The Senior Parliamentary Legal Advisor made a presentation on the forthcoming review of the Money Bills Amendment Procedure and Related Matters Act. Aspects were highlighted including the role, independence and constitution of the Parliamentary Budget Office; peremptory norms for provincial legislatures; and the timeframes around the budget process. The briefing also indicated the possible process going forward for consideration of the matter.
The Committee then continued its preliminary clause by clause deliberations on the working draft of the Financial Sector Regulation Bill. Notable points included:
Clause 77: There was concern about the nature of the memorandum of understanding to be concluded between regulators and the consequences of an agreement not being reached.
Clause 78(4): There was concern about the removal of the clause requiring the approval of the SARB governor and the Minister. Treasury indicated that this removal was because of the practical concern about the scope of regulatory actions which would require approval. It was decided that it ought to be dropped.
Clause 83: BASA had indicated that it would like the inter-ministerial council to review all legislation introduced into Parliament, because of the duplication of requirements. The Committee did not have a strong view either way.
Clause 87: Here there was an exchange on the constituent members of administrative action committees, specifically whether it ought to be required that a person who has practiced law chair these committees. It was decided that the provision should be inclusive and allow both types of person to chair and that the provision should be reworked by Treasury.
Clause 98: ASISA indicated it had concerns about the time periods for making submissions on regulatory instruments. The regulators indicated that a principled approach where the complexity of the instrument could lead to a period longer than 30 days be allowed. The Committee decided on a compromise of a minimum of 6 weeks. Further, there was a concern about the role of parliament concerning regulatory instruments, given the requirement that they are submitted to Parliament. This would be for tabling only and not for scrutiny.
Chapter 7, Part 2: Here the JSE was concerned about overlap between standards issued by one of the peaks and standards it issues for stock brokers. This critique was rejected, because it would be left to the regulators to engage with each other and coordinate.
Clause 105(2): The Chairperson raised the issue that the Financial Sector Conduct Authority (FSCA) was being required to handled prudential work, but there was no role given to the Prudential Authority to issue standards dealing with conduct. Treasury and the regulators indicated the intention to have distinct roles for the authorities and that the prudential authority’s role with customers was to ensure systemic stability, so that they are not prejudiced by institutional collapse. The Chair noted this, but felt it deserved further scrutiny and the wording ought to be redrafted to cater for this matter. Further, it was clarified that the standards dealt with in this part would deal with for example the bank account part of a bundled financial product, but the National Credit Regulator would deal with the overdraft aspect.
Clause 108(k): Here BASA contended that allowing outsourcing standards was too intrusive. However, Treasury was of the view that the purpose of the legislation was to ensure that accountable institutions changed their practices. This would not go to the extent of issuing standards on product design, but if there were functions which were outsourced this could lead to customers being disadvantaged. For example there were some insurers who had outsourced data collection to the extent that they were unaware of the identities of their policy holders, which had direct implications on the customer.
Chapter 8: Here ASISA and BASA were concerned about the position where a licence application has neither been approved nor rejected. The Bill had been updated to clarify that after three months, the position would be it has been rejected. Further, with clause 119 it was raised that there ought to be adequate notice around the variation of a licence.
The Chairperson dealt with outstanding matters of programming for the Committee, saying the previous week Mr Lees had engaged with the Ministry about a meeting about South African Airways which they had requested. The Committee agreed that this was a matter of considerable importance and that it should consider a meeting, but there is a need to engage. The Committee is meeting SAA anyway on the 20 September 2016. The Committee was informed that the Minister had told Mr Lees that he was away at the G20 and had suggested perhaps meeting on 06 September 2016. The Chairperson had since learnt the Minister would be back only on 08 September 2016, so an earlier meeting was out. He had spoken to Mr Lees who accepted that this may have been a miscommunication by the Minister and/or a misunderstanding. Secondly, the Portfolio Committee on Public Enterprises had requested a joint meeting and the Committee’s position was that a representative would volunteer to attend. The Public Enterprises Committee Chairperson had requested that as many Members as possible from the Committee attend. This would be left in abeyance and the Committee would understand if DA Members wanted to be at that meeting, but he would request that at least one Member with experience in the matters at hand remain. The Public Enterprises Committee Chairperson had also requested a joint sitting when Denel was to appear before that Committee on 21 September 2016, which was the last sitting and would be left for the Committee to decide later.
Review of Money Bills Amendment Procedure and Related Matters Act
Adv Frank Jenkins, Senior Parliamentary Legal Advisor, said the idea of a review came after the adoption of the Act, when some technical issues were run into. In 2012 there was a resolution for the Committee to review the Money Bills Amendment Procedure and Related Maters Act (Money Bills Act). The Committee then started with it, but no report or recommendations were submitted to the House, aside from a progress report of 20 September 2012. This basically recommended a workshop to flush all challenges out and see how they can be remedied. In 2015 he had made a presentation to the Committee and one of the issues was that in order for the Committee to take it up again, a resolution was required. That resolution came on 19 May 2016, which is substantially the same, aside from there being no specific mention of the management of the Parliamentary Budget Office (PBO). However, the resolution is wide enough and the scope of work for this Committee remains the same.
Adv Jenkins said what he wanted to achieve through the presentation was to allow Member to familiarise themselves with the issues. Perhaps a programme could be worked out on how to go through it over the next few years. The resolution requires the Committee to evaluate the application of the legislation, look at issues including the times lines, sequencing, the PBO and any other matter. There is a requirement that there is conferment with the Standing Committee on Appropriations, which makes sense seeing as 50% of the work required on this Bill on the side of the National Assembly is the Appropriations Committee. There needs to be some form of cooperation for the Members dealing with either aspect to highlight their challenges.
Adv Jenkins turned to the most obvious challenges with the Act:
• Timeframes: The Act sets out certain timeframes to deal with the Budgetary Review and Recommendation Reports, the MTBPS, the fiscal framework, the Division of Revenue Bill (DORB) and the Appropriations Bill. Members will know that there are challenges with this sequencing, because the DORB cannot be referred, until Parliament has finalised the fiscal framework. Then the Appropriations Bill cannot be considered before the DORB is passed. What has been done with the proposed amendments is to remove that sequencing and require reporting in a certain sequence, because the idea is to have an alignment. There cannot be amendments or reports on the DORB which are not in sync with what is said about the fiscal framework. So Parliament needs to start at the fiscal framework and continue sequentially. However, if the administration of Parliament can properly assist the Committees with information sharing between Committees, then the sequencing and reporting can be dealt with, so that it is ensured that the report on the higher instrument is accepted by Parliament, before the DORB or Appropriations Bill are dealt with. At present Parliament must have adopted the fiscal framework, before the Bill can be referred onwards. The amendment would allow for more time in handling the budget.
Further, revenue Bills have no timeframes attached, the Committee will have to decide whether it wants to retain that or make adjustments.
Then the adjustments budget has a very tight timeframe and considering the recent Constitutional Court judgement there is a need to take cognisance of this and there must be proper public consultations on the Division of Revenue Amendment Bill. To put legislation in place which limits the process to nine days may cause a problem, because can one have proper consultation in that period? What is envisaged with the new procedure is to comply with the Constitution properly and Parliament’s programming must give assurance to Treasury and the country that it can keep to its annual budget cycle.
• Rules of Parliament: There is an issue about the Rules but that is something for the National Assembly and NCOP Rules Committees. That will have to follow any amendment of the Act and if an amendment is passed then the Rules will be considered. As it stands, there was a review process over the Rules and they cater for what is required by the Money Bills Act, so there is no urgency. A lot of the matters were already in the Rules before that, such as Committees having to confer and public consultations.
• Parliamentary Budget Office: The intention of the Money Bills Act at the stage it was passed was to transfer funds to the Parliamentary Budget Office, which is the wording used in section 15. The Financial Management of Parliament and Provincial Legislatures Act allows a transfer by the accounting officer to another entity. There is a definition of entity in the Public Finance Management Act (PFMA), which requires a legal person. That is not made clear in the Act with the PBO and there is the possibility of creating an entity within a larger entity, which is an option to consider. The PBO has been established, but there is enough clarity on whether it is a legal persona and money can be transferred there. There is an issue of compliance which the Auditor-General comments on continually. To comply with the Act there must be an entity, but there is no certainty whether the PBO is a legal entity. Is it part of Parliament’s administration, to be treated as a division of Parliament? Then you would do an allocation, rather than a transfer, so that needs to be clarified. The policy position at the time was clear, but it was not put properly in section 15 of the Money Bills Act. The policy could be reviewed and this is for the Committees to decide. The policy consideration is whether Members want to create a self-standing entity within Parliament or will the PBO be a division of Parliament. He suggested getting the PBO to speak to those issues, because it has just had a conference dealing with such matters. The idea behind the recommendations of the Organisation for Economic Stability was that there should be an entity which is sufficiently resourced and at arm’s length from a Parliament’s administration, so it can operate in a freer way and be free from political issues. The whole point is to give financial advice to the wide range of parties in Parliament. This issue should be discussed, but what is critical is that something is written in here which can be complied with for Parliament’s own audit and there is alignment with the Constitution. The budget must be spent in accordance with the Constitution which requires transparency and accountability foremost, unless it is decided that it is to be a division of Parliament, in which case it will have to comply with the Financial Management of Parliament and Provincial Legislatures Act.
• Technical issues: The Money Bills Act currently requires that the PBO submit its budget and reports to Parliament. However, the PFMA requires submission to the executive authority, which is then to table it. The appointment procedures could also be clarified. There is the issue of an advisory board and whether this needs to be legislated for. Those are issues to be kept in mind in giving effect to the present practice and whether this ought to be written into the Act. There are certain other corrections required in the Act and he had handed out a proposed, tracked changes version of the Money Bills Amendment Bill.
• Peremptory norms for provincial legislatures: Section 16 of the Act deals with this. A submission was received from the KwaZulu Natal legislature which argued that section 123 requires it to pass a Bill to amend Money Bills before it and there is no constitutional reason why they have to comply with something in the Money Bills Act. Unless guidelines are given, perhaps peremptory norms are going too far. The reason it was put into the Act initially was to ensure alignment between the different procedures among the nine provinces. Whether that is constitutional is another question.
Adv Jenkins said when legislation is reviewed, the procedure has been to establish an ad hoc Committee to deal with it, which gets dedicated support and meeting times. When this Committee drafted the Money Bill Act in 2008/09 this was one of its main tasks. Parliament is presently reviewing the Powers, Privileges and Immunities of Parliament and Provincial Legislatures Act. There is an ad hoc Committee dealing with that, which has dedicated support, meets several times a week and must complete its work within three months. The Committee with the workload it has needs to have a programme worked out, with the support staff it has. However it happens, the Committee has permission from the House to submit a draft Bill and has a requirement to submit a progress report by the end of September. Usually, when a Committee wants to introduce a Bill it must first get permission and that is granted in the resolution. Should the Committee come up with a draft Bill, it must be published for public comment and then a report made to the House. Then the Bill will be referred to the NCOP. There will need to be a full public participation process and stakeholders would include Treasury, provincial legislatures, Parliament’s administration and the PBO.
The Chairperson said the idea was to brief the Committee and some questions can be taken, but no decisions would be taken. He suggested mandating Adv Jenkins to compile a report for the Committee, drawing on what has been presented and indicating that the Committee is intending to explore what was raised, among other issues. It should set out somewhere the huge legislative and oversight role which the Committee has. The Committee has been invited to another joint sitting, on the Border Management Bill. Further, the Committee currently has six Bills before it, with another three Bills pending, aside from the Money Bills Act. So attention should be drawn to when the Committee intends to finish the Money Bills amendment process. He asked whether Adv Jenkins was suggesting that an ad hoc Committee separate from the Committee be set up.
Adv Jenkins said he was just mentioning it and another option was a subcommittee could be set up.
The Chairperson said it would probably be best to set up a multi-party subcommittee, which is exempted from sitting in the House with the requirement to report by the end of September. Parliament rises on the 21 September, does it have to be tabled in the house?
Adv Jenkins replied that it would only have to be ATC’d.
The Chairperson said then the Committee could vote on 21 September, but before then it has to confer with the Appropriations Committee. By confer is meant that it cannot adopt the report without having had some exchange. Exactly what confer means depends on the Committees, it could be sending a letter presenting the report and requesting comment, a joint meeting or the Chairperson going to brief the Committee. All that has to be done is to vote on it by the 21 September 2016.
Mr A Lees (DA) asked for clarity on what would be voted on. What is being reported on? Simply that the process has been begun?
The Chairperson said the report is not going to be deciding on the issues and that is why it should say that among the issues being considered are those raised above. That then gives people a chance to put more issues on the agenda. As the PBO is a major part of this, it ought to present a written response.
Dr Dumisani Jantjies, Director: Finance Parliamentary Budget Office, said the report has been submitted already.
The Chairperson said not much can be done in the circumstances. It will simply indicate what the briefing covered, the issue raised and the way forward, broadly without deadlines.
Mr Lees said he had come into the process with the PBO in the NCOP in 2009. Just on a broad basis, the intention as he understood it, was to ensure that they were independent from Parliament and that they would be able to comment freely, without undue influence. When the Committee gets to it, he hoped that principle remains unchanged. On the timelines for the Money Bills, there are some matters for the Committee to deal with, but there are concerns about how they are being handled.
The Chairperson said the nature of the independence of the PBO is a matter. Would it be reasonable to say by the 12 September 2016 the report would be completed. It would then be considered again and voted on, because it will not be a controversial report.
Financial Sector Regulation Bill [B34 -2015]: deliberations
Chapter 5: Cooperation and Collaboration
Mr Roy Havemann, Chief Director: Financial Markets and Stability, said as was indicated when the Financial Sector Regulation Bill was tabled, an important aspect is ensuring sufficient cooperation and coordination between regulators. Very few comments were received, but most submissions wanted it to be strengthened.
The Chairperson said he had no issues with clause 76, the only thing he wanted to raise was what happens if there is in fact no cooperation. How is cooperation ensured beyond what is in the Bill and does the Director General or Minister have a role?
Mr Havemann said Treasury’s experience is that matters being elevated to ministerial level, is best. So, clause 83 creates a financial sector Inter-Ministerial Council (IMC) which is statutory way of ensuring Ministers coordinate. That works to an extent, because the regulators are relatively independent, but they do still fall within their ministerial objectives. It is complicated when regulators report to different ministers, but there have been engagements between Ministers.
The Chairperson said Ministers are not cooperating, as is clear in the public domain. That is a matter for Parliament to resolve, so he would leave it to Parliament to decide how effective it would be on this matter.
Clause 77 – Memoranda of Understanding
Mr Havemann said clause 77 requires regulators to enter into memoranda of understanding (MOUs) between each other to exercise their powers. It has been found to be a very useful way of setting the rules up front when regulators deal with each other.
Mr Lees said clause 77 specifically states that a lack of an MOU will not render any action taken as invalid. That could have been a way of forcing the conclusion of an MOU. He noted the transition between the enactment of the Bill and signing of the MOUs and asked what kind of transitional arrangements are envisaged, including how long it is to take.
Mr Havemann said it is a mechanism to force cooperation, the problem is that the financial services industry is quite clever about finding ways to have actions set aside. So Treasury is concerned about imposing that requirement in the Bill. On the transition, the regulators are in the process of preparing the MOU between the Financial Sector Conduct Authority and Prudential Authority. Going forward that would include the National Credit Regulator (NCR).
Mr Unathi Kamlana, Deputy Registrar of Banks: South African Reserve Bank, replied about the MOUs not being in place before the Bill is enacted. Clause 77 makes it clear that the regulators are required to have concluded them within those six months. What the regulators wanted protection from was that its other regulatory decisions are not tripped up by the MOU not being signed. However, the regulators appreciate the responsibility to have MOUs in place, because there are many decisions which rely on the regulators being clear about their respective roles.
The Chairperson said it seems to him that it would be reasonable to accept that even if the MOU is not signed, the actions ought to be valid for the reasons indicated. Six months from the time the Minister gives effect to this Chapter, so obviously it in itself is a transitional provision. Why has clause 77(6) been changed?
Mr Havemann said this was just trying to clarify the provision.
Clause 78 – Regulatory action regarding systemically important financial institutions
Ms Antonia Manamela, Committee Researcher, said her version of the Bill had an additional subclause (4), asking whether it had been deleted.
Ms Jeannine Bednar-Giyose, Director: Financial Sector Regulation and Legislation, National Treasury, said that was not on the July version and was not to be considered by the Committee.
The Chairperson said Treasury could see the confusion it was creating, because the Committee Secretary and Researcher both had versions with a subclause (4). The position was not that the Committee could not consider 78(4), rather that it was not to be put into its documents. He then asked why 78(4) was inserted.
Mr Havemann said the subclause, read “an organ of state which has a regulatory or supervisory function in relation to systemically important institutions must, prior to taking regulatory actions in relation to the systemically important financial institution, obtain the concurrence of the governor and Minister”.
The Chairperson asked why this was being dropped.
Mr Havemann replied the clause intended to ensure that where there is a systemically important financial institution (SIFI) that one needs to be careful in the sorts of actions which are taken against it. Government has given the South African Reserve Bank responsibility for financial stability. It is for them to ensure that everyone treats SIFIs with care and if a regulator is to take action against a SIFI, this must be done carefully and with the concurrence of the SARB governor.
The Chairperson again asked why this is to be dropped.
Mr Havemann said there is a practical complexity, because if the clause is retained the scope of regulatory actions it covers will have to be defined. One of the stakeholders had highlighted that this could extend to anything, including requirements for the canteen in the bank needing to be clean, which is a standard requirement found in health and safety legislation. So if it is retained, it would have to make it clear that this only relates to financial regulatory functions. It is up to the Committee to decide on whether to retain the clause and Treasury has thought of ways to ensure that it only extends to particular issues and prefer quite a narrow formulation.
The Chairperson accepted this and said it should be removed. He said there were no further issues with Clause 78.
Part 2 - Financial System Council of Regulators
Clause 79 – Financial System Council of Regulators
The Chairperson asked which CEO was referred to in 79(3)(d).
Mr Havemann said it is the CEO of the Prudential Authority (PA).
The Chairperson noted the National Consumer Commission is brought in here.
Clause 80 Support for the Financial System Council of Regulators
Mr Havemann said this provision is to ensure meetings happen.
The Chairperson said a single member can force a meeting under clause 80(3), as opposed to a third.
Mr Havemann confirmed it was a single member, as there have been situations where single members feel very strongly.
The Chairperson said this was good and is a way of encouraging cooperation. Were the last words in 80(5) necessary, could ‘it’ not be used instead of repeating Financial System Council of Regulators, as it was simpler.
Part 3 – Financial Sector Inter-Ministerial Council
Clause 83 - Financial Sector Inter-Ministerial Council
The Chairperson moved onto clause 83, asking why the Cabinet Member responsible for economic development was listed in 83(3)(d).
Mr Havemann said the Competition Commission falls under that portfolio.
The Chairperson asked what the Banking Association of South Africa (BASA) said about this clause.
Mr Havemann said BASA would like the Inter-Ministerial Council to review all legislation tabled in Parliament. There are pieces of legislation which impose duplicated requirements under various financial sector laws. These are good laws and aim to achieve the right things, but care needs to be taken about duplication. For example, there is a law which requires data on mortgages to be submitted to the Department of Human Settlements, meaning it has to create a team to analyse the data. However, SARB collects data on mortgages under its supervisory functions. The NCR also collects data on mortgage loans. The banks complain that this information has to be distributed three times, in different forms.
Ms Yvette Singh, Banking Association of South Africa (BASA) representative, said Mr Havemann has accurately described the concern.
The Chairperson said he did not think BASA had a strong case.
Mr Havemann said Treasury’s view is that Cabinet does this.
Clause 85 – Protection for Financial Customers
The Chairperson asked why 85(1) must read “the Minister of Finance and other Cabinet Members”. Does reference to the Inter-Ministerial Council not cover this?
Mr Havemann said the intention was Cabinet Member within the IMC.
The Chairperson said this is not a major concern, but Treasury had begun to tidy up clauses and should be consistent. Further, why was some of the wording deleted from 85(1)?
Ms Bednar-Giyose said when the clause was re-considered, it was found to have additional wording, which would be covered by reference to a financial sector law.
The Chairperson said his concern was that Treasury may be inadvertently or otherwise altering the content and presenting it as simplification.
Mr Lees said in clause 85(1) the Cabinet members responsible are presumably not on the IMC and if not, then why do they need to be informed, if they ought to be informed as a council member?
Mr Havemann said the intention is that member on the IMC, may inform other members of the IMC. It could be simplified to indicate this.
The Chairperson said the content of what is raised is fine and asked why ‘relevant’ had been removed from 85(2)(b).
Ms Bednar-Giyose said this would allow any provision to be considered, without requiring an additional aspect.
Mr Havemann said the gist of this clause is that where the Minister responsible for consumer protection and consumer credit matters has an issue with how consumers are being treated in the financial sector, the Minister can force the other ministers to discuss this. This is important and if there are concerns there ought to be a mechanism to raise this.
The Chairperson said it refers to “other lawful or appropriate action”, what is the intention here?
Mr Havemann said the Consumer Protection Act imposes on the financial sector law that it has to be equivalent or of a higher standard. This clause provides for the IMC to make recommendations to this effect.
Ms Bednar-Giyose said in some instances the problem may not relate to an issue in the legislation and could relate to something about how it is implemented.
The Chairperson asked what happens after the recommendations are made.
Ms Bednar-Giyose replied that officials would need to implement those, by either coming up with revised proposals or implement other more coordinative or functional actions.
Clause 86 – Independent evaluation of effectiveness of cooperation and collaboration
The Chairperson said clause 86 is good, because of the independent evaluation.
Ms Manamela said BASA does not agree with clause 86 and asked why.
Mr Havemann said Treasury was brief in its response and it would assume that an independent evaluation would consult with financial institutions.
The Chairperson said he had also disagreed with BASA.
Mr Lees said the word ‘may’ indicates that it may never happen and there does not seem to be a way of triggering it if the IMC does not want to appoint the independent evaluator.
Mr Havemann said Treasury did not want it to be a requirement that it happens, because it is already required to be audited by the Auditor-General on these issues. Treasury would not object to having an evaluation every two years at a minimum, but is concerned about regular evaluations being quite time consuming.
Mr Lees agreed with the thinking but he was concerned with some form of trigger mechanism which was not dependent on the IMC itself.
The Chairperson said a compromise should be found between having it constantly and finding a condition to make it there. He personally preferred a ‘must’, but avoiding it being too onerous. The Committee was not accepting the ‘may’ and either the trigger mechanism as mentioned by Mr Lees or a ‘must’, but loose enough to not be too onerous.
Chapter 6: Administrative Actions, Part 1 - Administrative Action Committees
Clause 87 – Establishment and Membership
Mr Havemann said the Association for Savings and Investment South Africa (ASISA) had asked for a few things, including for a minimum number of members on the administrative action committee. He was unsure why, because in clause 81(a) it is stipulated that it must include at least one retired judge or at least one advocate or attorney. The clause provides for two people already and three seems a little excessive to sit every time an administrative action is made. At times these would be small matters which a retired judge would be able to dispense with quite quickly.
Mr Lees asked for clarity on the way the committee makes decisions, because if there is disagreement between two, the third is needed to vote. If it is going to be done by consensus then two members would be able to do it.
Mr Havemann said Treasury has not prescribed a procedure for making decisions. Conceptually the intention is to have a retired judge, with an assessor to assist who is an experienced lawyer. He would assume that the decision of the retired judge would prevail, but that can be stated if required. However, clause 87(2)(b) provides for any number of members to be appointed to the committee.
Ms Bednar-Giyose said the overall intention was to provide some flexibility, because there would be a wide range of types of decisions that would be being considered by administrative action committees. So with different decisions, one may want some flexibility with requirements for process. Clause 89(2) also provides for this.
Mr Havemann clarified that clause 87(1)(a) provides that either a retired judge or an experienced advocate or attorney may be appointed. Unless both are retired who are appointed, most likely it would be one person appointed.
The Chairperson said he did not have a view and asked what the outcome of the exchange was.
Mr Lees said he accepted the explanation.
The Chairperson agreed.
Mr S Buthelezi (ANC) said something which keeps on coming up is exclusion of people who are capable of participating. Legislation often requires ten years’ experience as an attorney or advocate and at times judges. What if there is a very experienced law professor who can perform these very functions. Is the intention not legal expertise, rather than a particular role?
Mr Havemann said he would defer it to the lawyers, but he could see the situation where one would want a law professor to fulfil this role.
The Chairperson agreed with Mr Buthelezi about being as inclusive as possible, but there are times when the specific role entailed someone who has actually practiced the law. He did not know, but at times the situation really needs a practicing lawyer.
Ms Jo-ann Ferreira, Head of Department: Insurance Regulatory Framework, Financial Services Board, said this committee is there to support the procedural aspects. Technical points of law are also important, but it is mainly about making sure that when a decision is made they fulfil all the procedural requirements. So it is important that it is someone who is practicing and has experience with administrative action.
Mr Kamlana said there is some accommodation of that in subclause (b), because it provides that the administrative action committee may include members who are not staff of the regulators. Further, it provides the minimum requirements for members, but does not exclude the possibility of a person who is a law professor being part of the committee.
The Chairperson asked whether the retired judge or, the advocate or attorney would chair the committee. So to say a professor can be included in subclause (b) does not address Mr Buthelezi’s point, which is why can a person who is capable i.e. a law professor, be the main person in the committee. In other words what Mr Kamlana indicated provided for a law professor to be an ordinary member of the administrative action committee, but not to chair.
Mr Havemann said it implies that, but does not actually stipulate that. So a person could be appointed from subclause (b).
The Chairperson said Mr Buthelezi is correct about providing criteria which do not have the unintended consequence of excluding categories of society; the Committee wants to be inclusive. Secondly, maybe here someone with experience is required. Thirdly, it has been indicated that subclause (b) allows inclusivity. However, Mr Buthelezi’s point goes to chairing the committees and why would subclause (a) stipulate these member unless they are to chair. So, should something not be put in which says that the retired judge must be included as chairperson?
Mr Havemann said that could be done.
Mr Lees referred to 87(2)(a)(ii) and asked why are the words ‘at least one’ in there.
Mr Havemann said there is an ‘or’ there and if it is decided that only one person is on this committee and a retired judge was not available, then the person would have to an advocate or attorney.
The Chairperson said if 87(2)(a)(ii) is linked with (b), would that not help.
Mr Havemann said he felt they were linked, but that could help.
Mr Lees said the implication of that is that it must include a retired judge, then every committee would then have to have a retired judge if subparagraph (ii) was removed. That may be a good thing.
The Chairperson said he would prefer putting in the option of a retired judge or an advocate. Treasury should look at the wording. Personally, he felt it should preferably be a retired judge, but a situation may arise where a retired judge cannot be found. So he asked Treasury to clean up 87(2)(a), but the rest of clause 87 was accepted. Treasury should tell the Committee what the policy is and how that is reflected in the text. He asked what the Directorate of Market Abuse (DMA) was and where it came from.
Mr Havemann said the DMA was creature of statute created by the Financial Markets Act. The submission was concerned that the DMA was being replaced through these clauses. Treasury has clarified that this is not the case and agrees with the concern.
The Chairperson asked why that was thought.
Mr Havemann said in a previous draft there was a proposal to link the DMA to an administrative action committee, but this has been clarified in this draft and the stakeholder accepted that.
The Chairperson moved on to 87(3), where ASISA had a concern.
Mr Havemann said ASISA wanted a requirement that the chairperson of the administrative action committee has a strong knowledge of administrative law. While Treasury agrees that there needs to be an experienced lawyer, it goes without saying that they would have the appropriate experience. It may be found that in a particular instance, the person may need a strong knowledge of securities law or financial sector law, but not necessarily administrative law per se. So Treasury does not feel that stipulating this is necessary.
The Chairperson said he was neutral.
Adv Jenkins said perhaps instead of stipulating having 10 years in practicing law, the clause could simply require 10 years of relevant experience. That is an objective standard and it would require the lawyer to have enough experience in both administrative law and financial law, to be able to deal with the matter before it.
The Chairperson asked Members for their view and receiving no responses asked to leave it the way it was in the Bill.
Part 2 – Administrative Justice
Clause 91 – Applicability of PAJA to administrative action by financial sector regulators
The Chairperson said clause 91 applies the Promotion of Administrative Justice Act (PAJA) in the law itself, which is a good thing.
Clause 92 – Procedures for specific administrative action
The Chairperson asked why clause 92(2) read “reasonable and justifiable” and asked for further explanation.
Mr Havemann said his understanding was that it was almost directly from PAJA.
Ms Bednar-Giyose said PAJA itself sets out the standard procedures, but also allows for different procedures to be applied if it is consistent with the principle.
The Chairperson said if that requirement is contained in PAJA, no one would question it.
Clause 93 – Processes for determining or amending administrative action procedures
The Chairperson noted clause 93(1)(b) requires a draft of the proposed procedure to be submitted to the Director General and other financial sector regulator. Should this not be financial sector regulators, but if it is one, which one?
Mr Havemann said there are only two, so it would either be the FSCA or PA. The comments received from stakeholders propose giving the Director General powers, which Treasury feels are unnecessary.
The Chairperson said ASISA also raises something about clause 93(2) on a manner which is not material.
Ms Bednar-Giyose said Treasury would propose accepting that proposal, to include materiality in clause 93(2).
The Chairperson said in the matrix it is indicated that Treasury did not agree.
Mr Havemann said it was felt that it was implied, but it would be accepted.
Ms Rosemary Lightbody, ASISA representative, said ASISA would prefer in a manner which is not material to be in, but would leave it up to the Committee.
The Chairperson said looking at other legislation, this is often included. If you go to the public, hear them and pass regulations. Then the entity changes those regulations, there is almost a moral, but constitutional obligation to consult again. So he felt it should be included, unless Members feel strongly otherwise. The difficulty for Members however was that the motivation behind the proposal was unclear and there could be unintended consequences. Regardless, he asked for Members to agree, because it was fair that if the public is consulted and then there is a change, there ought to be another consultation, unless the change is not material.
Clause 94 – Review of administrative procedures
The Chairperson asked for ASISA’s concern to be explained.
Mr Havemann said Treasury agreed and proposed some changes which are in the July version of the Bill, with the clause requiring a review of administrative procedures at least once every three years.
Clause 95 – Cancellation of Decisions
The Chairperson asked for input.
Mr Havemann said this was a theme, where in 2015 senior counsel reviewed the Bill and there was an issue around to what extent a regulator could replace one of its decisions. He had mentioned the case where an MEC had made the decision to allow a person to build a building, but then later withdrew the permission. In that case the court found that it is allowed for a decision to be changed, but the person affected must agree. The JSE raised the same concern, the proposed changes had been discussed with the JSE, which now understands and feels better. There was quite a lot of discussion between all the senior counsel who were all happy with the way the clause came out. One of the senior counsel pointed out that the use of the word ‘cancellation’ is strange and not really used in the law. It was agreed between the senior counsel that the most appropriate word is actually ‘revocation’, which is what Treasury is proposing.
The Chairperson said under clause 95(1)(a), a regulator was allowed to vary a decision on the basis of fraud or illegality. Was it clear whose fraud or illegality is being referred to?
Mr Havemann said this has not been specified, because all the possibilities cannot be covered. Sometimes stakeholders do submit documents fraudulently, leading regulators to make incorrect decisions.
The Chairperson asked if the clause was talking about stakeholders.
Mr Havemann said people have in the past committed fraud in their licence applications and the like.
Ms Ferreira said on a strict reading this would apply to the applicant, but there should be no harm in keeping it wider so if someone within the regulator had done something untoward, allowing the regulator to correct the decision. If it is kept that way, it provides a little bit of flexibility.
Adv Jenkins said he agrees with leaving it as is.
The Chairperson said the wording of 95(1)(b) should be reconsidered. He noted that the use of ‘cancellation’ in subclause(2) needs to be updated.
Chapter 7: Regulatory Instruments, Part 1 – Regulatory Instruments
Clause 98 – Process for making regulatory instruments
Mr Havemann said the first comment here was by the Centre for Applied Legal Studies, which would like financial institutions to comply with the Constitution. Treasury feels that does apply generally, but the Chairperson has requested that this be put into the Long Title of the Bill.
The Chairperson said unless Members feel otherwise, he did not think it was necessary here.
Mr Havemann said an important theme arises here in the role of Parliament in making subordinate legislation. ASISA made quite a long submission on this point. He would explain the clause by indicating how it has been revised. Essentially, the aim is to try to have a clear process for the making of regulatory instruments. Clause 98(1)(a) requires an explanatory statement, an impact assessment and request for public submissions to be published. Clause 98(1)(b) then requires that the instrument be submitted to Parliament. Clause 98(2) stipulates the 30 day period for making submissions.
The Chairperson said he was fine with the clause.
Mr Havemann said in subsequent discussions with ASISA they have highlighted that they would like an extended time period in 98(2). The time period given for issues has been a subject of major discussion; some say 30 days is too short. Treasury was proposing to the Committee that the general rule is at least 30 days, but that the regulators consider how complex the drafts published are. If they are complex, then they are strongly advised to have longer periods. That is what is trying to be achieved with the proposed wording.
The Chairperson asked if this covered ASISA.
Ms Lightbody said ASISA is not comfortable that this will cover the concerns. With the 30 day period, obtaining a mandate from all members, bearing in mind that these members first need to discuss within their organisations what the operational impact can be. Everything is then collated and ASISA tries to sort out misunderstandings and does its best to put forward a quality, thought-through submission. Thirty days unfortunately is too short a period of time within which to do this, so it would urge the Committee to consider a two month period or at the very least six weeks.
The Chairperson asked for Treasury’s response.
Mr Havemann said Treasury takes the point that this is a short period for complex instruments, that is why it proposes the compromise. So if it is a really complicated instrument, the regulator should allow a longer period. The regulators want to make sure that things do not get stuck in consultation for too long. Thirty days is a reasonable period and is the amount of time which Parliament gives commentators on legislation.
The Chairperson asked where it is indicated that if the proposals are complicated, the regulators must put forward a longer period.
Mr Havemann said since the version of the Bill before the Committee, further engagements had been had with ASISA. So since this Bill, Treasury is proposing that there must be some consideration of the nature and complexity of the regulatory instrument and the period must be at least 30 days.
Mr Buthelezi said complexity is very subjective and what often happens is that people then come forward for continual extensions. He would urge to rather err on the side of giving people more time, to allow them to respond properly.
The Chairperson said there should be consistency and if there is leniency here for these stakeholders the same should apply across the board. He also felt that Members should not complicate life.
Mr Havemann said the regulators feel quite strongly.
Mr Jonathan Dixon, Head of Department: Insurance Compliance, Financial Services Board, said what is proposed to be added is a principled based approach. The commitment is to aim for something which is more than 30 days and that would have to be outlined in the regulatory strategy which the relevant regulator has put out. The clause which deals with regulatory strategies requires these to deal with consultative measures. The norm would be more than 30 days, but the regulators’ concern was that hard-coding into the Bill a more than 30 days requirement would be an obstacle to instruments being put in place fairly quickly or where there have been multiple rounds of informal consultation, making the it a non-controversial instrument. The regulators would be handcuffed by the legislation and not be able to react quickly. Also, bearing in mind that it is 30 days for consultation, plus there is the consultative period in Parliament. So adding up the period for receiving comment, considering comment and then submission to Parliament the period ends up being a minimum of four months. Regulators would be worried about hard-coding a period longer than that. However, having that principle there would mean that if the regulators tried to push something complex through, this could be challenged.
Mr Kamlana said the regulators are in complete agreement on this and would always strive to be reasonable. Even though the law has requirements, there is nothing stopping regulators engaging informally on what its strategy would be. The clause, even before the proposed new wording, indicates at least 30 days, which is a minimum and it was not meant to be the limit.
The Chairperson said his crude, mechanical response was to propose six weeks. Would two extra weeks kill the regulators?
Mr Buthelezi agreed with the proposal.
The Chairperson said then the proposed wording would be dropped.
Mr Dixon said perhaps something like six weeks, unless the nature of the change is straightforward.
The Chairperson asked what the crime would be with six weeks. He did not have a view and asked for guidance from Members.
Mr Buthelezi said six weeks was fine.
Clause 100 – Urgent Regulatory Instruments
Mr Havemann said here again there was an issue about the number of days. The view is that there may be situations which require urgent instruments.
The Chairperson said having heard the discussion on clause 98, Treasury should be consistent.
Mr Havemann said this deals with urgent instruments and regulators would like to be able to make instruments fairly quickly if there was a major problem. The clause requires the regulator to in a sense go back and ratify the instrument.
The Chairperson said he did not agree with ASISA here and with no Members expressing a view, stated the Committee accepted the clause.
Clause 102 – Making, publication and commencement of regulatory instruments
Mr Havemann said this was another theme and Treasury indicated that it would like the regulators to submit regulatory instruments to Parliament for scrutiny.
The Chairperson asked on clause 102(2), whether there was a legal reason for publication after it is made. This sounded a bit odd, but presumably there was a legal reason.
Ms Bednar-Giyose said the reason that is stated is that in the provision for commencement, this is in relation to the date either of publication in the register or a later date specified in the instrument.
The Chairperson asked for Adv Jenkins to comment.
Adv Jenkins said this is a time issue and to bring it into effect, it needs to be published. So he did not feel it was necessary to state after it is made.
The Chairperson said the clause should be re-worked.
Mr Lees asked whether there was not an intention to put a limitation on how long after regulatory instruments are made, that they must be published.
The Chairperson said this meant that it would have to be published as soon as it was made. The word immediately would help make more grammatical sense.
Mr Havemann said 102(3) should cover the concern about delays, because regulatory instruments only come into effect when published. If this is not done, then it would never come into effect. It does force regulators to publish the instruments.
Clause 103 – Submission of regulatory instruments to Parliament
The Chairperson said in clause 103(1)(a), the reference to clause 98 does not include subparagraph (iv). This subparagraph of clause 98 requires a notice inviting submissions and stating where, how and by when they are to be made.
Mr Havemann said this was a practicality and Treasury did not feel that Parliament required to see that notice requesting comments.
The Chairperson asked why not, because in the interest of openness and transparency, Parliament would like to see the notice inviting submissions. That would indicate the timeframes and the degree of latitude given to the public.
Mr Havemann said a correction has been picked up and it should read “98(1)(a)”, because this would include subparagraph (iv).
The Chairperson said he had already noted this and Treasury and the Committee support staff would have to deal with this. Those things can be sorted out with the NCOP process, as it would be human error to get cross referencing wrong.
Ms Bednar-Giyose said another minor proposal to clarify wording was that it was noticed that 103(1)(b) largely repeats what is in clause 104 and Treasury proposes 1(b) to read: “a report on the consultation process referred to in section 104”.
The Chairperson asked what the role of Parliament is once this has been submitted.
Mr Havemann said there would be a process of scrutiny. With the Credit Rating Services Act there are very similar provisions and it is really up to Parliament to decide.
The Chairperson said the problem which would be run into was that Parliament has an overwhelming programme for the next three to four years. Therefore, powers should not be granted where Parliament would be found to be holding the works up, because it has not approved something tabled. This would be fine as long as it would not be in every situation where Parliament would have to hold consultations and such. This was a theme, around Parliament’s capacity.
Mr Havemann said perhaps the clause could be amended to include “if Parliament requires it”.
The Chairperson said the regulatory instruments should be tabled, but these should only be for scrutiny, as required. He noted that the Committee Report on the Bill must indicate that Parliament on the one hand requires the executive to be answerable and accountable to the public through it, but at the same time recognising the technical and other support the Committee requires to be effective in this regard.
Adv Jenkins said Members must be careful to put in legislation more than tabling, because a lot of legislation requires tabling and the Constitution requires consideration of issues which are to be identified from tabled documents. Parliament is the forum for public consultation and the public has a right to participate in proceedings. So the Committee should not over-complicate the provision, by allowing Parliament to scrutinise if it feels this necessary. The provision should merely require tabling and then if a Member or someone from the public has a concern they can raise this as being contained in a tabled document. Parliament can then take that up, because it has to give effect to the right to participate. The challenge is to give substantive effect to the requirement of public participation and no amount of words is going to get Parliament to achieve that.
Mr Havemann asked whether words ‘for scrutiny’ should be retained, because this would impose this on Parliament. Deleting ‘for scrutiny’ may remedy the Chairperson’s concerns.
The Chairperson said scrutiny is the concern. With the Municipal Systems Act, Parliament was very clear; requiring certain aspects of the regulations should be subjected to scrutiny, but others it was up to Parliament to decide. He asked what Adv Jenkins was suggesting.
Adv Jenkins said it should just require tabling and not scrutiny.
The Chairperson said that is a very helpful input.
Part 2 - Standards
Clause 105 – Prudential Standards
Mr Havemann said there was a comment from the JSE on this. The reason why so few comments were received from stakeholders is due to the extensive consultations on previous drafts. Everyone was now happy with what was being proposed. The JSE’s residual concern was that there may be overlapping responsibilities between the JSE and the two regulators. The JSE regulates stock brokers and a situation might arise where rules it impose on stock brokers conflict with rules which the FSCA could impose on stock brokers. That could arise at present in any case. Treasury accepts the concern, but there are many checks and balances. One of the most important is that the conduct authority has to approve the JSE’s rules. He was sure that a mechanism could be worked out between the two to resolve this. So Treasury does not feel it is a pressing problem.
The Chairperson asked what the JSE was proposing.
Mr Havemann said they propose a specific caveat to say that the regulators cannot make rules where there are already rules by the JSE. Alternatively, the regulators cannot make rules if the JSE can make rules on the matter. That would require a very long section to try and cover every eventuality. Treasury felt that if that problem did arise, no doubt the two authorities would be able to engage with the JSE towards resolution.
The Chairperson said Members had no comment and therefore it was accepted.
Mr Havemann said clause 105(3)(a) has seen some deletions regarding provisions for financial soundness of significant owners. This is now covered now in clause 160.
The Chairperson noted clause 105(2) indicates what standard must be aimed at, including safety and soundness, reducing risk and financial stability. What would the problem be with protecting the financial customers there, although that role belongs to the FSCA primarily? The Bill requires the conduct authority is to assist with financial stability, but why can Treasury not put in a role for the PA to protect the financial customer. He knew that this would be covered elsewhere, but why can it not be a consideration with standards. As much as the government needs the private sector, the governing party’s primary responsibility is to the poor and disadvantaged. The majority parties views are clear that what happened in 2008 will happen again, if people are not protected. So why can this not be said and as this was a policy matter he asked for Members’ input.
Mr Havemann said the idea is that the PA sets standards which are really looking at the soundness of institutions and the FSCA set standards on how institutions interact with their customers. That is a very important step to set up a whole authority which has the mandate to be concerned about the customers of financial institutions. He would be hesitant to start mixing up the objectives and requirements standards. Sufficient requirements have been placed on the FSCA to make standards which worry about consumer protection. Further, there are something called joint standards which make it possible for the authorities to issue standards together, because there are going to be situations where the two authorities should think about where their standards overlap. The area of consumer protection is an area where the mandates are a bit fuzzy. It may be useful for them to come out together on such a matter. Treasury is trying to achieve two sets of standards, clearly defined, related to the different mandates. There are also requirements for the regulators to cooperate.
The Chairperson asked with the FSCA standards, is there a requirement for it to be concerned with prudential matters.
Mr Havemann replied it is required to assist with financial stability.
The Chairperson asked then why is the PA not required to look after the financial customer.
Mr Kamlana said although the FSCA has a contribution to make to financial stability, it is not required to have standards on the soundness of individual institutions. That is an important difference, because at the heart of twin peaks is regulation by objective. Which is why there are two, separate, dedicated authorities to look at these main objectives of financial regulation: prudential soundness and customer protection. While they both have a contribution to financial stability, the objectives are different. The contribution of the PA to consumer protection is ensuring that individual institutions are financially stable. The FSCA has the specific mandate around consumer protection. That is the main difference.
The Chairperson said he was aware of all of that, but was it being said that in the objectives of the PA there is something about protecting the financial customer. If it is there in the objectives, would it not also be good to have them consider the customer in setting standards. His sense was that there was a slight weighting. He would like to defer this, because what he was personally concerned about was overall there is this separation of roles and complementarity at the same time. Looking at this overall, expect the FSCA to play a bigger role in financial stability, than is expected of the PA in protecting the customer, even if it is clear that the primary responsibility should be with the conduct authority. Is that a reasonable position or would Treasury argue that they are equally weighted?
Mr Buthelezi said at the end of the day when you regulate, even with the PA, it is about the customer. Not regulating for the sake of regulating, so both arms ultimately should be for the customer. He would not see any problem in both regulators having the customer at the centre.
The Chairperson said he would have preferred if Mr Ismail Momoniat, Deputy Director General: Financial Sector and Tax Policy National Treasury, were present for this matter.
Mr Havemann said he could predict what Mr Momoniat would say, which is that it is not in the blood of a central banker to worry about customers. This has actually been put it into the objectives of the PA in clause 33(c). It is quite a philosophical point to ask why there is a PA. This is because we care about the banks’ customers and therefore it is a requirement that the PA protect financial customers against the risk that financial institutions fail to meet their obligations.
Mr Dixon said as regulators the idea is not just to regulate for fun, the most important purpose is to protect the consumer. That is the traditional rationale for having regulators, later we have expanded that around overall financial stability, because that can spill over into the real market. Those are the two reasons why regulators exist: one is to protect consumers and the other is to protect stability. Looking at the consumer objective there are two regulators, the PA and the FSCA, which both are there to deal with consumer protection, just in different ways. The PA protects consumers by ensuring that institutions do not fail and therefore do not make good on their obligations. The FSCA protects consumers by making sure institutions treat their customers fairly. Conduct and financial stability are two aspects of consumer protection. That is why the Bill tries to make it clear that the PA has a consumer protection objective, focused on protecting the promise; while the FSCA focuses on ensuring there is equity in the treatment of customers.
The Chairperson said the issue as consumer protection is in the objectives, surely it is fair to say one way of implementing the objectives is through the set of standards. He understood the resistance to blurring mandates, but there is an inextricable link between the stability of financial institutions and protection of the customer. This works both ways, if the customer has more rights and is more aware of those rights, then the institutions would be forced to react. Early warning signs can emerge through even individual activism. On the other hand institutions cannot be stable if they are not delivering to their customers. He understood the division, but all agree that the lines are not clear and unavoidably so, because the system is a whole. His point was that in the Bill generally there seems to be a greater obligation on the conduct authority to ensure stability, than there is on the PA to protect the interests of the customer. For now the Committee should leave it as it was, but was not adopting the clause. Another compromise which could made is to put in a clause which requires that in making these standards due consideration has to be given to the protection of customers. At the very least that should be put in, but this is a policy matter which he was alerting the Committee to. Treasury would be heard further, but the Committee needs to consider the matter.
Mr Havemann said what could be done is to specify that the standards may be made and then list the objectives of the PA, highlighting the objectives relating to financial customers. The Bill could very clearly indicate what is to be achieved around the protection of financial customers.
Clause 106 – Conduct Standards
The Chairperson noted ASISA has requested that the Bill provide guidelines and criteria for the exercise of the wide discretion. It was also claiming something was not constitutional and asked for Treasury to respond.
Mr Havemann replied the comments on clause 106(5) deal with conduct standards for entities which are regulated by the NCR. An example is an overdraft account and an overdraft is technically a credit agreement and the NCR regulates that aspect. However, customers often have bundled products with a cheque account and an overdraft. After a lot of engagement the view is the NCR regulates the overdraft, but when that account is sold then conduct standards may apply. The proposed changes are to be very clear on that thin line between the account and the overdraft facility.
Ms Bednar-Giyose said a minor revision proposed was that there was an error in the referencing in subclause (3) to refer to subsections 1 and 2.
The Chairperson asked for input on the constitutionality issue, where the comment was that there is case law to the effect that providing a functionary with unfettered discretion is an unjustifiable limitation on the right to procedurally fair administrative action. He could not see how it applies here.
Mr Havemann said ASISA is correct that there is case law to that effect. However, Treasury, following a lot of engagement, feels that this is not unfettered discretion.
Ms Lightbody said ASISA’s counsel is satisfied that all constitutional considerations have been adequately addressed in the present draft of the Bill.
Clause 108 – Additional matters for making standards
Mr Havemann said the Foschini Group submitted that the FSCA should not be able to issue conduct standards or any item which would require formal amendment of legislation and/or regulations. Further, these should be subject to the same level of public consultations, including regulatory impact assessments. It is correct that the conduct authority cannot issue standards in this manner and the Constitution is clear that the law prevails. If something happened like this, the standards could be taken on review, so Treasury does not feel it necessary to write that down. Further, the standards are subject to an extensive system of consultation and the Bill now requires regulatory impact assessments.
Adv Jenkins agreed that this covers their concerns and this is completely different to the Dawood case, where there was absolutely nothing to guide the discretion.
The Chairperson said BASA and STRATE have issues with clause 108.
Mr Havemann said there has been a lot of engagement with BASA on this point and it is an aspect where Treasury’s position is that effective conduct regulation, requires the ability to issue conduct standards. This may mean that banks will have to change the products they sell or disclose more stuff. BASA feels Treasury is going too far, but the point of this exercise is to change conduct. His understanding was that the FSCA does not intend doing specific requirements on product design.
The Chairperson said clause 108(1)(e) allows the setting of standards for the operations of and operational requirements of financial institutions. This looked like it was going deep into the internal processes. BASA is raising the same point, separately from him, giving the point a bit of credence. Perhaps he could be wrong, but why was the FSCA going to that extent?
Mr Dixon said it is important to bear in mind that this only goes to the extent that it relates to the fair treatment of customers. This is essentially under clause 106(2), which limits the scope of what a standard may cover, including ensuring financial institutions treat customers fairly. The FSCA would therefore not be able to go on a tangent and introduce standards on cafeteria hygiene or other such aspects of operations.
The Chairperson asked if it would help to specifically mention this.
Mr Havemann said something to the effect of bearing in mind the requirements of clause 106(2), could be inserted.
Mr Dixon continued about the operational requirements, it could for example require that an insurance provider has adequate systems and administration in place so that even when they outsource functions they still have the information on their policy holders. If there is a breakdown in that outsourcing relationship there is a real risk of customer fair treatment issues arising. The FSCA would want to put in place operational requirements around data and information sharing. On the product side of things, the idea is not that the FSCA would be doing product approval, because that brings certain risks if a problem subsequently arises. It is more to have principles which say that financial product providers must design their products in such a way that they take into account the needs of their target market. This is an area where problems have been encountered, with product providers taking an existing product and trying to push them into a different customer base. He gave the example of trying to sell a standard product to someone who does not have a regular income stream, combined with heavy penalties for the consumer missing a monthly payment. That is not consistent with fair treatment of customers and would be an area where standards would be set.
The Chairperson asked why clause 108(2) was changed.
Mr Havemann said the idea was to assist that a standard could be made and guidance can also be given on how to do so. Further, the regulator may impose requirements for approval in a specified manner. For example, a regulator may have a process where it approves record keeping arrangements. Adding on Mr Dixon’s point, there are one or two companies which keep all the records for pensioners throughout the country and the regulator should ensure those are kept appropriately. These can be basic matters, but one needs a system to do that and that is what clause 108(2) attempts. Subclause (3) indicates that another standard may be amended or revoke a prior one.
Mr Havemann said Treasury is proposing a clause 108(1)(p) which read “requirements for the safekeeping of assets including, requirements pertaining to the approval and supervision of custodians and nominees”.
The Chairperson accepted this.
Clause 110 - General
The Chairperson asked why ‘significant owners’ has been removed.
Mr Havemann said the matters to do with significant owners are dealt with in a dedicated clause.
The Chairperson asked about clause 110(2) saying that ‘things done’ does not read well. Was this correct and he had not seen it in law before. If that is the only forward, that is fine, but Treasury should relook at the clause.
Chapter 8: Licencing
Part 1 – Licencing Requirements
Clause 111 – Licencing Requirements
Mr Havemann said the comment about process followed for creating licences is included in the redraft. The BASA and ASISA comments are related and essentially Treasury’s position is that it feels that regulators must give an applicant a response on a licence application within a specified time. They did not agree and this led to the question whether this was an administrative action. If an application is made to a regulator and it does not respond, under the original draft of the Bill, it would be taken as the regulator declining the application. Treasury felt that then the applicant could apply to the Financial Services Tribunal and force the regulators to give reasons. ASISA preferred that time running out did not apply, but Treasury did think that it should remain as is. However, Treasury did make some small changes to the provisions, by changing it to the positive. Clause 116(3)(a) now reads “if a responsible authority has not granted an application or notified the applicant in terms of subsection (1)(b), within three months after it is made, the responsible authority is taken to have refused the application”. After further discussions, more changes are proposed. Specifically that subject to paragraph (b), the responsible authority must determine an application in terms of subsection (b) within 3 months after the application is made. These are wording changes to make it very clear what is to be achieved.
Ms Bednar-Giyose said the concern also was that there was a deeming of a refusal of an application and what that entailed for the aggrieved party. With this positive wording, the regulators have to make a decision and if they do not, then under PAJA that is a refusal to make a decision, allowing the aggrieved party to take further action. It was felt that this is a clearer approach.
The Chairperson asked if ASISA was satisfied.
Ms Lightbody indicated that they were.
The Chairperson asked what Adv Jenkins felt.
Adv Jenkins said that this was fine and reflected the requirements of PAJA.
Clause 111 – Licencing Requirements
The Chairperson referred to 111(7), saying that he had looked up clause 298 which only had two subsections, so why mention them both.
Mr Havemann said with the number changing it would now be 297, but the Chairperson was correct. Further, the latter reference should be to clause 284.
Ms Bednar-Giyose said it was identified that the way the wording was crafted originally that this could require a broad range of activities which are outsourced to also be licenced. Treasury realised that this was perhaps too broad and proposed inserting a new subclause (3) which would indicate that subsections (1) and (2) only apply to a contractor if the responsible authority specifically requires that in a standard. So certain outsourced activities could be required to be licenced, but this is not the default.
The Chairperson agreed.
Part 2 – Licences required in terms of section 111(1)(b) or section 163
Clause 112 – Power to grant licences
The Chairperson asked on clause 113 why reference to subclause (2) was removed.
Mr Havemann said this was unnecessary, because of the ‘must’ in subclause (2).
Clause 116 – Determination of applications
Mr Havemann said the comments on subclause (3)(a) were discussed above. Further, there are wording changes. Subclause 116(1)(b) now requires notifying the applicant accordingly. It is important that if a regulator refuses an application that it indicates why.
Mr Buthelezi said with the notification of a refusal, timeframes should be specified.
The Chairperson agreed and said Treasury should when going through the Bill act in accordance with the Committee’s overarching concerns, such as requiring consultation, ensuring fairness to any person or institution.
Mr Buthelezi asked whether reasons are provided for refusal.
Mr Havemann replied that is the case and there has been a recent case where the FSB has been required to give reasons. The general position is that reasons must be provided.
Ms Ferreira agreed.
The Chairperson asked how many licence applications are received a month.
Ms Ferreira said in insurance or capital markets perhaps there will not be so many, but with the Financial Advisory and Intermediary Services there may be far more. As a general rule the FSB does provide reasons, further PAJA affords people the opportunity to ask for reasons. There is also a clause which requires reasons for administrative decisions.
Mr Havemann said BASA wanted the word ‘material’ inserted and Treasury agreed.
Clause 119 – Variation of Licences
Mr Buthelezi noted in clause 119, the variation of the licence may be done by notice to the licensee. Would it be fair for the licencing authority to sit in its office and simply decide to vary the licence by notice, when a specific licence was applied for?
Mr Havemann said it is qualified by requiring that the variation assist with achieving the object of the Act.
Ms Ferreira said varying a licence can happen in specific circumstances, including where the licensee has contravened provisions of legislation and there is a need to tighten the licence. So there would always be a cause and would not be done at random. It was also felt that in insurance, where people’s licences can span a period of 30 years that it is necessary and in the public interest to vary the licence to ensure it stays in the 21st century. The decision to vary is an administrative action and the person would be protected by PAJA, including requirements of consultation and justification.
The Chairperson asked if this was a sort of standard clause. Further, the affected party is ultimately covered by court action. He would like it put on the agenda that this thing of civil servants going to court when they know they are wrong, costing the state millions, has been raised by the ANC. Committees should seek to ensure reduction of prospects of this happening.
Mr Buthelezi said this assumes court action is free of charge and the state has vast resources.
The Chairperson says something needs to be done, but the PFMA needs to be applied. To date, not a single senior official has been prosecuted for wasteful expenditure. Ultimately, it is the director general who is responsible.
Mr Havemann said there are already requirements for consultation, but this can be stipulated in the clause.
Clause 120 – Suspension of licences
Mr Havemann said stakeholders want a time period to rectify the contravention. When the regulator takes action, they would impose a time period and therefore it is not necessary to stipulate this in the Bill. Further, time periods may differ depending on the contravention. Subclause 1(a) has been amended to make the suspension effective “for the period specified in the notice”.
The Chairperson said this covered the concern.
Mr Havemann said the concern raised on 120(1)(g) was agreed with and the period extended from 14 days to 30 days. Treasury added ‘in a material way 120(1)(b)’.
Clause 123 – Procedure for varying, suspending or revoking licences
The Chairperson noted BASA raising the issue of responsible authority which Treasury did not agree with.
Mr Havemann said they have made it very clear and did not feel there was a concern.
The Chairperson agreed.
Clause 124 – Applications for licences in terms of this Part
The Chairperson asked if the fit and proper person requirement was a new insertion.
Mr Havemann replied this was required elsewhere and the insertion was to ensure fit and proper person in the licencing requirements.
Part 3 – Provisions relating to all licences under financial sector laws
Clause 127 – Compulsory disclosure of licences
The Chairperson noted there have been a number of changes in this clause.
Mr Havemann said institutions stating in advertisements that they are licenced financial service providers is a standard requirement. There was concern that in the current way it was drafted, institutions may have to disclose every single licence they hold under a financial sector law. That was not the intention and Treasury was changing the clause to have the responsible authority to issue standards on such disclosure. It is just a practical matter which Treasury agreed with.
The Chairperson said the Committee would resume on Chapter 9 and declared the meeting adjourned
- Financial Sector Regulation Bill [B34-2015] - Working Draft 17 August
- Presentation on the Money Bills Amendment Procedure and Related Matters Act Review
- Progress Report of Standing Committee on Finance on Money Bills Amendment Procedure and Related Matters Act, Act No. 9 of 2009
- Option for section 15 of the Money Bills Act
- Briefing Document: Amendment of the Money Bills Amendment Procedure and Related Matters Act, 2009
- Money Bills Amendment Procedure and Related Matters Act, 2009