Rates and Monetary Amendment of Revenue Laws Bill and Committee Report; Taxation Laws Amendment Bill, Financial Sector Regulation (Twin Peaks) Bill: deliberations

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Finance Standing Committee

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

The Committee considered the Bill and the Committee Report in respect of the Rates and Monetary Amendment of Revenue Laws Bill. Members raised no concerns as they went through the Bill, which was adopted unanimously. However, the DA had proposed some amendments to the Report, believing that the insertions that were being proposed were required in terms of the NA Rules. Members discussed whether the Report of a Committee was supposed to present the majority view only, or could note that Members wished to make amendments, which some Members believed was more properly done when speaking to the Bill in the House. It was decided that the Report would be adopted by the majority without the amendments, but the DA reserved its right on the Report.

Members then considered the Taxation Laws Amendment Bill. National Treasury took Members through the clauses. The DA had made some proposals to amend the Report, and was proposing an amendment. The DA noted that the process in the Money Bill had been initiated by the DA and he could not understand why the Minister had written to the Committee asking for an amendment that had essentially already been put to the Committee. ANC Members raised the same points as were made earlier in relation to what could and could not be reflected in a Committee Report. Members then agreed that there would be no harm in attaching the Minister's response to the Report, which was adopted by the majority.

Finally, Members continued to be taken through the Financial Sector Regulation (Twin Peaks) Bill, from Chapter 8. Particular attention was drawn to clause 144, which clarified that the financial conduct authority could make directives if they felt that the financial institution was conducting business in a way that posed a material risk to the efficiency and integrity of financial markets, and a proposal by the Committee was reflected in clause 144(1)(c). Clause 155 clarified the delivery of notices. The wording of clause 158(2) had been clarified and clause 158(3) set out that there were two types of financial institutions, one being “systematically important” and the other not. Provisions were confirmed as compliance with the Companies Act. In clause 184 it was noted that the intention is that the ombuds should keep the Minister informed, and the provisions around ombuds were set out in this and the following clauses. It was noted that there are voluntary and statutory ombuds and there would be monitoring, with concomitant clauses also around compliance in clause 217. Clause 214 said that before the Ombud Council recognised an Ombud scheme there would have to be publication of the rules. This provision would ensure that there would be b transparency in regard to rules made by the Ombud Schemes. Members were asked to go carefully through the chapter on fees and levies.

Members then had regard to a document containing Final Revisions to the Bill. Some technical corrections had been made by Adv Frank Jenkins. Clause 106 was highlighted as relating to market conduct issues and it was possible to set standards for guiding processes on refusal, withdrawal, or closure. A Member suggested that benchmarks should be compared, to other comparable developing economy jurisdictions, and the case of Standard Bank v Bredenkamp was discussed. Representatives from the Banking Association of South Africa set out how they worked with National Treasury, and Members were concerned to know whether there had been consultations with stakeholders other than the four major banks. They also asked about the extra-territorial applications, and felt that more discussion was needed on this issue. One Member asked that due consideration be given to the principle of trying to find a balance between not allowing encroachment by security agencies and ensuring safety and security. National Treasury suggested that it would still be possible to make additions to the Bill at this stage, and some issues could be raised in the Committee's Report. Concerns around the Insolvency Act were to be discussed with the Portfolio Committee on Justice and Constitutional Development.

Meeting report

Rates and Monetary Amendment of Revenue Laws Bill and draft Committee Report
The Chairperson noted that the DA had submitted an amendment to the Committee's draft Report on the  Rates and Monetary Amendment of Revenue Laws Bill (the Bill), although the Bill itself had no further amendments.

The Motion of Desirability for the Bill was adopted.

The Chairperson asked Members to consider the Bill, page by page.

There were no concerns raised as Members went through the Bill and then the Schedules.

Members unanimously agreed to pass the Bill.

The Chairperson then moved to the report on Rates and Monetary Amounts and Amendment of Revenue Laws Bill. He then asked Members to consider the amendments proposed by the DA.

The first amendment was on page 2, where Members agreed to change the date from 30 June to 31 August.

The Chairperson asked Mr A Lees (DA) to state his reasons for insisting on the amendment, given the prior discussions.

Mr A Lees (DA) responded that this was what is required in the Rules of Parliament (the Rules).

The Chairperson noted that DA seemed to be covered in paragraph 5 of the Report, but wished to have  acknowledgement of the paragraph.

Dr M Khoza (ANC) understood that this was a Committee Report, and thus there was no room for political grandstanding. She said that during a debate, the concerns may be raised, but she believed that the Report should reflect as a Committee Report.

Ms T Tobias (ANC) added that in prior meetings she referred to the Rules and mentioned that a report cannot mention that a particular party made a certain proposal. The Committee Report is put forward on the basis of decisions agreed upon by the Committee. Therefore there is no way to capture a “DA amendment”. She too agreed that there would be an opportunity for the DA to make a declaration in the House.

The Chairperson remarked that if the Report says that the DA is responsible for paragraph 5, then the remainder of the whole report must indicate that the ANC is responsible for certain paragraphs too. He suggested rather that the Report should state that the  DA proposed that an amendment that it put forward should be recorded, but the Committee recognised that in terms of the current Rules there is no space for such acknowledgments. The DA should be referred to the Rules Committee.

Ms Tobias agreed with the first part of the Chairperson's suggestion, but whether to go to the Rules Committee was not something that should be captured in the report. In Parliament there is no minority rule. This engagement was aimed at assisting colleagues to understand the Rules.

Dr Khoza rejected the Chairperson’s reconsideration in its entirety and would not support any exceptions.

The Chairperson clarified that he was not saying that there should be anything to that effect in the report; he was suggesting that this was something for the Rules Committee to consider. To make matters clearer, he withdrew his earlier suggestion and ruled that there was no need for any further discussion on the matter.

Members had agreed to the amendment to clause 4.

Mr A Lees (DA) noted that the DA was reserving its rights and maintained that in terms of the Rules, this would not be a unanimous report.

The majority of Members adopted the Report.

Taxation Laws Amendment Bill: Deliberations
The Chairperson noted that the reply from the Minister had been received and all Members confirmed receipt of the letter.

He referred to missing four pages from22 November 2016, which Members agreed was ascribed to human error.

Ms Yanga Mputa, Chief Director, National Treasury, took Members through the latest amendments to the Bill.

Clause 39
She noted the replacement of the word “taxpayer” with the word “person”.

Clause 40
Ms Mputa said that this clause deals with the outright transfer of collateral revenue of government bonds.

Clause 41
Ms Mputa pointed out that correction of a heading and deletion of “under this Chapter”.

Clause 42
There had been an amendment of S23N of the Income Tax Act to exclude interest.

Clause 43
Ms Mputa pointed out that limitation of deduction in respect of small business funding entities and clarifying the definition of base cost.

Clause 44
This clause set out the extension of the bad debt deduction rule.

Clause 93
Ms Mputa pointed out that there was an amendment on page 50, line 7, to replace 1 October with 1 March 2017.

Clause 94
A similar change was made on page 50, line 19, to replace 1 October 2016 with 1 March 2017.

Clause 95
Ms Mputa drew attention to page 51, and said there was a proposal to delete line 9, up to and including line 14 and subsequent removal of capitals.

The Chairperson noted that in a report with the note “Draft to key Changes in Red” (Report on the Taxation Laws Amendment Bill 2016), the DA made a proposal to amend the Report, which was done on a separate page. The DA was proposing a new paragraph 11. The Chairperson thought, however, that the issue was already covered.

Mr Lees indicated that he was still concerned that the DA proposed an amendment. The process in the Money Bill was initiated by DA. He found it very confusing that the Minister wrote to the Committee asking for an amendment that had already been put to the Committee.

Ms Tobias reminded the Committee of the view she had expressed earlier, as to what could and could not be put in a Report. She thought that there can be a line in the report that says DA made proposals, but not specify the amendments made. In the final result, it is the Committee that makes amendments.

The Chairperson noted that the issue had been legally covered. 

Mr Lees said that the fact remains that the DA proposed an amendment; whether the Committee saw it or not is irrelevant. Either the Committee must reject the amendment or it must still be dealt with.

The Chairperson responded that the amendment is included, and it is only a matter of process.

Mr Lees enquired whether the Minister’s response needs to be in the Report.

Mr Ismael Momoniat, Deputy Director General, National Treasury, responded that there would be no harm in attaching the Minister's letter to the report.

The Chairperson read the Committee Report, on page 5 paragraph 16, under the sub-heading “Use of Money Bills Amendment Procedure and Related Matters Act”.

Mr Momoniat suggested that the wording could be to the effect that the Minister wrote to the Chairperson on a specific date.

Mr D Maynier (DA) suggested that it would be useful to attach the correspondence to the report.

The Chairperson then read paragraph 27 on page 8 of the report. The Committee was referred to paragraphs 40 to 47, which were not part of the report on the previous day.

The Report was moved and seconded.

Financial Sector Regulation Bill
Mr Roy Havemann, Chief Director: Financial Markets and Stability, National Treasury, reminded the Chairperson that the reading through of the Bill should continue, from Chapter 8 .

Clause 111 (3)
There were a lot of discussions on whether or not contractors will be licenced, and this clause clarified the concerns.

Clause 111 (7)
It was noted that this dealt with the deletion of clause 286.

Clause 116 (3) (a)
The clause is a response to discussions in the Committee where the view was expressed that there must be a very clear requirement to determine applications.

The Chairperson took the Committee through pages 57-59 of the Bill.

He noted in particular that clauses 127(1) and 129(2) were being clarified.

He then took the Committee  through pages 60-66.

Clause 144
The Committee's attention was drawn to the following subclauses:
(1) (a)    Clarification that financial conduct authority can make directives if they feel that the financial institution is conducting business in a way that poses a material risk to the efficiency and integrity of financial markets.

(c) now reflects the proposal by the Committee.

(2)(a) and (2)(b)  have been clarified.

The Chairperson went through pages 68 to 69.

Clause 152 had been clarified.

Clause 153 (2)
He pointed out the addition of natural person.

Clause 155 There had been substantial discussions on when something actually gets delivered. There were Constitutional Court cases on delivery of notices, and these confirmed that if the postal system is not working, the notice can be served to the last known email address.

Clause 157 (4) (b) & (d) (i)
Ms Tobias noted that clause 157(4)(b) was noted as a deletion yet there had been an insertion into clause 157(4)(d)(i) and she asked for clarity on that.

Mr Havemann clarified that the purpose was to make the provisions easy to understand.

The Chairperson remarked that there is nothing wrong with Members raising concerns till the Bill is voted on.

Mr Havemann explained that the proposal was that the definition of qualifying state be moved to the front.

Clause 158 (1)
A clarification of the wording was indicated.

Clause 158 (2)
This now read that a person may not effect any arrangement that will result in the person, alone or together with a related or inter-related person, becoming a significant owner of a financial institution without prior written approval of the responsible authority for the financial sector law in terms of which the financial institution is required to be licenced. The provision means that nobody can make a major change without prior approval of the authority.

Clause 158 (3)
It was clarified that there are two types of financial institutions. Subclause (3) refers to a systematically important financial institution, where nobody could seek to be the owner without prior approval of the authority. Sub paragraph (b) notes that if the financial institution is not “systematically important” there is no need for prior approval. 

Clause 158 (4)
This was a re wording to make the provision simpler. The word “material” was the major change as a result of discussions.

The Chairperson asked the Members to look at clauses 158 and 159 carefully.

Clause 159
The definition has been clarified.

Clause 160 to 161.
The Chairperson went through the clauses.

Clause 162 (5) (b)
The stakeholders wanted a binding agreement and is a technical legal requirement as provided for in the Companies Act.

Ms Tobias  enquired whether the new wording is consistent with the Companies Act.

Mr Havemann confirmed that there were legal discussions and the provision is indeed in consistent with the Companies Act.

Clause 163-183
The Chairperson noted that the changes are merely numerical.

Clause 184
Ms Tobias enquired whether the final wording is “keep the Minister informed” or “report to the Minister”. She added that “report” implied a distinct obligation.

Mr Havemann noted that the intention is to keep the Minister informed from time to time.

Mr Momoniat added that he felt that it made no difference. Ombuds were supposed to be objective so this was an easier way to deal with the conflict.

Mr S  Buthelezi (ANC) enquired what the provision required the Minister to do.

Mr Momoniat explained that the Ombuds are brought together so that they work better. If necessary, where the system is not working, the idea is to change the legislation and take stronger action. There are volunteer Ombuds and statutory Ombuds. Some of the voluntary Ombuds work well. There are standards on how they should perform their duties. There will be monitoring to check if stronger action is needed. Having the information will help in identifying the problems in the system.

Ms Tobias enquired whether there are complementary clauses dealing with compliance.

Mr Havemann referred Ms Tobias to clause 217 which details the reporting requirements for Ombuds. An Ombud scheme must, within six months after the end of each financial year, submit to the Ombud Council a report on the operation of the Ombud scheme during the financial year. Sub paragraph (4) said the Minister can prescribe regulations on reporting.

The Chairperson remarked that the section on the Ombuds has been strengthened.

Clause 188
The Chairperson noted that the change is numerical.

Ms Tobias enquired whether the final provision reflects that only the Chief Ombud can chair the meetings.

The Chairperson responded that there is a generic clause that when the Chief Ombud is not present, somebody else chairs the meeting.

Mr Lees noted that the clause required the Ombud to convene and chair meetings and does not say that other people cannot perform similar functions.

Mr Momoniat suggested that there can be a clause that stipulates that if the Chief Ombud is not present, somebody else can chair the meeting.

Clause 189-195
The Chairperson went through the clauses.

Clause 196
There was a request to ensure that JSE Ombud is included and the rest of the clause merely reflected clarification of points.

Clause 198
The Chairperson noted that the change is on the structure of the clause.

Clause 201
here was clarification of wording and additions in sub-paragraph (5) (b).

Clause 202
This was a change in the cross referencing and change of “role” to “function”.

Clause 202-205
The Chairperson went through the clauses.

Clause 206
It was noted that a
penalty cannot be imposed on a staff member of the Ombud Scheme.

Ms Jeanine Bednar-Giyose, Director: Financial Regulation, National Treasury, added that the Ombud Council deals with the conduct of Ombud Schemes, so the Council would not be dealing with the conduct of specific staff members.

Clause 210
This was now the  result of the request by the Committee that a financial institution must disclose to its financial customers the existence of any applicable ombud schemes and how to contact them and submit complaints.

Clause 211
The deletion of sub-paragraph (3) was pointed out. Originally the view was that a person cannot be a financial institution unless it had an ombud scheme. There are some financial institutions that probably do not have an ombud scheme.

Clause 214
The idea is that before the Ombud Council recognises an Ombud Scheme there must be publication of the rules.

Ms Tobias noted that as long as the provision contained what is said about the Ombud Scheme then she was satisfied with it.

Ms Bednar-Giyose added that the rules have to be consistent with the requirements set by the Ombud Council for rules, otherwise there is room for flexibility. The purpose of this provision is to ensure that there is transparency in respect of rules made by the Ombud Schemes.

Mr Momoniat noted that the rules have to be consistent, failing which the Council will not approve them.

Clause 217
This clause dealt with the reporting obligations on an Ombud Scheme.

Clause 218
This clause clarified the prescribed period.

Clauses 218-225
The Chairperson went through the clauses.

Clause 226
It was noted that this now covered the provisions in line with the Committee's suggestions.

Clause 227-236
The Chairperson went through the clauses.

Fees and levies Chapter
The Chairperson requested the Members to carefully go through the fees levies. A levy is a general tax and a fee is for a specific occurrence.

The Chairperson asked for the DA comments on the Chapter on fees and levies.

Mr Maynier responded that his question had been directed to Adv Frank Jenkins, Parliamentary Legal Adviser, as to the extent to which the provisions may impinge on operational independence.

The Chairperson reminded the Committee Members that they were asked to go through the provisions some weeks back and that he is reasonably satisfied with the provisions. He noted that Members could also raise any queries or ask for clarity on any areas at the end of the meeting.

Mr Buthelezi and Ms Kekana were asked to take Members through the Chapter.

Clause 251 (6)
The provision provides that the financial sector or the Reserve Bank must have in place written processes and procedures that deal with disclosure of information.

Clause 252-280
The Chairperson went through the clauses.

Clause 281
his clause dealt with the granting of exemptions.

Clause 282-287
The Chairperson went through the clauses.

Clause 288 4)(b)(ii)
Ms Bednar-Giyose explained that there will always be a consultation process, so the wording was unnecessary.

Clause 289 -294
The Chairperson went through the clauses.

Clause 294
Ms Tobias asked  if there were any concerns since there will be transfer of staff.

Mr Masia Mashapa, Senior Policy Analyst, National Treasury, responded that there are no concerns.

Clause 295-203
The Chairperson went through the clauses.

Clause 304
The Chairperson asked the Members to go through the clause.

The Chairperson noted that the reading of the Bill is complete and asked Members then to move on to the document entitled: “Final Revisions to the FSR Bill for Consideration by the Committee 24 November 2016”

Paragraph 18
Ms Bednar-Giyose read the technical corrections identified by Adv Jenkins.

The Chairperson then asked Members if there is anything that was not covered in the document on the previous day. Members were asked to read the clause that provides that if the bank closes a bank account, there have to be criteria regarding the level of accountability.

Paragraph 4- Clause 106 (3)(c)(v) and 108 (1) (q)
Mr Momoniat remarked that these clauses are quite important because they related to a market conduct issue but there should be considerations of criminal involvement where the suspect should not be alerted. Standards can be set for guiding processes on refusal withdrawal or closure. These are standards that regulators will set for the institutions.

Mr S Buthelezi suggested that there should be benchmarks to see how other jurisdictions deal with such matters, and he suggested that appropriate benchmarks would be what was done in the jurisdictions of developing economies. The matter raised several issues, because where a person was suspected of a crime there are many rights that come into play.

Mr  Maynier remarked that he is interested on how the clause compares to the case of Standard Bank v Bredenkamp.

Mr Momoniat explained that the case concerned a person who objected to Standard Bank closing his accounts. These cases are mainly on client-bank relationship, and when looking at the Minister’s papers on Oakbay, there was a lot of thinking being done at the National Treasury (NT). NT has been dealing with the problem of de-listing and do not want clients not to be taken by institutions. Formerly, there was red-lining, which was dealt with at the time. The NT does not want discrimination against any categories of persons. Internationally similar considerations applied and the issue is being dealt with because de-listing should not be exclusionary. The system has been designed so that the first forum to approach is the Ombud, as opposed to the courts. The reality is that no bank would like to give up a customer unless there are good reasons for doing so. Many suspicious transactions are not necessarily illegal; this rather means that certain criteria have to be fulfilled. A benchmark study can be done, but the problem is that emerging economies do not have similar structures.

The representative from Banking Association South Africa (BASA) noted that BASA worked with NT quite closely and the proposed wording will cover the banks on both local and international legislation obligations. If this wording was not included, it would lead to problems around the international legislation perspective.

Dr Khoza asked NT if there had been consultations with other stakeholders beyond BASA on the particular amendment because it appeared to have far reaching implications beyond the four big banks. It is important that there is proper consultation.

Ms Tobias remarked that her concern is on the extra-territorial application of international legislation of banks. The reforms being made internationally should be looked at. She would like to see the Committee come back to discuss the matter.

Mr Buthelezi remarked that his understanding is that financial markets should not be abused. For instance, if the police want to utilise a phone for investigation they have to approach a judge for permission to do so . He wondered if there should not be a similar independent body to deal with suspicious transactions. There should be checks and balances to ensure fairness.

Mr Momoniat noted that there was limited consultation on the matter. The comments received were from BASA. He conceded that consultation is indeed an issue. The provision is intended to assist customs. When dealing with the Financial Intelligence Centre (FIC) Amendment Bill, NT's position was that it did not want people to be driven out of the system. In respect of international legislation, it is still up to NT to decide whether the regulations are appropriate. It is important to take into account what is happening internationally, so that the financial institutions are able to transact across the borders. 

Mr Buthelezi clarified that his earlier question did not refer to a warrant. Personal liberties were fought for and in his view people should generally be able to conduct business without undue restrictions or encroachment, including by the State Security Agencies. When dealing with these issues people were forgetting the history. There was a need to find a balance. He was quite aware that if standards are lowered to monitor illicit flow of funds, there was a danger that people will come to this jurisdiction and abuse the system.

Dr Khoza remarked that there had to be engagements on the issue.

The Chairperson noted that if it were possible, it might be better to deal with the issue in a separate Bill.

Mr Momoniat responded that anything can be put into the Bill still at this stage.

The Chairperson suggested that the issue can also be included in the Committee's Report.

Mr Momoniat indicated that BASA had raised an insolvency issue and that there will a meeting with the Department of Justice and Constitutional Development (DoJ&CD) to get guidance in that regard.

Ms Bednar-Giyose added that there is a proposal to deal with obsolete references to section 83 of the Insolvency Act. In principle the DoJ&CD has agreed to but this will not entirely assist BASA. The other proposal is to amend the provisions on the types of collateral held oversees and to make extensive amendments to section 83, that the DoJ&CD was reluctant to do.

The Chairperson suggested that the Committee should apply a minimalist approach, to avoid encroaching into the work of the Portfolio Committee on Justice. Irrespective of how many hours are spent on the Bill, the issue is on implementation.

Dr Khoza agreed with the Chairperson and said the Committee has to exercise caution where amendments will lead to consequential amendments of other Acts. More time is needed to go through the amendment and check cross-referencing.

Mr Momoniat added that in respect of exemptions there had been a change. In the EU the banks were using the concept of” passporting” which is a licence to operate. Since Britain had exited from the EU there would now need to be reliance on equivalence. This was a standard practice and institutions can operate elsewhere after being declared equivalent. He also noted that clearing of derivatives is expensive, but if the companies have licences from regulators with similar standards, they can also operate. Taking away a licence for a bank would lead to a crisis.

The Chairperson outlined the schedule and processes for the following week.

The meeting was adjourned.

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