of the Bill should include the phrase “to align the financial sector with the Constitution”  to ensure that it is clearly stipulated in the Bill that the country’s financial system works in the interest of financial customers
- Chapter 7 should clearly state: “Financial institutions must comply with the Constitution and the rights set out in the Bill of Rights in all regulated activities”
-
Clause 12(a) (ii) should indicate that: Including human rights violations
-
Clause 12(b) should include: And constitutional compliance
-
Additional wording should be added to clause 12(d) to indicate that: Assess complaints made to it concerning human rights violations directly from members of the public or affected communities
- Clause 20(e) of the Bill should include: “Ensure compliance to the Constitution”

Information Governance Consulting (IGC) submission   
Mr Mark Heyink, Attorney, Information Governance Consulting, indicated that the scope of the submission by IGC was mainly on data subjects in South Africa, especially topics around data protection, privacy, digital classification, sensitive information and authentication compliance. It must be highlighted that data protection must be “felt in the bones of an organisation”. The protection of privacy is already advanced by Protection of Personal Information (POPI) Act which is aimed to protect individuals from identify theft and the pervasive cyber crime. However, it was of concern that although most of the provisions in POPI had already come into effect, there is also a large part of the Act that was yet to commence. Some provisions that are made in POPI allowed for flexibility, giving opportunity to cyber-criminals to cause harm to the privacy of South Africans.

It was of concern that POPI had been delayed because of the refusal by the relevant government department and Financial Services Board (FSB) to accept the pay scales that were required for the senior executive officers to be appointed to govern the regulation of personal information. He stated that he had also been reliably informed by some persons working within the FSB and having insight of it, although for obvious reasons they wished to remain anonymous, that the FSB has made it clear that it will protect its turf jealously and it resents the establishment of an Information Regulator that may have any jurisdiction over the Financial Services sector even though its remit is extremely limited and extends only to the protection of personal information. This indeed is borne out by the many representations that have been made by it, which have simply not been properly motivated in light of the principles relating to privacy and the importance of having laws in South Africa that are regarded internationally as adequate and are recognised as an essential element of the protection of human rights in 21st century democracies. A 21st century issue which is being grappled with globally is cybersecurity. This demands urgent attention, although South Africa has been rather dilatory in taking steps to establish appropriate legislative frameworks to deal with novel cybercrimes and the issues of cybersecurity.

Having provided extensive comment on the draft Cybercrimes and Cybersecurity Bill, Mr Heyink was aware that Cabinet regards cybersecurity as a very important issue. This is to be welcomed as appropriate steps to curb abuses and address criminal acts, which are a scourge of the information economy, are long overdue. However, it is essential to understand that protection of personal information laws (or data protection) is an absolute necessity as a check and balance against the abuses of personal information by entities processing large volumes of personal information, and indeed the excesses of government in their use of personal information belonging to its citizens. The frameworks addressing cybersecurity in democratic countries globally have, as a non-negotiable feature, the existence of data protection legislation. Any dilution or undermining of the powers of the Information Regulator, or exclusion from compliance by members of the financial sector as contemplated in the Bill, runs counter to these concepts. If they are agreed to they will result in a weakening of both the Information Regulator, and a risk that South Africa’s protection of personal information would be regarded as inadequate and acquire “junk” status.

Mr Heyink urged the Committee to weigh up the various purposes of the existing legislation and the powers of the Information Regulator when considering the provisions of the Bill that seek to exclude compliance, and avoid the authority of the Information Regulator. He warned that the consequences of not doing so are significant to the status of our constitutional right of privacy and safeguards . Finally, and very importantly, there is no justifiable reason for the exclusions sought, despite the attempts of the FSB over the last seven years to persuade others that this is the case. Nothing has changed, and attempts to negotiate exclusions and avoid obligations to protect personal information are a jealous protection of vested interests and turf, without any legal basis. The POPI Act makes adequate provision that in circumstances where exemptions may be justified, these can be addressed to the Information Regulator. Clause 239(3) of the Bill which deals with information sharing arrangements should be deleted, as inconsistent with the POPI Act. 

Discussion
The Chairperson expressed disappointment that there were not many submissions from the civil society, particularly labour unions like Congress of South African Trade Union (COSATU); most of the submissions were from the commercial sector.

Mr B Topham (DA) wanted to know whether there was any logic in the suggestion that had been made by Information Governance Consulting to delete clause 239(3). Such deletion could possibly deny the regulators an opportunity to approach the investors to access the information to be disclosed, with proper and effective safeguards in place to protect the information, and therefore deter investors from investing in the country.

Mr Topham suggested that BASA’s proposal to insert “significant” in clause 4(1)(a) should be strongly supported as it was important to highlight that financial institutions in the country generally provide financial products and services without significant interruption.

Mr Topham thought, however, that it would be difficult for the Committee to support BASA’s proposal in clauses 257 and 258 that the fine for any person that had contravened clauses 152(1) or (2) and for a financial institution that had contravened clause 159(1) should be capped to an amount not exceeding R5 million. This was a very low figure.

Mr Topham suggested that ASISA should make a written submission to the Committee in order for Members to scrutinise all the inputs that had been made in regard to the Bill. The wording in clause 266 on vicarious liability for offences and contraventions was almost identical to that of the Companies Act, and in line with internationally accepted principles and corporate governance. No company could be jailed, but the directors could be, as accomplices. There should be serious measures in place for directors to be held liable for the breach of the Companies Act and the Constitution, not limited to fines.

Dr M Khoza (ANC) asked if CALS wanted to cite specific clauses in the current Bill which had an impact on human rights. She noted that CALS had proposed that there be emphasis on the importance of complying with the Constitution, but pointed out that all laws in South Africa must comply already, so it might seem superfluous to stipulate in the Bill that all clauses must be constitutionally compliant, as it was impossible to have a valid law in South Africa that was not. She would like to hear from National Treasury whether POPI had been considered; it was an important piece of legislation that sought to protect the privacy of individuals.

Dr Khoza added that it was  correct that the country needed to find ways to deal urgently with the pervasive issue of cybercrime and the protection of personal information. However, the submission that had been made by Information Governance Consulting seemed to be based on gossip from the financial circles rather than factual information which could be backed up by credible facts. She thus asked the opinion of BASA on the issue of illicit financial flight in the country, especially in regard to the Bill? South Africa was known to have a very strong financial service sector, especially the banking sector. It would be crucially important for BASA to have a strong relationship with the Committee in order to be able to deal effectively with illicit financial flows. 

The Chairperson indicated that there was a need to find the right balance between protecting privacy and combating financial crime and corruption. The Bill was essentially prompted by the greed of the financial sector, especially in regard to the financial crisis that transpired in 2008 and the economic impact that this had on people around the globe. South Africa was still recovering from the financial crisis of 2008, but this did not mean all the problems in the country could be blamed on what had happened in 2008. The Committee was also aware of the potential impact of over-regulating banks to the point that they could not function independently. The banking sector was starting to realise the mistakes that it had made in 2008, and the situation was acutely differently from how it had been prior to then. 

The fact that the President could be able to meet with the private sector 48 hours prior to the State of the Nation Address (SONA) was an unprecedented move that needed to be commended. This was again aimed at encouraging the private sector to invest in the economy, the creation of job opportunities and reduction of the scourge of unemployment. The aim of the Bill was not to discourage investment, as the country’s economy needed to grow. The economy was expected to grow by around 0.7%-1% in the current financial year and this clearly illustrated that it would be a tough year for consumers. However, this also could not be used an excuse to let the consumer shoulder the vulnerability borne by the financial sector under the current financial dispensation. The concerns that had been flagged by BASA in regard to the Bill were not unreasonable and could be considered further by NT.

The Chairperson appreciated that CALS, as a non-governmental organisation (NGO), was able make this submission, and the Committee would like to encourage more NGOs, especially Community Based Organisations, to make their contribution on the Bill. He pointed out that it was not conventional for every provision in the Bill to be specifically worded in line with the Constitution. The Committee would still need to apply its mind on the matter. However, he was appreciative that CALS was alerting everyone, and not just the financial sector but the Committee too, on the importance of advancing human rights or social responsibilities. It is clear that what happened in 2008 was a severe and atrocious violation of human rights caused by the greed of the financial sector.

The Chairperson noted the submission that had been made by Information Governance Consulting, but it was difficult to prove where the right to privacy could trump the need to establish a case to address criminal activity in the financial sector. The fundamental principle of privacy should not be used as a justification for the financial institutions to commit financial crimes. The Committee would essentially need to find the right balance between the right to privacy and the need to combat financial misconducts. 

Mr Roy Havemann, Chief Director: Tax and Financial Sector Policy, National Treasury, responded that clause 239(c) was trying to ensure that the Reserve Bank or financial sector regulators could not disclose any personal information that had been submitted to the Reserve Bank. In essence, it precisely meant to protect the individual from abuse by regulating the disclosure of information by the financial sector regulators.

Mr Jonathan Dixon, Deputy Executive Officer: Insurance, FSB, wanted to correct some of the “misleading” information from Information Governance Consulting. The provisions of clause 239 are basically taken from the existing section 22 of the FSB Act. NT was not changing anything in clause 239, and this wording had already been in effect by way of the Financial Services Laws General Amendment Bill that was introduced two years ago. It was unfortunate that such inaccurate remarks were made to the Committee. There was nothing that NT was trying to change in the relationship between financial regulators and POPI Act. The deal that was reached highlighted the importance of finding the right balance between the protection of personal information and the ability to share the personal information so as to allow the financial sector to do the financial regulation. 

Mr Dixon added that the clause 239 provisions were quite extensive, because the intention was to very carefully and explicitly define the particular functions in respect of which it would be permissible for the regulators to be able to share the personal information. There are very limited listed purposes in clause 239(1)(a) for when personal information could be shared. The full extent of POPI Act provisions would still be applicable to all the regulators for any other purposes or in respect to any other activities. Clause 239(1)(a)(iv) specifically emphasises the very important activities that the regulators are being provided with, for the functions that they are performing, for protecting financial customers, financial stability, integrity of the system and also the detection and reporting of criminal activities. It was essential that these regulators are able to engage and inform the public where necessary so that the integrity of the financial system can be maintained. Essentially, there is a  very limited range of activities where the regulators would be able to share personal information and the provisions have been crafted to specifically address the necessary activities of the regulators.

He added that, without the provision that there should be specific and limited activities upon which the regulators could be able to share personal information, then the regulators could find it difficult to perform some of their core activities. The regulators are also acutely aware of the importance of POPI Act and the limited activities where personal information could be shared. There are measures that are put in place to ensure the appropriate usage of the personal information that had been shared by the financial sector regulators or Reserve Bank.   

Mr Coovadia indicated that what had happened in 2008 was not the fault of the local financial sector, and it was plain recklessness from the international financial sector that created a lot of hardship for many people. It would be unfair for government to hold the local financial sector to account for  what had happened in the global market in 2008. BASA supports the objective of the Bill, which is to create a fair and just financial sector. The financial sector needs to play an important role in the advancement of human rights and customer protection. There are already codes that bind the financial sector to behave in an ethical way and have due regard to human rights as protected by the South African Human Rights Commission (SAHRC). The financial sector was not blind to the existing regulations in place that are already aimed at protecting human rights and the environment.

BASA believed that the financial sector must be regulated appropriately in order to be at the cutting- edge of the international best practice. However, this regulation should not be done in a way to make it difficult for the financial sector to operate effectively and optimally. The local financial sector was already subjected to global regulation put in place because of the recklessness of the very same global markets. BASA was also interested in regulating the greed of the financial sector, and this was already done in many ways. South Africa had not had a financial sector crisis in 2008, precisely because of very proactive regulation that managed to anticipate the global financial meltdown. The mortgage rates in South Africa were already very high and this was once again an attempt to circumvent what transpired in United States of America (USA) in 2008, where mortgage bonds were given to people who did not meet the qualification criteria.

Mr Coovadia then addressed the comments on clause 266(1), on vicarious liability for offences and contraventions.  BASA believed that there should be regulation that would actually differentiate between actions and the consequences of that particular action and have a concomitant penalty for transgression. This would prevent the situation where financial institutions would receive a penalty that was not in line with the transgression. The fine should also be aligned to the annual turnover of the financial institution. BASA had a special body that was dedicated to combating financial crime and illicit financial flow. In essence, BASA strongly believed that the Bill had good intentions but it did not need to impose regulations that would hinder the financial sector from operating effectively.  

The Chairperson supported the proposals that had been made by BASA but disagreed with Mr Coovadia with the suggestion that there was no financial sector crisis in the country. South Africa was and still is part of the globalised world and what is happening in around the world is likely to impact massively on the local financial sector. It was also true that the local financial sector should not be punished for the recklessness and greed of the international financial sector.  

Ms Lightbody responded that ASISA had a serious concern about clause 266(1), which stated that “if a financial institution commits an offence in terms of a financial sector law, each member of the governing body of the financial institution also commits the offence...unless it is established that the member took all reasonably practicable steps to prevent the commission of the offence.” She repeated that this effectively made directors responsible for proving their innocence. The suggestion was that the clause should be modelled on section 214 of the Companies Act of 2008, so that only directors who are knowingly party to a contravention are to be held responsible. The current working in this clause implied that the directors could be convicted of an offence even if there is reasonable doubt or limited evidence of offence.  

Ms Nyembe said that it was not a remarkably new principle for each and every clause in the Bill to be compelled to comply with the Constitution; this was already in the Companies Act and Pension Fund Act.  

The Chairperson interjected to clarify that the question from Members was on whether the Committee needed to ensure that each and every clause in the Bill was constitutionally compliant. The Constitution of the country already ensured that each and every Bill that is passed by Parliament was consistent with the Constitution and the Bill of Rights.

Ms Nyembe replied that the reality was that not all legislation that is crafted is always constitutionally compliant.

The Chairperson agreed that there was a need to ensure that all the legislation that is passed by Parliament is constitutionally compliant and promotes the advancement and protection of human rights. However, specifying this was not the convention used by Parliament. There was no disagreement on the sentiments that had been expressed by CALS, but the main concern was on whether such sentiments being inserted into every Bill was the legal norm.

Ms Nyembe reiterated that CALS was cognisant of the fact that the Constitution was the supreme law and that all bills that are passed by Parliament should be consistent with the Constitution. However, there is always uncertainty as to whether corporations are obliged to comply with the Bill of Rights, and for this reason CALS felt that this must be expressly stated. The Bill only currently states that “customers of financial institutions should be treated fairly”, without making specific reference to the Constitution and the protection and advancement of human rights. This was also not providing the kind of support to those who are not the direct customers of financial institutions but had been adversely affected by the behaviour of the financial institutions.

Mr Nase added that having explicit  provisions speaking to the protection of human rights would make it easier when these issues were referred to tribunals or courts.

Mr Heyink responded that POPI was essentially intended to protect personal information of the ordinary citizens and the Bill needed to be juxtaposed with POPI Act provisions. He admitted that he was not aware that the clause 239 basically repeated the existing section 22 of the FSB Act. He had already indicated that some information he would share would be based on “gossip” from the financial circle but this did not mean that it was not based in fact. The Committee was urged to think carefully on the various purposes of the Act and the powers of the Information Regulator when considering those provisions of the Bill that sought to exclude compliance with the Act and avoidance of the authority of the Information Regulator. The consequences of not doing so are significant from the perspective of the status of our constitutional right of privacy and safeguards afforded by the Act. 

Mr Havemann said that perhaps NT would still need to re-look at the wording of clause 266(1) so as to make it to be constitutionally compliant. The Bill was already extremely long and therefore NT did not want to necessarily lengthen the Bill by including the word “materiality” all the time. The Committee could assist NT in indicating where it thought this was necessary. NT disagreed with BASA's proposals on capping of the fine referred to in clauses 257 and 258, as this amount was very small and would not act as a deterrent to conglomerates. In addition, the proposal that fines for conglomerates should be calculated based on the turnover should rather be based on an appropriate and measurable concept rather than the vague “turnover” provision.

The Chairperson indicated that the Committee also would not support the BASA proposal to cap fines to R5 million, particularly when financial institutions might be making billions. NT should look at the proposals made by ASISA, and any recommendations should be considered by Adv Frank Jenkins, Senior Parliamentary Legal Advisor. In relation to clause 266(1), he indicated that NT believed there could still be steps taken to determine whether a director was liable for transgressions, including how that director had voted. The Companies Act should provide a direction on the kind of decision to be taken in regard to the liability of directors for offences and contraventions.

Mr Dixon agreed that the Companies Act should provide a direction on the kind of decision to be taken in regard to the liability of directors for offences and contraventions.

The Chairperson appreciated the contributions and said NT and the Committee would still deliberate further.

The meeting was adjourned. 


 

Share this page: