Rates and Monetary Amounts and Amendment of Revenue Laws Bill; Financial Sector Regulation Bill schedules: deliberations; Financial Stability Board: role and mandate; BRRR

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Finance Standing Committee

25 October 2016
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Committee firstly reviewed the Budgetary Review and Recommendations Report and went through the latest changes to the draft. Recommendations and observations by the Auditor-General on the performance of National Treasury were highlighted and concerns of some Members raised already were highlighted. The Members were reminded that SA Police Services, the Financial Intelligence Centre and the National Prosecuting Authority would be invite to a joint meeting before year end. There had been concerns about apparent lack of cooperation but not actual evidence of this. NO response had been received on SA Airways. A DA Member suggested that the Public Investment Corporation would not voluntarily disclose information but other Members did not agree with this point of view and were not in favour of statements to this effect in the report, although they did agree that it should increase its representation of black asset managers. It was noted that there would need to be engagement on how the Government Pension Administration Agency functioned, in the next quarterly report. However, a proposal by the EFF on a 2.5% levy on pension funds to put to education was also considered to be a proposal that had not been agreed to by the Committee as a whole.

The role and mandate of the Financial Stability Board was outlined, noting that it was primarily a forum for bringing together the senior policy makers from ministries of finance, central banks, supervisory and regulatory bodies. During the financial crisis in 2008 the FSB had played a role in making recommendations to enhance the resilience of financial markets and institutions. It now aimed to assist with recovery, aiming to make financial institutions more resilient, ending the “too big to fail” approach, creating robust derivatives markets and oversight of the shadow banking system. Members sought opinions on whether it was viable to try to save massive institutions, comment on the regulation of complex institutions, vulnerabilities highlighted in emerging markets, and whether a best approach was recommended. The Chairperson briefly reported on a recent World Bank Conference that he had attended and addressed on citizen engagements.

Members then discussed the Rates and Monetary Amounts and Amendment Revenue Laws Bill, noting that no significant changes had been made to the last draft but that there had been consultation on it with the Portfolio Committee on Environmental Affairs, because the subject matter of the Bill fell within its portfolio. The Bill was set to commence in February. Legal disputes on the tyre rates were still under discussion although the roll-out of the tyre management plan was not in dispute. The Bill aimed to try and avoid double taxation where manufacturers were paying a tax as well as environmental levy. A cut off date was to be enforced for current fee collections. Members noted their desire to have a full briefing and recommendations on the Bill and a National Treasury official briefly took Members through the Bill, highlighting pertinent points. Members indicated that they would like to have more discussion on the voluntary disclosure programme and urged the National Treasury to ensure that the tyre issues were thoroughly discussed and understood to avoid misconceptions.

The Chairperson of the Subcommittee that had been looking into the Financial Sector Regulation Bill reported back to the Committee, together with National Treasury officials. No controversial issues had been raised and amendments were now incorporated into the draft. This Bill sought to amend, mostly by clarifying, several other Acts. 

IN relation to the Financial Markets Act 19 of 2012, Members noted that South Africa's own needs had to be balanced against global considerations and National Treasury should be clear exactly how any proposals would benefit South Africa. The Bill set out an extensive process, with some fairly stringent tests, as to when exemptions would be granted, noting that they must not be contrary to public interest or the objectives of the Act. The Directorate would increase by two people. In relation to the Long Term Insurance Act 52 of 1988, National Treasury would be dealing with issues around funeral parlours to ensure that they were regulated. One of the main issues for the Financial Intelligence Centre Act, 38 of 2001 was to ensure that appeals were dealt with under the same financial system but with slightly different procedural rules. The Financial Advisory and Intermediary Services Act 37 of 2002 was being amended to allow for appeal to the Financial Services Tribunal. There had been a discussion on debarments, and Members were assured, in answer to their questions, that there was no danger of a subjective approach. The distinction between dismissal and disbarment was explained. Terre were requests for consideration to a self-regulatory system but the main concern was that there was often failure to follow the process outlined in the Promotion of Administrative Justice Act. The statistics, process for disbarment and rehabilitation and referral for criminal proceedings were considered. There was little contention around the Cooperative Banks Act 40 of 2007 although it would be useful for the agencies to make presentations to the Committee. No significant issues were raised on the National Credit Act 35 0f 2005 .

Meeting report

Budgetary Review and Recommendations Report (BRRR) on National Treasury
The Chairperson tabled the latest version of the Budgetary Review and Recommendations Report (BRRR or the Report) and began by discussing the recommendations and observations on the Auditor-General South Africa as highlighted in the Report (see attached document) and asked if any Members had any concerns on paragraphs 5.1 to 5.20, except those raised by Mr D Maynier (DA). None raised any further concerns.

The Chairperson suggested that in the report it be indicated that it was inappropriate for the specific official to be present when the Committee met with South African Revenue Services (SARS) on 23 August 2016.

Mr D Maynier (DA) agreed with the Chairperson, and referred to page 12 of the Report. He understood that for the moment this was regarded as a qualifier. However, the Committee had not explored the first two points in any depth and he thought it inappropriate to delete anything at this point.

He thought that the Financial Intelligence Centre (FIC) had a legitimate concern that matters referred to South African Police Service (SAPS) may not be investigated, thus recommended that the Committee calls SAPS to report on the matter and the progress made thereof on the investigation.

The Chairperson reminded the Committee that a decision was taken to invite SAPS, FIC, National Prosecuting Authority (NPA) and any other parties to a meeting that should take place before the end of the year. He further noted, in answer to his request, that nobody wanted to respond on Mr Maynier's suggestion around the two points raised.

Ms P Kekana (ANC) indicated that she was not present at the meeting and could not comment.

The Chairperson moved on to the issue of alleged lack of cooperation between the FIC and SARS, but noted that no conclusion could be reached on this in the absence of significant evidence. In relation to South African Airways (SAA), he noted that there had not been a response and the matter had been referred to Adv Jenkins. He would write to SAA, the Minister and Deputy Minister and Parliament would do its work on this. It would be meeting on 8 November 2016.

Mr Maynier noted, in relation to the Public Investment Corporation (PIC) statements at paragraph 13, that the first sentence should be retained but the rest of the paragraph deleted. The PIC would not have voluntarily disclosed the information in the Amnesty Portfolio had it not been pressured to do so.

The Chairperson said that it was irresponsible to make such allegations and thought that the paragraph should be left as it was. If the DA felt so strongly on the matter, it should rather issue a press statement to that effect.  

Mr F Shivambu (EFF) suggested that paragraph 13.6 should read that PIC should increase its representation of black asset managers, and there was a clear mandate to do so.

The Chairperson noted that a section dealt with the Government Pension Administration Agency (GPAA), and suggested to Mr Ismail Momoniat, Deputy Director General, National Treasury, that; there should be engagement on how GPAA functions during the next quarterly report.

Mr Shivambu said, in relation to paragraph 15.4, that a commitment was made to engage with the Minister on governance issues of the GPAA. There was no agreement that this should be done by way of a report during the next quarterly meeting.

The Chairperson noted that it is a norm in the Committee to set deadlines for response.

Ms P Kekana (ANC) agreed with 15.4, in that the main goal would be for the Committee to get a response for GPAA. She suggested that by the next quarterly meeting there would have to have been progress on this issue.

The Chairperson reminded the Committee that the Minister has to respond in writing. The Committee was now making recommendations, not discussing deadlines.

Mr Shivambu responded that it seemed to be common cause that there was no foundational document on GPAA. If there was a written response, then a directive could be given on governance and oversight, and the Committee would be able to take a resolution to normalise governance issues in GPAA.

The Chairperson responded to the last point and said it did seem to be clear that GPAA was not compliant on corporate governance principles and the Public Finance Management Act, but the Committee was asking for an explanation. He did not see that there was any distinction between what the Committee was asking for and Mr Shivambu's suggestion and suggested that no rewording was needed.

Mr D Maynier (DA) raised an objection to the Report at this stage..

Mr  Shivambu reminded the Committee that there was an overriding concern around free education and a 2.5% proposition to deal with that, relating to GPAA and PIC, but asked where in the Report that was found.

The Chairperson asked Mr Shivambu what specifically he had asked from GPAA and PIC.

Mr Shivambu said that he had asked GPAA and PIC to consider the proposition of having a 2.5% levy on pension funds.

The Chairperson indicated that it was a question asked by Mr Shivambu, and was not the position of the Committee.

Mr Shivambu clarified that it was a consideration raised for GPAA and PIC to consider. It was relevant because they had financed several other entities, and it related to their broader mandate.

Ms D Mahlangu (ANC) agreed with Mr Shivambu, but pointed out that the Committee had not had an opportunity to discuss the issues. She thought that if the Committee agreed, then those issues should be pointed out for incorporation into the report and discussed again. Mr Shivambu had missed an opportunity on Wednesday, when a funding model was presented by the Parliamentary Budget Office (PBO). She thought that there was still time to discuss this but it was not yet a resolution that had been agreed upon.

Ms Kekana mentioned that Mr Shivambu had put across a proposal to PIC and GPAA, who responded that their mandate is different, but that the proposal was noted. She also referred to paragraph 5.4 (d) which stated that the Committees should continue to engage on sustainable ways on dealing with matters of Higher Education. There was another opportunity for Mr Shivambu to take forward his proposal. However, she agreed that the proposal could not be reflected as if it were the position of the Committee.

The Chairperson clarified that the Committee is not opposed to the view, but this was one of the issues yet to be discussed.

Financial Stability Board: role and mandate
Mr Ismail Momoniat, Deputy Director General, National Treasury, introduced Mr Rupert Thorne, Deputy Security General: Financial Stability Board. He explained that the Financial Stability Board (FSB) is a multilateral body that brings together all regulatory agencies of the G20 countries.

Mr Thorne expanded upon the role of Financial Stability Board, which he agreed was primarily a forum for bringing together the senior policy makers from ministries of finance, central banks, supervisory and regulatory bodies. During the financial crisis in 2008 the FSB had played a role in making recommendations to enhance the resilience of financial markets and institutions. The financial boom prior to the crisis was caused by excessive debt and benign macro-economic conditions.  As a result of the crisis, emerging markets suffered, globally operating banks pulled back their activities, and recession and unemployment resulted. There had not been full recovery from the loss of activity. The FSB now aimed to assist at recovery in order to make financial institutions more resilient, ending the “too big to fail” approach and creating robust derivatives markets. It would be even more important to transform shadow banking into resilient market based finance, through financing oversight and regulation of the shadow banking system.

Mr S Buthelezi (ANC) asked for Mr Thorne’s comment on two concepts, namely, the risk of using public funds on “too big to fail” institutions. He thought that the concept should rather be “too big to exist” and that it might have to be recognised that a huge institution could not be saved. He also wanted comment on the regulation of complicated institutions and the costs of this.

Mr N Kwankwa (UDM) enquired about the concept of most emerging markets, which are bank based rather than market based and whether any vulnerabilities have been identified in established markets as well as emerging markets.

Mr A Lees (DA) asked whether the institution must encourage people to follow a path considered the best. He asked for an opinion on how well South Africa was doing.

The Chairperson asked for comment on the view that the work of the institution is tilted towards the needs of the developed countries with insufficient focus on the developing countries and the cost to  consumers of regulation systems, in light of huge inequalities in South Africa.

Mr Thorne responded that the institution is committed to ending the “too big to fail” notion, setting minimum standards and, internationally, it had been agreed that it would intensely supervise “too big to fail” institutions to ensure that their problems could be safely resolved. Cross border agreements had to be in existence. Subsequent to the 2008 crisis there were massive costs around recovery, and many countries were still recovering from this. Across all institutions, when standard-setting, they did try to take cost-considerations into account, and over the past two years, there had been more studies to analyse the impacts, in a more consistent framework that was to be set up by the end of 2017. Input on this would be welcomed from all countries. In the past, there had been studies on  large markets, the problems they create and how to export the results to the rest of the world. The initial steps were to address assets, shadow banking and derivatives markets, focused on short term problems. Standards being set applied to the institution’s jurisdiction but can go beyond it. South Africa's own position was on the table also. The FSB operated by consensus, to ensure flexibility. It also conducts peer review, had recognised that different countries have different structures, was not trying to impose policies and had not taken any stance on what model appeared to be best. It had recommended basic streamlining to consolidate content and reduce the number of bodies involved and it recognised the importance of setting clear legislative mandates.

The Chairperson reported on a conference that he had recently attended at the World Bank. This was essentially a network for parliamentarians to hold world banks and the international monetary fund accountable. He had been asked to speak on citizen engagements. He noted that South Africa’s Parliament is more democratic when compared to more conservative parliamentarians in the developed world. He further noted that globally there was a move to a protectionist regime. The workshop is more productive, and would mainly hear about the World Bank and IMF policies, to achieve more efficiency and more to be done on citizen framework engagement. He noted that there was no discussion on the New Development Bank and reform of BRICS. 

Rates and Monetary Amounts and Amendment Revenue Laws Bill
The Chairperson indicated that an agreement had been reached, in view of the June local government elections, that the Bill would be voted upon, but that could not happen today, and Members were asked to discuss it informally only. There had been no significance changes to the earlier version tabled. He and Mr P Mabe (ANC) had met with the Portfolio Committee on Environmental Affairs, because many aspects of the current Bill affected other departments. Whilst it would simply not be viable to consult with each and every department, joint meetings would be held where possible. The committee indicated that it was not fully conversant with the issues and would have preferred to get a briefing from the Minister, but would report back to this Committee when it was more conversant with the issues.

Mr Mabe agreed that there were not fundamental differences, but there were some operational concerns. The agreed date for commencement was February, which meant planning should start now to ensure that there is no disruption to the industry.

The Chairperson expressed his understanding that most of the issues were to do with other departments and stakeholders.

Mr P Mabe agreed. The legal dispute had to do with section 28 of the Waste Management Act, dealing with the tyre rates, as to the roll out of the tyre management plan was not in dispute itself.

Mr Cecil Morden, Chief Director: Economic Tax Analysis, National Treasury, confirmed that these were the issues.

Mr Lees asked for clarity on the ongoing debate relating to whether there was a levy or tax being proposed.

The Chairperson indicated that he is not certain whether the Committee was to discuss policy issues, and suggested that the Committee should rather go through the Bill informally.

Mr Mabe reminded the Committee that the Bill aimed to try and avoid double taxation where manufacturers were paying a tax as well as environmental levy, because any double-tax would essentially be passed on to consumers.

Mr Morden said that this issue had been covered, and there is a clear cut off date.

Ms T Tobias (ANC) asked the Chairperson to briefly list all the issues that were previously raised, and Ms Kekana similarly asked for an overview.

The Chairperson reminded Ms Tobias that this had been done last week.

Mr Mabe suggested that the operational issues be referred back to the Environmental Affairs Portfolio Committee.

Mr Morden reiterated that there will be a cut-off date on current fee collections, therefore there would in fact not be any double taxation. The other concern was on retreads, for which there will be specific exemptions.

The Chairperson asked the Committee to specify any other issues that needed to be discussed.

Ms Tobias thought that she had not benefitted from a thorough discussion on all issues and repeated her request for a briefing and recommendations.

The Chairperson said that he was currently working on a draft document but would like some input on the issues raised and that should be finalised within the next two days.

Ms Yanga Mputa, Chief Director: Legal Tax Design, National Treasury, took the Committee through the clauses of the Bill.

She noted that in clause 3 there had been a technical correction around the fixing of rates, which read “not increased”.

In clause 4, there was a technical correction where the expression “12 month ended” was changed to “12 month ending..”

Clause 5 now reflected an increase of primary rebate from R13 257 to R13 500.

Clause 6 related to  the increase in medical tax credit for individuals.

Clause 7 related to the increase in capital gains tax for controlled foreign companies.

Clause 8 related to the increase in capital gains tax for long term insurers, and clause 9 to the increase in capital gains tax for policy holders held by long term insurers.

Clause 10 set out the amount of inclusion for residential accommodation as a fringe benefits tax, and clause 11 set out the increase of annual exclusion tax of natural persons from R30 000 to R40 000.

Clause 12 related to capital gains tax inclusions, firstly for natural persons, then insurers.

Clause 13 set out the customs and excise pay due and the introduction of tyre levy.

Clauses 14 to 18 related to the special voluntary disclosure programme.

The Chairperson indicated that he would like more discussions on the voluntary disclosure programme.

Mr Lees asked whether it was still intended that this could be implemented in October.

It was noted that the retreaded tyres clauses were on page 28.

Mr Roy Havemann, Chief Director: Financial Markets and Stability, National Treasury, indicated that the most significant change related to the effective date of 30 June.

Ms Tobias asked whether there is a programme to explain the tyre levy by National Treasury.

Mr Mabe agreed with Ms Tobias and suggested that concerns raised should be addressed; the most significant one related to the fact that the levy should not be seen as an attempt to collapse the industry.

Mr Momoniat explained that National Treasury would have to work closely with the Department of Environmental Affairs.

The Chairperson agreed that it was a good point that had been raised.

Ms Tobias clarified that she had no specific concern with what had been said, and the general view is that government needs to collect more to achieve increased distribution. However, misconceptions would arise if issues are not properly clarified and thus any misconceptions around the tyre levy have to be clarified. 

Financial Sector Regulation Bill: Subcommittee on Schedule 4 report
Mr S Buthelezi (ANC), Chairperson of the Subcommittee, gave an overview of the meetings that took place on 22 and 26 September 2016 to discuss the amendments to the Financial Sector Regulation Bill. There had been no controversial issues raised and Mr Havemann was directed to deal with the amendments. He asked that today, the Subcommittee and National Treasury would describe the amendments.

Mr Havemann tabled a track version of the Bill, explaining that the coloured clauses indicated where discussions had taken place. There had been discussions around the Johannesburg Stock Exchange input on exemptions, whose position was clarified through an email to the National Treasury, which was also provided to Members.

Financial Markets Act 19 of 2012
Mr Buthelezi pointed out that item 28 dealt with the proposals for the Financial Markets Act 19 of 2012, where an exemption was sought in terms of section 6(3)(m) by way of amended section 48A(1). The subcommittee had felt that when responding to G20 requirements and to other multilateral institutions such as the IMF, there should some latitude for South Africa to consider its own goals. National Treasury needs to be clear in its policy papers as to exactly how any proposals will benefit South Africa in terms contributing to economic growth.

The Chairperson added that even in the global view, it was necessary to be cognisant of South Africa’s needs, specifically socio-economic issues.

Mr Havemann said that section 6(3)(m) dealt with conditions under which exemptions can be granted. The Bill now specified an extensive process around when exemptions would be granted. The exemptions criteria were clearly set out, and it was clear that exemptions can only be granted if this is not contrary to public interest. This is a particularly tough test. It would also have to be shown that granting of the exemptions will not be contrary to public interest and the objectives of the Act. The Committee  had been quite comfortable that the concerns raised by the JSE had been dealt with.

Other concerns related to the composition and functions of the Directorate. The Subcommittee had felt that the list of people on the Directorate was quite narrow and so there was a proposal to increase the membership by two people. National Treasury had no problem with that.

Long Term Insurance Act 52 of 1988
Mr Buthelezi then addressed the proposals around the Long Term Insurance Act. There had been a lot of discussion around funeral parlours, on which National Treasury had been equally concerned. National Treasury would  deal with the issues in detail under micro-insurance and NT would ensure that funeral parlours are regulated. The holding of shares with insurers was to be further discussed.

Financial Intelligence Centre Act, 38 of 2001
Mr Buthelezi noted that the one of the main issues being raised under the FIC Act was that the appeal board is separate from the financial system, and so the proposal is to use the same tribunal as the financial system. Questions on procedure were also raised, several engagements have taken place and there is an agreement that the appeals should be under the same financial system, with slightly different procedural rules. 

Financial Advisory and Intermediary Services Act 37 of 2002
Mr Buthelezi noted that the main concern relating to the appeal process is that a person who has been disbarred by the Financial Services Board has to appeal to the High Court, so that the revised proposal is to allow for  appeal to the Financial Services Tribunal.

Ms Caroline Da Silva, Deputy Executive Officer, Financial Services Board, indicated that there was a discussion on the debarments, and a memo was circulated with the history of the debarments. The Financial Services Board was responsible for regulating more than 125 000 individuals, and the requirements were structured in such a way that persons recruited are fit and proper. The subcommittee raised a concern about the administrative powers which are undergoing constitutional challenge. Essentially legal arguments were also provided asking that consideration be given to a self-regulatory system due to the volumes involved and the fact that financial service providers are closer to the representatives. However, the main concern is that financial service providers are not following the correct administrative process in accordance with the Promotion of Administrative Justice Act.

The Chairperson added that there is a process of debarment, and so administrative justice has to be ensured. The costs of appealing to the High Court are very high for individuals and the legislation also had to take into cognisance the possibility of the employer abusing the process; a proper balance would have to be found.

Mr Lees asked if there was any report on inputs and on the high level statistics.

Ms Da Silva indicated that the report was sent to the Committee. The statistics, since 2002, recorded about 6 700 debarments. The FSB has the power to debar in terms of section 14 A. Most of the debarments were a result of fraudulent policies and fraudulent qualifications.

Ms Kekana asked about the constitutionality concerns around the process.

The Chairperson asked if there is any rehabilitation process.

Ms Da Silva noted that a person is normally disbarred for 12 months, and thereafter can apply for reappointment if disbarred under section 14A by the FSB. Debarment was set out under the Financial Advisory and Intermediary Services Act. There had been challenges to that process and the Supreme Court of Appeal had upheld the challenges. 

Ms Kekana asked for clarification on the  duration of debarment.

Ms Da Silva clarified that debarment under Section 14 (1) would normally be for twelve months, but if debarred by the FSB there was no set period.

Mr Lees asked if there was any obligation on financial service providers to institute criminal proceedings against a member who was debarred.

Ms Da Silva explained that the concept of “fit and proper” mainly relates to dishonesty and qualifications. Reports are, as a matter of practice, made to SAPS where criminal activities are found, but she was not certain if there was a written obligation to that effect.

An industry representative commented that there were various discussions and there had been concerns raised by members on the debarring process, particularly when people would “disappear” to to avoid the process. The labour process to be followed to ensure fairness, and amendments made, appeared in the latest draft.

As well as the labour process that has to be followed to ensure fairness, amendments done, appear in the latest draft.

The Chairperson noted that competency issues would be subjective. He asked if there was any differentiation if a person was dismissed but not debarred.

Ms Da Silva responded that a person may only be disbarred for non-compliance with FAIS. That was not subjective, and it was proportionate, because the FSB sets minimum standards. Failure to reach those resulted in debarment. No subjective interpretation was brought into play.

Cooperative Banks Act 40 of 2007
Mr Buthelezi confirmed that there were no contentious areas here. However, it would be useful for the Cooperative Banks agencies to make presentations to the Committee. The agencies are supported by the National Treasury, and go around the country to assist corporate banks to develop. One of the main amendments is that the supervision of the corporate banks will move to the credential authorities. There had been some confusion on this in the past, which the amendment now clarified. One grey area was that on the one hand they were required to assist the banks to develop and on the other hand supervise.

The National Credit Act 35 0f 2005  
National Treasury and the Department of Trade and Industry had discussions on this and no significant issues were raised.

The Chairperson noted that he had heard that the National Credit Regulator was not happy about the Bill and if there were any problems then these should be discussed openly.

Mr Buthelezi asked the National Treasury if the amendments being discussed have been incorporated into the documents.

Mr Havemann confirmed that the amendments had been incorporated already. A recent, but minor change, related to amendments to the National Credit Act, relating to the Ombudsman.

The Chairperson pointed out that since all amendments had now been incorporated into the documents distributed he did not think there was any need to go through the bills clause by clause at this stage.

He confirmed that the Committee would be voting on the Bill at another session.

Mr Havemann added that the version of the Bill with tracked changes had also been uploaded on to the National Treasury website.

The meeting was adjourned.


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