Tax Administration Laws Amendment Bill; Financial Sector Regulation Bill: deliberations

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Finance Standing Committee

23 November 2016
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Committee went through the Tax Administration Laws Amendment Bill. The general concern was that law enforcement authorities are not doing enough about illicit flow of funds, tax base erosion and profit shifting.

The Committee went through the Financial Sector Regulation Bill and concerns raised by stakeholders were addressed. The Banking Association of South Africa issues were reflected in the Bill, however on treatment of derivatives, the Department of Justice is yet to assist with the consequential amendments to the Insolvency Act. The Johannesburg Stock Exchange concerns were also reflected in the Bill except exemptions which requires further engagement.

Meeting report

The Chairperson noted that there would be no voting today day which gives the Committee more time to go through the Bill. The Committee will vote on the schedules of the Financial Sector Regulation Bill on 6 December. There was the intention to hold public hearings on the Insurance Bill but that will not be possible.

Tax Administration Laws Amendment Bill
Mr Franz Tomasek, Group Executive: Legislative Research and Development, identified the purpose of each of the clauses and any changes:

Clause 1
Linked with clause 53, the Financial Services Board (FSB) looks after the pension funds on behalf of SARS and the two clauses permit the disclosure by the FSB of the approved pension funds.

Clause 2
Correction of a cross reference.

Clause 3
Reporting of tax dividends with the exclusion tax dividends received in a tax savings account.

Clause 4
Corrects the heading from Refunds and set off to Refunds.

Clause 5
(a) (b)
   Multipurpose clause covering a case where there is a foreign employer who is not registering for pay as you earn (PAYE) then the employee should register as provisional taxpayer.

Mr A Lees (DA) asked for clarification on the provision.

Mr Franz responded that the clauses cover a situation of for example embassy staff.

(c)        Taxable dividends and brings in remuneration for the PAYE system.
(d)        Deletes an obsolete cross reference.

Clause 6
Corrects an obsolete cross reference.

Clause 7
Corrects an obsolete cross reference.

(b)        On an annual basis there is a new set of tax deduction tables which requires a notice in the gazette which is not modern, therefore the proposal is to delete the requirement that it goes into the gazette because users are notified and the tables are uploaded on the website.

Clause 8
Corrects an obsolete reference.

Clause 9
Consequential amendment to clause 11.

Clause 10
Deals with employees tax on share incentive schemes and has been adjusted to make clear who is subject to liability.

Clause 11
Deals with a system that was brought in years ago of PAYE for uncertain remuneration of directors of private companies which is now covered by section 7(b) of the Income Tax Act.

Clause 12
There is a system where if one does not put the provisional tax in within six months, it is deemed to be a nil estimate, which is being changed to four months within the opening of the filing season.

Clause 13
Clarifies and makes the provision more readable. The proviso on page 9 at line 26 is a bit more substantive, and deals with the anomaly that some lump sums are excluded from the provisional tax system although subject to normal tax. Unlike the withdrawal or the severance benefit subject to a special tax table, it is subject to normal tax; therefore it does not make any sense that they be excluded from the estimate. At the moment people are not paying provisional tax on it and cannot be penalised for not paying provisional tax, therefore the provision closes the gap.

Clause 14
An obsolete provision that is being deleted.

Clause 15
An obsolete cross reference.

Clause 16
Replacement of IDZ by SEZ.

Clause 17
Deals with the World Health Organisation packing and tracing requirements for local manufacturers.

Clause 18
Creates a similar regulatory framework for import cigarettes.

Clause 19
Aligning the two year prescription period to three years, which is the standard prescription period used across the Customs and Excise Act.

Clause 20
As the case with other Tax Acts, refunds can be offset in one tax thus clarifies that one has to first start with tax owing in terms of Customs and Excise Act. Once the liabilities have been satisfied, then it can be refunded.

Mr Lees asked whether the taxpayer is able to ask for the mentioned set-offs.

Mr Franz responded that part of the problem with the taxpayer requesting a set-off is that it can be difficult to link it to payment dates. Conceptually set-offs can be requested; there are certain taxes like provisional tax where it is very difficult to do that because in that context, if one intends to take an amount out of provisional tax system, the question is the amount of interest payable, which is none. There are some difficulties in that area.

Mr Lees mentioned that for example on PAYE assuming that in the first month there is an over payment, the return was completed and the payment was done. In the second month one cannot underpay therefore the credit remains there and the taxpayer has no way to access the credit other than the call centre and writing letters which gets nowhere.

Mr Franz responded that the issue raised gets him into administrative functions that he is hesitant to comment on. However, there is a refund available on that period which one should be able to ask about and set off on another period.

Mr Lees mentioned that the issue raised is not the topic of the day but a practical consideration.

The Chairperson indicated that the issue can be raised in the Committee Report. If it is a general concern the issue can be mentioned in the report stating that the Committee would like a report from SARS on the efficiency of the call centre in the first quarter of next year. The issue of letters being written to SARS with no response can also be included in the report. Members were asked to participate proactively on matters that can be put in the Committee Report for the executive to consider.

Clause 21
The new Customs Act switches from a monthly interest system to a daily balance. The amendment proposes that there can be a transition and switch to daily interest.

Clause 22
The minimum cigarette weight which is now set at 1.2 kg for a thousand cigarettes for imported and manufactured here has been adjusted as a result of public comment.

Clause 23, 24 & 25
Deals with the switch from IDZ to SEZ.

Clause 26
The primary issue is in paragraph (b) where there is more IDZ to SEZ substitutions.

(b)(i)      Deals with alternative documents if tax invoices are not available where SARS will be approached for a ruling to use some other document in the absence of a tax invoice.

Clause 27
Replacement of IDZ by SEZ.

Clause 28
This prompted a debate with representative of SAICA in one of the meetings. It was originally the re-insertion from the Act that had existed since 1991. It was conceded that re-inserting the original wording has a potential for some confusion.

Clause 29
Consequential amendment following a 2015 amendment.

Clause 30 & 31
Switch from IDZ to SEZ.

Clause 32-46
Alignment of the interim payment system in the Mineral and Petroleum Resources Royalty system with the provisional tax system that is generally applicable for a consolidated system; some clauses being deleted and replaced by other clauses. It is also an opportunity to delete obsolete provisions where the items are not covered by the Tax Administration Act.

Clause 37
It stated originally the final return must be submitted not later than six months and there was public comment that it should revert back to 12 months. All the way to clause 43, aligning the provisional tax system with the wording of the Tax Administration Act.

Clause 45
Deleted, now covered by the Tax Administration Act.

Clause 47
Clarifies that an external advocate is not a SARS official.

Clause 48
Where SARS recovers costs in a court case through the State Attorney, this is being aligned with the rest of government; the costs do not come back to SARS but revert to the National Revenue Fund.

Clause 49-52
Deals with tax ombud.

Clause 53
Ties in with clause 1; the publication of the approved pension funds.

Clause 56
Extension of SARS record keeping obligation to seven years instead of five.

Clause 57
Extension of objection from twenty one to thirty one business days.

Clause 58
Currently if there is a dispute before the Tax Court dealing with a mining matter, a mining expert can be brought to the panel. The point has been raised that it is not only mining issues that require the use of experts. Sub-clause 2(a) is a generic clause that talks to specific expertise, if the president of the tax court is convinced that such expertise is required the usual panel consisting of a judge, accounting and commercial member, the commercial member can be substituted by the appropriate expert.

Clause 59
Extension of the definition of taxpayer to include someone who may be chargeable with a tax offence which is to address cases where someone defrauds the system and is actually not a taxpayer. Therefore, is a taxpayer for the purposes of investigating and recovery.

Clause 60
Clarification to refer to the Dispute chapter.

Clause 61
Deals with understatement penalties. Current case law confirms that the predecessor of the understatement penalty, additional tax applies in the case of application of the general avoidance rule. Nonetheless, there are arguments beginning to emerge that case law is no longer good and begs to differ. In order to clarify the situation, the concept of impermissible avoidance is brought in equally in clause 62 which brings in the category of behaviour for impermissible avoidance arrangements. There has been a change since the last draft, in the last column where there is voluntary disclosure, this used to be a 2% penalty and was reduced to zero as a result of public comment.

Clause 63
The key shift is seen in lines 9 and 16; previously if one was aware of an audit, one would be excluded from voluntary disclosure. It clarifies as seen in line 16 that there must be notice given of audit to be excluded. It was welcomed by commentators and an opportunity was taken to clean up the provision and shorten it to make it clearer.

Clause 64
Consequential amendment on clause 62.

Clause 65
Consequential amendment on the earlier amendment on the Mineral and Petroleum Resources Royalty Act.

Clause 66-onwards
These are a number of smaller technical changes as result of the process of rulemaking for the new Customs Acts. In the process the rules are put up for public comment to get feedback.

Clause 82
Short title.

Ms T Tobias (ANC) asked Mr Franz to expand on clause 61 on understatement penalties.

Mr Franz responded that impermissible tax avoidance is defined in the Income Tax Act and there is a similar concept in Value Added Tax. In Tax Acts there would be a normal provision that imposes a tax, so while drafting there might be an opportunity to insert a specific anti avoidance provision, which is to the effect that if A is done, B happens.  However, the drafters of legislation cannot think of everything that someone can do, therefore there is a general anti avoidance provision which says:  if a transaction has certain features and its main purpose is to avoid tax then the Commissioner may set aside the transaction and treat it as if it has not happened. There are sets of tests that have to be passed before that would happen and if one has been engaged in a kind of transaction that would trigger those tests, the intention is to discourage the behaviour. Generally speaking if the anti-avoidance rule is invoked, a taxpayer would dispute it. If the court were to decide that there was no anti-avoidance behaviour or the behaviour did not meet the test, then the court would set aside the Commissioner’s decision and the penalty would fall away.

Mr S Buthelezi (ANC) asked whether SARS provides articles.

Mr Franz responded that SARS does provide training, for example, people working towards the chartered accountancy qualification. There is also in-house training for those intending to become better auditors within SARS.

Mr Buthelezi asked if there is similar training in law.

Mr Franz responded that articles cannot be served with SARS. If there are persons within SARS who wish to serve articles what can be done and has been done is that there is an arrangement with the State Attorney, to serve articles, and then come back to SARS after completion.

The Chairperson noted that in the Committee Report on the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, paragraph 9 refers to the inclusion rate. There was a discussion and the Committee settled for 40%. Apart from that paragraph, the report is essentially the same. The Members were asked if they had an opportunity to go through the report.

Mr Lees indicated certain date changes to which the Chairperson agreed.

Mr Lees mentioned the other Committee Report which includes a paragraph about reporting and noted that there were long discussions about the cap and eventually the letter from the Minister.

The Chairperson responded that the point Mr Lees raised is in the Committee Report yet to be dealt with by the Committee. He noted that the report was difficult to compile. A report on the SARS call centre has to be requested and on tax evasion. On tax evasion about six Committees have to be brought together as well as SAPS. When the “Panama Papers” was discussed, one of the issues that arose was that Financial Intelligence Centre (FIC) can refer a matter to SAPS. In a further report to Parliament the Committee mentioned that FIC should have at least the right to ask SAPS on progress made on tax evasion cases referred to SAPS. The Ministers of Finance and Police were also asked to discuss the matter. If possible, the issue should be something that should be included in a Bill that comes before the Committee. The Committee needs to be strong on the matter of tax erosion and profit shifting. There has to be a paragraph in the report on illicit financing, tax evasion and profit shifting given the “Panama Papers” situation.

The Chairperson asked if there is a case of a South African who was affected by “Panama Papers” and has been proceeded against in terms of the law.

Mr Franz indicated that SARS has been approaching persons who were identified in the “Panama Papers” and questioned them. The fact that a person is in the “Panama Papers” does not mean one way or the other.

The Chairperson remarked that such persons have to be put into the court process and that the Mbeki Commission report noted that about $50 billion leaves the continent. A lot of money is leaving the country illegally and the Committee has to do something about it.

Mr B Topham (DA) remarked that South African legislation is top in the world so if regulation in a matter is not good enough, SARS should come and say so. The biggest issue of tax under collection is that smaller businesses are not registered. The understanding is the FIC will also provide the information to SARS therefore jurisdiction vesting with SARS as opposed to SAPS and he does not know of any matter where SAPS investigated a tax matter.

The Chairperson responded that the issue came up concerning a certain senior official in SARS and it emerged that it is a grey area. The Committee then wrote to the Commissioner in that regard.

The Chairperson then enquired about the process where it is discovered that someone is doing wrong in respect of tax.

Mr Ismail Momoniat, Head of Tax and Financial Sector Policy: National Treasury, remarked that there is frustration on the issue and there is need for drastic measures. In the instances of illicit flows, notwithstanding the amount of money, very little happens. In the newspapers it is quiet easy to identify flights where people are more prone to take out cash. There should be control when people go out of the country as well. There were many instances where there is procurement fraud or charges are laid, it looks like it is not a priority. A lot of funds important for development are actually are being taken out of the country. FIC does not have to report it to SARS, the matter is reported directly to law enforcement authorities. FIC cannot disclose what they have reported. There has to be a way of someone checking whether the National Prosecuting Authority has acted on cases referred to law enforcement authorities. There have been people that have objected to the FIC Amendment Bill on the ground that it is unconstitutional. People are of the view that it is wrong to take preventive action. There has to be measures beyond calling up departments and find the right forum to address the issues.

Mr D Maynier (DA) remarked that he shares the frustration and proposed that in the first term of 2017, the Committee calls the FIC, Hawks and the NPA to report back on progress in respect of every single matter referred by FIC. The FIC in its Annual Report does disclose the number of matters referred to SAPS and the NPA.

Dr M Khoza (ANC) noted that her views are slightly different from Mr Maynier’s view although there is no objection. She cautioned that the Committee is prone to be captured by multinational companies. The matter should not be underplayed and that there appears to be a tendency that whenever the matter of tax base erosion is raised there is a subtle way of understating the matter. The reality is that big companies would obviously prefer to shift the tax burden to the individual taxpayers. It is important for a developing country and the area is a highly contested ideological terrain. When the matter has to be elevated, ANC is the ruling party and has a mandate to lean more towards the poor and was voted by the poor. Therefore one cannot be mouthpiece of multinational companies, in as much as there has to be creation of a conducive environment for investment, there is a responsibility given high inequality to elevate the matter.

Mr Buthelezi agreed with Members on the seriousness of the matter. For instance with the UIF there were discussions and it emerged that there is little that gets declared to the Department of Labour because the skills of the inspectors are so low compared to the structures put in place. The same situation happens with illicit flows; they are not straightforward matters and complicated structures. The matter also talks to the skills provided to the police and the type of matters they are asked to deal with; there is no correlation between the two. While dealing with the problem, there are many variables which are involved. The persons involved get highly skilled lawyers and accountants to hide money; therefore in order to catch them, the bar must be raised.

The Chairperson asked if SAPS has a special investigative unit on illicit financial flows and raised the concern about the FIC referring a matter of tax transgression without involving SARS. The decision was that all Committees would be brought together including SAPS to focus on what is being done about matters referred to by FIC, Parliament’s role is facilitating cooperation between the agencies and to look into whether there is need to amend legislation. The meeting was meant to happen in November 2016, however in the first quarter next year there will be a meeting.

Mr Maynier suggested that in deciding the 2017 programme, the way in which meetings should be structured ought to be considered and proposed that the Committee operates in the way the Standing Committee on Public Accounts does. In SCOPA Members are given a specific time limit to pose questions and get answers. The process would limit the number of questions and make the hearings more effective.

The Chairperson noted that there should be some flexibility depending on the issue.

Mr Momoniat noted that the understanding that a tax issue is referred to SARS then SAPS depends on the case. There is legislation; however, the issue is how SARS is enforcing transfer pricing. When dealing with illicit flows, it was noted that is also a big component and other taxes involved.

Ms T Tobias (ANC) suggested that the Committee find a way forward on base erosion and profit shifting (BEPS). There is unfinished business on BEPS as well as illicit flows. A programme has to be formulated to look deeper into the matter and also deal with it with the sensitivity it deserves. The matter is a continental matter, Africa losing revenue, and has to be dealt with in a sensitive manner.

The Chairperson noted that the Committee’s aim should be to see people in the court system on the matter.

Mr Lees asked the Chairperson if the discussion is now on the amendments of the money bill. The letter from the Minister asked the Committee to work on the amendments. In the reporting area the Committee Report has to include a response from the Minister and indicate that he is a bit confused on the matter.

The Chairperson indicated that the letter from the Minister was sent to every Member. 

Mr Maynier enquired whether the intention is to capture the response in the report.

The Chairperson indicated that the information would be sent to every Member later.

The Chairperson reported that the DA indicated they are unable to present their views on the final Bill. When the Bill goes to the House, there is an option to fundamentally disagree with the Bill or disagree with the process. The suggestion is that there be a declaration by each party.

Financial Sector Regulation Bill
The Chairperson suggested that the Committee deals with outstanding issues of the Banking Association of South Africa and Johannesburg Stock Exchange. There was mandate to speak to the National Credit Regulator. Changes were noticed that are partly part of the process so therefore Mr Momoniat was asked to separate the issues. The Committee has to deal with the matter where banks have to account when accounts are closed. There were minor changes made to the National Credit Regulator part and a meeting was held to that effect.

Mr Roy Havemann, Chief Director: Financial Markets and Stability, National Treasury, indicated that BASA raised the matter related to banks disclosure when accounts are closed and proposals in the consequential amendments. The issues raised were that it was in fact duplication on the type of requirements imposed. The banks were concerned that they did not want the requirements relating to disclosure to compromise what they are required to do under the FIC Act. National Treasury agreed that it is duplication and the proposal is to delete under clause 108 and revise the drafting. The intention is that the wording would be replaced and the change relates to the governance of to refuse or withdraw a financial product. As opposed to stipulating what must be disclosed when an account is closed, there can be no generic standard if FIC Act overlaps.

The Chairperson noted that what is in the FIC Act cannot be undermined and he asked the Members’ thoughts on formulations. He noted that the Committee would come back to the issue the next day.

Mr Havemann said that the second issue raised by BASA related to the treatment of derivatives transactions. There was a meeting with the Department of Justice and a response is expected in the next day or two. There have been proposals of additional consequential amendments in the Insolvency Act. The Department of Justice has agreed to do an update of the wording of the Insolvency Act.

Ms Katherine Gibson, Chief Director: Financial Sector Conduct, National Treasury, added that the other issue raised by BASA dealt with consequential amendments to the Financial Advisory and Intermediary Services Act on debarment. The issue was if the employee has left the financial institution, there is an obligation to still debar the person. The intention is to deal with cases where an employee has deliberately left knowing that there is a pending investigation to avoid debarment, therefore the clause has been worded to that effect. The FAIS Act in section 14(1)(a) allows for debarment if the board has satisfied itself that the person should be debarred. Sub section 5 then says that a debarment in terms on S1 that is undertaken in respect of a person who no longer is a representative of the financial services provider must be commenced not longer than six months from the date the person ceased to be a representative of the financial services provider. It ensures fairness and that investigation happens within a certain amount of time and provides certainty to the employer.

Mr Topham noted that there is a court case underway on the constitutionality of debarment and asked if there is any development.

The Chairperson asked for Mr Topham’s specific suggestion.

Mr Topham responded that he is asking for feedback in that regard.

Mr Lees asked whether it is in the purview of the Committee to propose an amendment to the FAIS Act.

Mr Havemann responded that the issue came up in the sub-committee meetings and there is a proposal that the appeal after debarment is shifted to the Tribunal. There was discussion on debarment as well and it has been agreed to await the Constitutional Court case.

Mr Havemann noted that the JSE raised two issues on exemptions and the definition of clearing. There have been engagements with the JSE and agreement on a slight revision of the definition of clearing. On the exemption clause, they are open to inclusion of a time limit.

The Chairperson asked National Treasury to report on the meeting with JSE.

Mr Momoniat responded that the issue is mainly about interpretation and uncertainty. There was agreement on two issues. Their concern on exemptions is that when someone is exempted from the provisions, it should not be a permanent exemption and therefore conditional. There is sympathy with the concern, in that when someone is given permission to operate and does not follow the rules, it is hard to take their licence away. 

The BASA representative confirmed that they are settled on the issues.

Ms Anne Clayton, JSE Head: Public Policy, indicated that they are comfortable on the other issues but on exemptions, conditions would be helpful.

The Chairperson said that the public participation on the Bill has to end unless something new emerges.

Mr Topham noted that the idea of a renewal on exemptions makes sense.

Mr Momoniat indicated that the notion is in line with Treasury’s views in that an exemption has to be annually.

Ms Tobias added that because it is an exemption, it has to be conditional. The prescript should be flexible so that it can be accommodative.

Mr Havemann said that the next issues relates to the NCR.

Ms Gibson indicated that the clauses that have been looked at are clauses 58 and 106(5) of the Bill. The purpose is to ensure that the clauses are clear on the role of the Conduct Authority and Credit Regulator. The role of the Conduct Authority is to effect governance on all credit providers and financial services provided in relation to credit. The revised clauses are designed to give effect to the difference. The October version and the current version, the changes proposed are to make the provisions more clear.  Clause 58(2) reads that in relation to a credit provider regulated by the Credit Act the Conduct Authority can regulate the institution in terms of the financial services provided. Notwithstanding clause 2(1)(g), keeping in mind that it is the financial product definition which provides that a credit agreement is a financial product and only regulated by the Credit Regulator and not the Conduct Authority. The Conduct Authority can regulate the conduct of financial institutions only in relation to clause 108 on matters referring to governance.

Mr Lesiba Mashapa, NCR Company Secretary, confirmed that an agreement was reached with Treasury and that NCR is supportive of the proposed amendments.

Ms Tobias asked if there are stipulations where governance matters are defined as well as regulation so that the role of the Conduct Authority is separated.

Ms Gibson responded that the way in which the clauses were drafted indicate that the Conduct Authority cannot regulate the credit agreement but can regulate the governance. It does not specify on governance but refers to clause 108. Clause 108 stipulates the specific matters on governance.

Mr Mashapa noted that the NCR is fine with the Bill as it is.

The Department of Trade and Industry representative added that the DTI agrees with the amendments.

Mr Maynier asked the NCR to explain the reasons for it being opposed to being included under the Conduct Authority.

The Chairperson indicated that no Member is to ask questions that have been asked from day one.

Mr Mashapa indicated that a policy decision was taken in government that the role of the NCR in Twin Peaks would be to work with the Conduct Authority to facilitate information sharing and coordinate the NCR activities to protect the financial system. There is general recognition that the National Credit Act shielded South Africa from the worst effects of the global financial crisis in 2008. The government then needs to continue to capacitate the NCR and strengthen the weak areas of the National Credit Act. For example, strict affordability criteria have been introduced when customers apply for loans. NCR is working closely with the Financial Services Board on credit insurance, and is of the view that the current structure on Twin Peaks provides sufficient measures currently.

The DTI representative added that a policy decision was taken by government. DTI does not tamper with what is working; currently the NCR is working and very well. Clubbing the NCR with a “super regulator”, to a certain extent in preparing for the “super regulator”, there might be destruction of what is perfectly working. Benchmarks studies have been done. The view that when a research is done on an institution there is no need to take everything in the benchmark study but rather what is appropriate and good for the country. South Africa is a developing country and NCR is serving a particular mandate to a particular group of consumers.

Mr Maynier remarked that the NCR will not be included under the Financial Sector Regulation Bill because it is believed that it could be destroyed and enquired whether that is the essence of the decision.

The DTI representative responded that they had proposed a coordination, which has been tested with the Registrar of Banks. The basis of the decision was that there is already something working and one should continue in a similar manner.

Ms P Kekana (ANC) asked whether NCR would look at the consequences in future.

The DTI representative responded that as part of the legislative process, there is assessment of the impact of the legislation on the industry and sectors. These are factors that can be looked at in future, but at the moment the arrangements work.

Mr Mashapa added that from research papers published on the Twin Peaks model, researchers are of the view that countries have to take into consideration their circumstances and he agrees with the views shared by the DTI.

The Chairperson commented that the understanding is that the current situation works for the poor and by global standards the NCR has been performing well. The NCR is credited for having shielded the country from the 2008 impacts. Therefore, the understanding is that the NCR is working and if it gets absorbed into a slightly uncertain Financial Sector Conduct Authority, it is not clear that the work they do will necessarily, given the broader mandate of the FSCA, be fully and adequately covered.

Ms Tobias added that the NCR is saying the system is working and it does not necessarily mean that there has to be a new model for the sake of it. If the model is changed for the sake of Twin Peaks without looking at the patterns of the clientele, moving forward will see if it works. The objective perspective is that it is working as is, and we do not necessarily have to change model.

Mr Topham noted that the argument put forward does not make sense because the FSB and the Reserve Bank currently work yet a new Bill is being done.

Mr Maynier added that it was agreed that it is a policy matter and the Committee can move on, the reality is that the effectiveness is one peak and one low.

Mr Momoniat noted that the notion of having a review is a good idea because timing is an issue when things are brought together. The coordination and cooperation model will work because the one thing impacts and affects the other, going forth there should be engagements.

The Chairperson commented that he shares similar views and that a review will be done at an appropriate time. There is a group of people that want to either collapse or integrate the NCR and others view the Bill as reactionary such as COSATU, SACP and some NGOs. The view is that the Conduct Authority will have the same role as the NCR and the Committee has to acknowledge the views since they appeared before the Committee and are very important stakeholders.

The Chairperson reminded the Committee that it was going through the FSR Bill and asked Mr Havemann to continue doing so.

Page 20
The Chairperson noted that the changes were inserted as a result of the JSE intervention which was confirmed by Mr Havemann.

Mr Havemann indicated that the special levy will be in the Money Bill. Treasury has tabled one of the supplementary documents setting out the estimations of the costs of the regulator, the second column of the table there is the expected costs. There has been a shift, the Prudential Authority costs more but the Financial Sector Conduct Authority costs less. In total it is expected that the two authorities will cost under a billion. Table 2 sets out the persons responsible for paying, according to the Levies Bill. Treasury is proposing that the banks will in total pay about R220 million, insurers R57 million, short term insurers R35 million, central clearing counter bodies R10 million, exchanges R4.7 million, CSDs R3.3 million and trade bodies R500 000.

Mr Topham asked for a comparison of what the institutions are currently paying. At the moment there is no interest on reserves that banks have to hold, staying like that going forth they will not be paid interest and there will be charges. There was an economic impact study and he asked if there has been revision.

Mr Havemann responded that the economic impact has been reduced.

Mr Unathi Kamlana, Deputy Registrar of Banks, noted that the reserve requirements for banks are a monetary policy implementation and not relevant for the funding of the Prudential Authority.

Mr Momoniat clarified that the costs are merely a bench mark of what it will cost.

The Chairperson asked Treasury when they intend to table the Levies Bill in Parliament.

Mr Momoniat responded that the idea is to first get the FSR Bill through then the Bill will be done immediately thereafter.

The Chairperson indicated that on transformation, one of the team members would come up with something at the appropriate time.

Clause 81 (1)
There is an additional requirement that there be a committee on transformation and it has to work closely with the Financial Sector Charter Council.

Page 21
The Chairperson noted that clause 2(g) is fine and Committee could move on.

Page 22
Clause 3(a): Policy issue has been rectified.

Clause 3(d) - (i): Ms Gibson explained that initially the drafting referred to services regulated by financial sector laws. The question was around the particular services, and it has been specified for clarity.

Clause 3(2) - (3): The changes relate to market infrastructure as well as its role.

Page 24
The Chairperson said that he had reservations and asked for clarity on the provision stating that when seeking to achieve the object of the Act, the Reserve Bank and the financial sector regulators must not be constrained in achieving their objectives and responsibilities as set out in S11, 33 and 57.

Mr Havemann explained that the two objectives are: prevention of financial crime as well as safety and soundness of the financial institution. The Reserve Bank must not put aside its specific mandate because it is keen on preventing financial crime.

Page 25
The Chairperson asked for explanation on the changes.

Mr Havemann explained that it is clarity of wording.

Page 27
The Chairperson noted that the change asked by the Committee was made to clause 22(h).

Page 36
The Chairperson noted that the changes asked by the Committee were made.

Page 37-47
The Chairperson went through the pages to check if the changes were made and indeed the relevant changes were made.

Page 48
The Chairperson asked for explanation on clause 86(2).

Ms Gibson explained that the provision clarifies that a request can be made but one also needs to be given reasons.

Page 49-50
The Chairperson went through the pages to check if the changes were made and indeed the relevant changes were made.

Page 52
Mr Havemann explained that clause 103 is a clarification.

Page 53-55
The Chairperson went through the pages to check if the changes were made and indeed the relevant changes were made.

The meeting was adjourned and Committee informed that on the following day they would continue from Chapter 8 of the Bill.

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