The Chairperson reported to the Committee about a letter he had received from Mr Maynier of the Democratic Alliance regarding the SARS senior official being investigated whereby SARS Commissioner, Tom Moyane, when appearing before this committee on 14 September, had replied that the matter was confidential.
The Committee argued at length about the merits of having a meeting with the Financial Intelligence Centre and the South African Revenue Service over that investigation before the meeting with National Treasury and its entities on their Annual Reports. It was agreed that at the annual report meeting, the Financial Intelligence Centre and SARS would be requested to talk to cooperation between the two bodies and to give assurances about the investigation without getting into its merits.
The Committee went through the amendments to Clauses 157 to 295 in the July Working Draft of the Financial Sector Regulation Bill, which were made as a result of the public hearings. Treasury also presented its review of Clauses 1 and 4 and Schedules 1, 2, 3 and part of 4.
The Committee was unhappy with the power conferred on the Minister in Clause 286 Development and implementation of policy frameworks during transitional period, and Treasury agreed to redraft this.
Looking at the Committee programme, the Chairperson noted that amongst the work of the Committee, it had the Taxation Bills workshop. The Medium Term Budget Policy Statement (MTBPS) cycle was not in the Committee’s hand but subject to the Money Bills Procedure Act, though that would change. There was an SAA follow-up meeting as well.
The Committee would recall that Mr Maynier had raise the issue of a senior official of the South African Revenue Service (SARS) being investigated whereby Commissioner of SARS, Mr Tom Moyane had replied that the matter was confidential. The Chairperson had sought the advice of Adv Frank Jenkins, Senior Parliamentary Legal Advisor, outside the meeting, on how to process the matter. Adv Jenkins had advised that the Committee could invite the Financial Intelligence Centre (FIC) because Commissioner Moyane had also gone on record in public to say that he had not acted sooner because he was not getting cooperation from the FIC. Mr Maynier had since written a letter to the Chairperson to ask the Committee to invite the FIC and SARS so that the matter of cooperation between the two bodies could be discussed. The two bodies were subject to both executive and parliamentary oversight. The Chairperson had spoken to Mr Maynier that possibly the Committee could allow the Executive some time to deal with the matter. The programme also indicated that on the second day after recess the Committee would be receiving the Annual Report of Treasury which meant the Director-General and SARS would be in Parliament for the whole day. The Chairperson had suggested that the FIC could be called on that day as well. He had asked Mr Maynier if it was really pressing that the FIC be called earlier than that. Mr Maynier had declined that proposal from the Chairperson.
Mr D Maynier (DA) thanked the Chairperson for his summary of events and noted there was agreement that when the matter was processed. The SARS Commissioner had to present together with the FIC Director. The argument that the Executive “needed time” was not quite valid at this stage as the information in the public domain at least was that Finance Minister Gordhan had met with the SARS Commissioner and dealt with the matter. The Committee needed urgent assurance that the matter was being investigated by SAPS. Additionally the Committee needed an explanation of how the situation had developed to the stage it was. As it was a matter of public interest, he believed that the meeting had to occur sooner rather than later. To be clear what the Committee needed to deal with was coordination and process only.
Mr S Buthelezi (ANC) asked if the Minister of Finance could not supply the information as he was responsible for both SARS and the FIC. He felt the Committee would be jumping the gun in inviting SARS and the FIC for a briefing before getting assurances from the Minister on how far he was in dealing with the matter. His proposal therefore was that the Committee proceed as proposed by the Chairperson.
Ms T Tobias (ANC) supported Mr Buthelezi’s proposal.
Mr Lees (DA) said that he supported Mr Maynier’s proposal instead.
Mr Maynier was not convinced that Minister Gordhan was on top of that matter because shortly after the Minister’s meeting with SARS, Mr Moyane had issued a statement where he alleged that the delay was the fault of the FIC which implied that the Minister was somehow responsible for that.
Ms Tobias said when matters of this nature appeared in the public discourse, the Committee had to treat them with the sensitivity they deserved, as the intention was to get to the bottom what had happened. First of all therefore the parties involved needed to be given the benefit of the doubt such that by the time the Committee requested a report, the parties involved would have applied their minds to the matter. Mr Maynier had to understand that the Committee was not saying the matter would not come before it; rather, the parties involved had to be given an opportunity to process that matter because reliance on media statements was not sufficient for the Committee to take the posture it was attempting. Therefore she proposed the Committee leave it to the Chairperson to process the matter.
The Chairperson said that Mr Maynier was introducing something else to the debate by saying he was not convinced of the Minister’s handling of the matter, especially since Mr Moyane had released a statement immediately after meeting with the Minister. Indeed the Chairperson had realized that someone would have picked that up. That Mr Maynier believed that SAPS had to investigate was new and strictly speaking the Chairperson understood the FIC to have referred the matter to SARS to say: could SARS get a response from the Treasury official as he was quite senior. The Chairperson referred to Adv Jenkins as to who was the decision maker in referring the matter to SAPS. He reiterated his earlier point about consulting Adv Jenkins on how to process the matter as there was consensus that the matter had to be scrutinized without exposing any individuals. Some members could argue and others not, without being partisan, that possibly Mr Moyane could have handled the matter slightly differently. The Chairperson could, if the Committee agreed, write a letter to Minister Gordhan, Commissioner Moyane and FIC Director Mr Murray Michell, to say the Committee was unhappy and needed assurances about cooperation between the three bodies. Moreover, the Committee expected all of them to appear at the Treasury Annual Report briefing. Was that proper?
Mr Maynier said that indeed there was consensus about both the importance and the need for a briefing by all; the sticking point was when that could take place. The majority’s view seemed to be that the matter be deferred to the day of the Annual Report which was acceptable. He would request, however, that if the meeting materialized that the FIC be present.
The Chairperson was agreeable to that but asked what Mr Maynier’s media statement of today would contain.
Mr Maynier said that if indeed he would put out a media statement, it would be to welcome the fact that there would be a briefing on the matter on the day of the Annual Report.
Financial Sector Regulation Bill [B34-2015]
The Chairperson said members had been notified of his suggestion that the Committee review Chapter 11 and 12 of the Financial Sector Regulation Bill (FSR) quickly. There were also the clauses the Committee had asked Treasury to rework and then return them to the Committee. The Schedule would follow, and all of that had to be completed by 17:00 on the 21 September, failing which the Committee would have to break up into the sub-committee where Mr Buthelezi would be the chairperson on 22 September 2016. He was firmly proposing that a sub-committee be formed to deal with the Schedule as the Chairperson did not think it appropriate that every member had to be in Parliament on 22 September except that there had to be at least one member of the DA and two from the ANC. Mr Buthelezi and the Chairperson would be present to make five members for the sub-committee; certainly anyone else was welcomed. He further proposed that for schedule 6B the Committee could work on this during the constituency period so the Committee could return with version 3 of the FSR Bill to be sent out immediately for public comment and submissions by the 14 October 2016.
Mr Ismail Momoniat, Deputy Director-General (DDG), Treasury, asked if the Committee would not mind if the schedules were attended to after processing Chapters 11, 12 and 13 of the FSR Bill.
Chapter 11 Significant Owners
Clause 157 Significant owners
The Chairperson wanted clarity on whether clause 157(1) was linked to the other criteria where a person is a significant owner of a financial institution if the person has the ability to control or influence materially the business or strategy of the financial institution, such as an advisor. But such a person would only qualify as a significant owner unless he or she met the other criteria?
Mr Roy Havemann, Chief Director, Financial Markets and Stability, replied that the Chairperson was not quite correct as the idea was that clause 157(2) gave much clearer guidance in terms of what the criteria would be. The Chairperson did raise an interesting point though and the general approach taken in law was that drafting was broad to allow for narrowing then later. So there was a section which actually allowed one to apply to the regulator that one was not a significant owner just in case one got caught out accidentally.
The Chairperson said it was clear that clause 157(1) was linked to 157(2) and the other subclauses below that but if he had his own way he would have simplified it because was he not correct to say that somebody that could influence materially the business or strategy of the financial institution could be an advisor or a technical expert. He asked the content advisor and Adv Jenkins if they did not pick up anything there.
Adv Frank Jenkins, Senior Parliamentary Legal Advisor, said he thought the intention of clause 157 was that he as a legal advisor could influence a decision of Parliament but he could not be held accountable for that. He only gave legal advice but the decision taken thereafter was the responsibility of the decision maker. Significant owner possibly had to be seen like that: to say that that person actually had that ability to take a decision though the 15% threshold was interesting to think about.
The Chairperson said he was not happy about the explanations as he had wanted greater clarity, but would accept them at this late stage.
The Chairperson said Treasury had a new technique of drafting which was strange and in various parts the Department seemed to be doing exactly what Mr Havemann had said though that was not the only option. Conceptually Mr Havemann was right but the writing style – for example Treasury would say: in 157(1)(c) the person, directly or indirectly, alone or together with a related or interrelated person— holds a qualifying stake in the financial institution. The obvious question would be what percentage but one only finds out that when one turns the page and finds that Treasury was referring to 15%. Treasury could not tell the Chairperson there was something germane to legal drafting that required Treasury to draft as it had. Consistently, if one looked at the Chairperson’s notes it would be found that he had asked a question and only several subparagraphs down, the question would be answered. Treasury had to improve that style of drafting. Moreover the FSR Bill seemed to have been drafted by several different hands and it did not have the consistent flow of other Bills.
Clause 161 Designation of financial conglomerates
The Chairperson asked why clause 161(4) had been drafted the way it had.
Mr Havemann replied that 161(4) was to ensure that the Financial Sector Conduct Authority (FSCA) was aware of the designation.
Clause 163 Licensing requirement for holding companies of financial conglomerate
Mr B Topham (DA) said that effectively clause 163(1) was saying that, for example, Outsurance Insurance Limited could be licensed and that Outsurance Holdings above it would have the same licence as the Insurance in terms of banking. Did that mean double fees?
Mr Havemann replied that the licensing of a holding company was a much lighter licence compared to a full banking licence because in the Outsurance case, the holding company would not be doing the business of the insurer. Therefore they would probably fall under the licensing requirements in the FSR Bill. He asked whether the insurance delegation would want to explain what the Outsurance holding company licence would look like and that of a banking company.
Ms Jo-ann Ferreira Head: Head: Insurance Regulatory Framework, Financial Services Board, said there were different layers of supervision. There was the solo entities supervision; the insurance group supervision or banking group supervision where most of the entities therein where either banks or insurance groups; there the whole package of entities would be supervised. Financial conglomerates were typically where there was a bank and an insurer. So the solo entity would be supervised from the insurance perspective but one would want to look at conflict of interest, how interrelated were they; how liquidity was managed within the group so it was a very different type of supervision. One could look at a number of difficulties experienced internationally because of the group and how the various entities influenced each other.
Mr Unathi Kamlana, Deputy Registrar of Banks, South African Reserve Bank (SARB), said that in 163(3) the regulator was requiring the holding company to be licensed because the regulator was interested in its responsibilities for the legal financial institutions which fell thereunder. The regulator wanted some of the requirements that legal financial institutions had to be complying with, to have at least the understanding of the holding company; and in addition the entire regime of financial conglomerates supervision was about some of the risk posed to the legal financial institutions from other financial institutions that were not regulated but held by the same holding company. So if that holding company had no requirements in itself, then a regulator possibly could not be able to achieve some of the objectives the regulator wanted. Therefore the holding company was the best gauge into the group.
Mr Topham said he did not see different categories of licences in clause 163(1) through to (5) though they were about licences. He understood what was being attempted by the clause. For example Rand Merchant Bank (RMB) had a bank and an insurance division and others. What licence would the holding company require? Would it not be better to say - since previously one could not become a significant owner without the written consent of a regulator - that consent would be granted on condition that the holding company would agree to some criteria? He felt that by making a holding company a licensee seemed like the holding company would have to comply with all the requirements of that subsidiary. If there was such a separate, specific licence for a holding company that was fine but clause 163(1) made no sense to him.
Mr Kamlana said that the licence would obviously outline what the requirements were for the holding company. Therefore he did not think there would be any confusion to the holding company on why it was being licensed. Clause 163 simply spoke to the legal requirements for a holding company to notify the regulator; and for the regulator to grant the holding company the licence together with the requirements from the regulator to the holding company. For example, a bank controlling company had to be licensed but the requirements would not be the same all the time for both the bank and the bank controlling company.
Clause 164 Non-operating holding companies of financial conglomerate
The Chairperson asked what a non-operating company was.
Mr Havemann replied it was a holding company for a holding company, in other words it did not do anything like a shell company holding interests.
Ms Ferreira said that a non-operating holding company’s primary function was to be a holding company for other entities. Why in certain instances regulators would want holding companies to be non-operating was that regulators had seen a number of examples where the holding company was for instance a bank and would have a number of asset managers.
The Chairperson asked what new changes had been effected.
Ms Jeannine Bednar-Giyose, Director: Financial Sector Legislation and Regulation, Treasury, replied there had been no new additional changes.
Part 4 General matters
Clause 273 Conditions of licences
The Chairperson asked what clause 273(3) meant.
Ms Bednar-Giyose replied that the intention of 273(2) was that there could be a suspension or cancellation of a licence and when that had been done the suspension or cancellation could be done subject to additional conditions being imposed by the regulator. Clause 273(3) then was simply saying that if one of the additional conditions happened to be violated by the licensee, that would not affect the validity of the licence having been cancelled or suspended.
Clause 280 Publication requirements in financial sector laws
The Chairperson asked why clause 280(3) had been included.
Mr Havemann replied it had come to Treasury’s attention that with previous laws when Treasury put out a draft version of a law, it had had to gazette that draft and Treasury felt it unnecessary to do that.
Clause 281 Regulations and Guidelines
The Chairperson said that clause 281(4) was how government had to operate. The Chairperson wanted to know what the consequence was if Parliament did nothing in the period prescribed under 281(5)(b).
Mr Havemann replied if nothing happened that was fine as it was up to Parliament to follow that prescription or not to.
Part 6 Amendments, repeals, transitional and saving provisions
Clause 282 Interpretation
The Chairperson asked what was meant by “and continued in terms of the Securities Services Act, 2004 (Act No. 36 of 2004) and then the Financial Markets Act” in the definition of Directorate of Market Abuse.
Ms Bednar-Giyose replied that in relation to the particular directorates that currently were in existence, in terms of the Financial Markets Act, in the FSB, it actually had existed under previous legislation, the Insider Trading Act and the Securities Services Act, and so that legal entity had continued in subsequent legislation even though that legislation had been repealed.
Clause 285 Transitional prudential powers of Financial Sector Conduct Authority
The Chairperson said the Committee had agreed that Treasury had to have a date for the coming into effect of the FSR Bill as law. Certain chapters would come into effect at different times; certain parts of certain chapters and certain clauses in different parts would come into effect. On 21 September Treasury would explain to the Committee all of that. It had told the Committee that clause 285 would apply for three years from the date on which it commenced. How had Treasury arrived at that determination?
Mr Katherine Gibson, Chief Director: Financial Sector Conduct, Treasury, said the three years were seen as an introductory stepping stone period for the establishment of the two authorities. Treasury had given some flexibility as it had proposed another period in getting the two authorities up and running.
The Chairperson said the difficulty with that projected time was that in another six months the DDG could be in Alaska or Mongolia. Every time there was a new political head of a Committee, the head behaved as if there had been nothing there before although they were from the same party and abided by similar principles, the head would start afresh.
Clause 286 Development and implementation of policy frameworks during transitional period
The Chairperson asked on the basis of what, Treasury could develop policy frameworks; the FSR Bill was a legislative framework. Who was mandating Treasury to develop policy frameworks and how was it going to do that?
Ms Gibson said the FSR Bill gave extensive standards-setting powers, as the Committee had been processing it. If retrospectively observed, there were different ways of drafting legislation. There could be what was called a highly framework-based legislation which was very enabling and gave regulators lots of power to do the nitty gritty. Or there could be law that went into a lot of detail which was very prescriptive in the primary law itself. There the regulator would simply enforce the law. Treasury liked to be in-between somewhere there. However, the FSR Bill could be argued to be much more on the framework side; that is Treasury had given wide standards-setting powers on both sides where the regulator would then be giving greater articulation to how that policy would be exercised.
There had been concerns raised as the Committee knew about the standards setting powers and the extent of these powers and a discussions relating to the exercise of that responsibility between the Executive versus the regulator. Understanding that Treasury was on a course and was further increasing its thinking around the various frameworks, whether they were prudential frameworks or the conduct frameworks, the intention with clause 286 was to give further articulation to what had been described in the FSR Bill through, in effect Treasury policy documents, which was not inconsistent to how Treasury exercised its function.
The Chairperson noted that indeed 286(1) did say “not inconsistent with this Act” However, if Treasury was referring to policy frameworks in a specific sense as spelt out on standards-setting related matters, would it not be safer for a Committee to refer to those specific clauses? The title of the clause was very powerful and the Chairperson needed clarity as clause 286(2) said “The Minister may, by notice published in the Register, declare principles”. No Minister could be able to declare. What did that mean legally? The Chairperson was highly uncomfortable with clause 286(2). He suggested that Treasury apply its mind to that again.
Mr Topham agreed with the fair reasoning of the Chairperson about the broadness of clause 286(2) asking why Treasury could not issue those principles as directives; which had inbuilt mechanisms for consultations and for appeal.
The Chairperson agreed that Mr Topham could be on to something as that was away from declarations.
Mr Buthelezi also agreed with the Chairperson.
Mr Momoniat said that his concern after reading the clause again was also that it could be abused. Indeed clause 286(2) had been meant to be more a guiding principle for the transition so Treasury would redraft it.
Clause 287 Transfer of assets of Financial Services Board
The Chairperson asked Ms Bednar-Giyose to check whether it was appropriate for clause 287 to refer to the whole of Part 6.
Ms Bednar-Giyose replied that she had mentioned that Treasury had proposed to change generally the references to this ‘Part’ to this ‘section’.
Mr Topham said that Clause 287 only referred to the Financial Sector Conduct Authority (FSCA). He wondered why there was no similar clause about the Prudential Authority.
Clause 288 Transfer of staff of Financial Services Board
Mr Havemann said interestingly because of clause 288 staff would be moving across but no assets would be doing so. Therefore SARB would not be getting anything from that merger in terms of assets.
Mr Topham said the FSB would be moving into the FSCA and was a separate authority from SARB; staff of the SARB was presumably and theoretically staying put. So the gold reserve being argued was that people would be remaining where they were with their shareholders.
The Chairperson wanted clarity whether the prescription in clause 288(2)(a) where a person actually died, would the support be for his spouse and family?
Ms Bednar-Giyose said that paragraph (b) was linked to paragraph (a) referring to dependents of persons.
The Chairperson interjected that that was exactly what he had alluded to earlier about the new drafting style of Treasury which was wonky in his view.
Clause 292 Enforcement Committee and Appeals Board
The Chairperson asked for clarity as to which structures’ enforcement committee was being referred to in clause 292.
Mr Momoniat referred the Committee to Clause 282 dealing with Interpretation of Part 6. Part 6 contained transitional provisions to have FSB structures so as to have continuity towards the new regime.
Clause 295 Savings of approvals, consents, registrations and other acts
The Chairperson asked which financial sector law was being referred to in clause 295(1).
Mr Momoniat replied that the reference was to any financial sector law.
Clause 298 Short title and commencement
The Chairperson said that clause 298 covered Treasury well in that it allowed it to effect parts of the Act on different dates depending on Treasury’s capacity.
Mr Havemann reminded the Committee that Treasury had added 298(3) which gave the Department more latitude.
Mr Topham asked where in the Act it said that the existing licences of insurers and banks would remain in effect through the transitional period.
Mr Havemann replied that that was covered under clause 295.
Mr Buthelezi asked if the Committee wanted to leave clause 298 so open in terms of enacting different parts of the FSR on different dates. Could there not be some limitations added to counter the FSR gathering dust without enactment.
The Chairperson said that had only been done in the Municipal Systems Act to his recollection and though there was no problem in doing that with the FSR, it was not as if the Minister could delay the enactment of the FSR. In any case the report of the Committee would indicate that it would be monitoring the implementation of the FSR. Additionally because it was such a big Bill, the Committee could also request updates once a term. The Chairperson asked Adv Jenkins’ input on the matter.
Adv Jenkins said that clause 298 was progressive in his view but it was certainly not the first time such a clause had been put in a Bill. Different parts would require regulations of their own therefore one would want to leave that clause open as the FSR also involved the setting up of institutions. Whilst Parliament would want to constrain Treasury to timelines for implementation, it was developing mechanisms to track legislation like the High Level Panel on the Assessment of Key Legislation and the Acceleration of Fundamental Change chaired by Mr Kgalema Motlanthe. Adv Jenkins was not convinced that a deadline would help.
The Committee then debated at length the merits of attaching timeframes to enactment of a law after it had been passed by Parliament. Eventually there was consensus that the Committee would put in its Committee Report on the FSR Bill that Treasury had to report quarterly on the implementation programme of that Act.
Mr Topham said that in clause 295(1) “An authorisation, approval, registration, consent or similar permission given in terms of a financial sector law would roll over”, all those words had not been defined except licence. His concern was that since licence had not been included in that provision, it could be argued that it had not been intended to be there. Should Treasury not consider adding licence in that clause?
Ms Bednar-Giyose replied that certainly the point was valid and Treasury would add that term as the intention of clause 295(1) included ‘licence’.
Chapter 1 Interpretation, Object and Administration of Act
Part 1 Interpretation
Clause 1 Definitions
Ms Gibson said that initially when the Committee started processing the FSR it had not worked through the detail of Part 1 or Chapter 1, the definitions in the FSR. Treasury therefore would want to go through that chapter with the Committee to ensure there would no surprises as that was also procedural to do.
The Chairperson said unless there were conceptual or policy issues in the definitions; the Jenkins method would be applied.
Ms T Tobias (ANC) said there had been no controversial definitions as far as she had read.
The Chairperson asked Mr Maynier which specific definitions was he unclear on.
Mr Topham said that he was concerned about the investment scheme definition: “Collective investment scheme” has the same meaning ascribed to it in section 1 of the Collective Investments Schemes Control Act, 2002 (Act No. 45 of 2002) since the Investments Schemes Control Act would be repealed as far as he knew. Therefore he was proposing a revision to that.
The Chairperson requested Ms Gibson to deal with the outstanding issues that had not been agreed to.
Ms Gibson said there had been questions around the financial stability definition.
Mr Havemann said that interestingly from the United Kingdom (UK) study tour it had emerged that law could not go so far as to create financial paralysis. One of the objectives of the law was the balance to be maintained on sustainable growth in the Republic and Treasury could include wording like that in the ‘financial stability’ definition but Mr Havemann did not think it necessary as it was already in the requirements of the Prudential Authority, the SARB Act and the Constitution of SA. However; that could be a way of qualifying the idea as one did not want absolute ‘financial stability’. There had been suggestions around capturing of things like the JSE.
The Chairperson had read the Schedules but needed guidance from Adv Jenkins on how to approach them as they were so far reaching and required expert knowledge of the financial sector. What would be a constitutionally sound way of processing the Schedules?
Adv Jenkins said each of the amendments proposed to Acts in the Schedules could be viewed as standalone Amendment Bills. His suggestion was that Treasury had to brief the Committee on the basis for proposing the amendments and the Committee had to have a political discussion on whether the amendments were acceptable.
The Chairperson agreed that indeed the Schedules had to be dealt in a similar way as the clauses of the FSR Bill and where there were contested provisions, there could be hearings.
Clause 4 Financial stability
Dr M Khoza (ANC) asked whether the ‘financial stability’ definition would be in the FSR. Though she had missed a few discussions her concern was that someone could be doing something within the law but possibly could not be consistent with the current economic environment for example a bank within its mandate and responsibilities possibly starts to lend money recklessly which could result in a financial crisis. She preferred therefore a standard to be attached in that regard so that that definition would not be as open as it seemed to be too vague.
Mr Havemann said Treasury had had a lot of hours with the regulators over that definition and it was quite difficult to tie down the definition of ‘financial stability’ without making it general. So it had been intentionally drafted to be reasonably vague however within the FSR it had been used very specifically.
Mr Momoniat said the way stability was defined by the Treasury was as drafted in clause 4(a), (b) and (c) where instability was amongst those alphabets.
Ms Tobias said the way ‘financial stability’ had been drafted and how Mr Havemann had explained the reasoning behind the drafting was adequate however; there was one element that needed attention. In clause 4(c) the phrase ‘general confidence’ could be interpreted differently.
Dr Khoza said she was partially satisfied but the sequence of the sub-clauses had to be changed. If 4(b) could be put before 4(a), then that crystallized for her ‘financial stability’.
Mr Kamlana said indeed all the sub-clauses could remain as SARB was comfortable because the sub-clauses spoke to the three preconditions:
- Financial institutions being able to do what they were needed for.
- The resilience to shock institutions had to exhibit both financial and economic.
- The confidence in the institutions’ ability to do what they were needed for in the financial system.
Changing of the sequence was fine but SARB was satisfied with the three preconditions for financial stability.
Adv Jenkins agreed and said possibly what could be asked was when the objects of the Act would be frustrated. It would be, for example, when a lay person felt that they could not open a bank account to buy insurance. Clause 4 covered all of that though.
Mr Topham proposed that between sub-clauses (a) and (b) ‘and’ be inserted to clarify and clean up the clause.
Ms Gibson reminded the Committee that the way the FSR was structured, one would read that ‘financial stability’ when used: it was the promotion of.
Schedules 1 and 2
The Chairperson asked whether there were any public comments that affected Schedule 1.
It was noted that no substantive comments had been raised about the Schedules.
Mr Havemann said the big thing with Schedule 1 was that the National Credit Act (National Credit Regulator) had not been listed as a financial sector law and that could have a lot of implications. Treasury would also not be bringing the Payment Systems Act as it was into the ‘Twin Peaks’ system.
Mr Topham said that in the FSR an investigation could be launched for any contravention of a financial sector law. How often did harmful business practice (Harmful Business Practices Act) get investigated by dti? Did that form part of the investigations by SARB? If it did, he felt that Act should be included in the FSR.
Mr Kamlana said he would check to be certain but what normally happened was that there would be contraventions that were not clear whether they were contraventions of the Banks Act. SARB would then invoke the South African Revenue Service (SARS) Act to investigate. The FSR certainly did not seem to be diminishing that power to investigate rather; it was adding impetus.
Mr Topham said the reason he was proposing that inclusion was that he felt that was a grey area for example, if one created a pyramid scheme involving agriculture which was not a financial product. In the past SARB could not investigate though that had similar effects as a financial product, therefore it could be useful to consider his proposal
The Chairperson asked what the agreement was regarding the National Credit Regulator in respect of it not appearing on Schedule 1.
Mr Khutso Mogotsi, Credit Law and Policy Clerk, Department of Trade and Industry (DTI), said he would prefer National Treasury to respond to that question as it is the lead department on the National Credit Regulator agreement regarding Schedule 1.
Ms Gibson said that one needed to keep in mind that where financial sector law was referenced in the FSR, it was referring to powers. The National Credit Regulator in terms of the National Credit Act had its own framework on how it exercised its functions and mandate, so including it in the FSR would in effect be giving the credit regulator overlaying powers.
Ms Bednar-Giyose said that Schedule 1 was part of the definitions and it provided content to a definition. The legislation that was in that schedule was legislation which legitimately fell within the scope of the Minister of Finance and the authorities which were being established. Other legislation which fell under other ministers like the NCR required other approaches to address tactical issues which arose.
The Chairperson said that the Committee Report would reflect the views of the DTI and Treasury. He asked if there were any issues on Schedule 2.
Mr Topham asked where the financial supervision of the Road Accident Fund (RAF) Act was covered in Schedule 2.
Ms Bednar-Giyose said it had been necessary that whilst that supervision was under the FSB; the particular skills required to administer that Act would possibly end up transferred to the Prudential Authority. That was why Treasury had indicated that going forward that supervision would be the responsibility of the Prudential Authority.
The Committee Report would reflect the views of DTI and Treasury on this.
The Chairperson said Schedules 1 and 2 were accepted.
This Schedule detailed the documents that were required to be published in the Register (Section 246). There were no comments from industry on Schedule 3.
Schedule 3 was accepted.
This Schedule dealt with the consequential amendments to each financial sector law to ensure they were aligned with the FSR. The Chair asked to look at the contested parts of Schedule 4 which has been raised by civil society.
Mr Havemann asked to speak to the easy parts of the Schedule first. Using a diagram, he said in the current world, we have the Banks Act and the Mutual Banks Act. The Banks Act states the Registrar of Banks is a person in the Office of Banks which is inside the Reserve Bank. If you then go across to the Pension Funds Act in the diagram, Section 2 currently states the Registrar of Pension Funds would be the executive officer of the FSB and the deputy registrar of pension funds would be the deputy executive officer of the FSB. Section 2 of the Pension Funds Act needed to be amended to reflect the removal of the executive officer and the deputy executive officer to be replaced by the FSCA. The Pension Funds Act will be administered by the FSCA.
Pension Fund Act
Mr Havemann said the pattern of standard amendments to each law were similar. First we have to put in the definitions, then explain how the Act relates to the FSR. We include regulatory instruments as in the FSR. We repeal sections referring to the Financial Services Board and finally we replace all references to 'registrar' with 'Authority'.
There were no comments on this from the Committee. So this part was accepted.
Friendly Societies Act
Mr Havemann said then we get to Friendly Societies Act of 1956.
The drafting team noted that there are still quite a few 'friendly societies' out there.
Mr Havemann said the pattern of amendments are similar.
South African Reserve Bank Act
Mr Havemann pointed out that SARB's added responsibility is noted in 1: " In addition, the Bank is responsible for protecting and maintaining financial stability as envisaged in the Financial Sector Regulation Act". In 2, it states it must implement the FSR. In 3, all the inspection powers are aligned.
The Committee accepted this.
Mr Havemann said the Authority in this case is the Prudential Authority. Then the pattern of amendments is similar to what went before.
They also made some changes to where the Minister and Governor have a role in terms of how things take place and this was corrected throughout.
The Chairperson asked for proposals on how the Committee should approach the Friendly Societies Act.
Ms P Kenye (ANC) wanted clarity about the speed with which they were dealing with the Schedule.
The Chairperson explained that the Committee is dealing with the contested issues so that the sub-committee chaired by Mr Sfiso Buthelezi can be alerted to these when they go through the Schedule clause by clause. Mr Havemann had requested to go through the non-contested parts first.
Dr M Khosa (ANC) said that they should be careful about talking about phrases such as "not contested" because it depends on who is contesting what. For example, the Friendly Societies Act, one should know that the working class of South Africa feels suffocated by the major financial institutions because they are the ones that are having a say on the form of the financial services sector. The reality is that post-1994, the 'friendly societies' have been wiped out. There are very, very few left and in black communities those are the societies that sustained the community. So one needs to be very careful about "contested" and "not contested". One must not consider only those that approach us or those we approach because we think they are the most affected. Judging from those that have been coming before us to make comments. Those people that are marginalised by this very legislation, they never come here, because they are not aware of it or do not understand the implications of it.
The Chairperson said he has repeatedly raised this. He and the committee secretary have made every effort to have people come here. We have contacted Black Sash, Cosatu, the coop banks.
Dr Khosa said sometimes if we are going to be serious about getting them involved, especially when talking about 'friendly societies', we have to go to the community and not be here in Parliament.
The Chairperson said that would be fine to do. He suggested visiting them during the constituency period. He noted that Parliament used to pay for remote civil society stakeholders to come to Cape Town but this was stopped around 2006/2007 Parliament decided to stop that. He had no difficulty with visiting them. If we want to visit the 'friendly societies', this can be arranged. He asked for concrete proposals.
Mr Havemann pointed out that currently only the alignment between the Acts is being corrected. We are not changing the content of the Act. Perhaps in Phase 2 they could look at changing the Friendly Societies Act to "make it friendlier".
Mr Carrim said that Parliament does not have a budget to bring the mariginalised to Parliament. So what we find represented is mainly Big Industry and Big Labour. He said that it was not for a lack of trying. He and the secretary had contacted four civil society groups and they all said they are fine with the Bill.
The meeting was then adjourned.