Financial Sector Regulation Bill: NCOP amendments

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Finance Standing Committee

30 May 2017
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

National Treasury took the Committee through proposed amendments to the Financial Sector Regulation (FSR) Bill by the National Council of Provinces (NCOP). National Treasury pointed out that changes were put into five categories, namely; omissions, minor corrections, protection of financial customers- account closures, as well as alignment with the Financial Intelligence Act and the Insurance Bill. The Chairperson indicated that the bulk of changes proposed by the National Council of Provinces (NCOP) were discussed during the Committee process. Members and Committee advisors would have a week to look into the Bill. Voting would be done in the coming week.

The Committee endorsed amendment to require banks and other financial institutions to give reasons for termination of products such as the closure of bank accounts. Members stressed that their endorsement of the council’s amendment had nothing to do with the closure of Gupta bank accounts, but was made because it was a sound move. Treasury also supported the amendment as it would enhance customer protection.

Other amendments considered were:

Clause 132- Powers to conduct supervisory on-site inspections

National Treasury said the changes in wording was meant to address concerns raised by some sections on the constitutionality of searches and investigations in the event of suspected cases of illicit financial flows.

Clause 160- Designation of financial conglomerates

Amendments were necessitated by the need for procedural fairness in provisions for the designation of financial conglomerates.

The Committee adopted clauses 160, 162, 163 and 166. The remaining clauses would be discussed the following week.  

Meeting report

The Chairperson, in his opening remarks, reminded the Committee that “Twin Peaks” was meant to protect the poorest in communities. Cases whereby banks would repossess homes when households had cleared up to 90% of their mortgage, for instance, were obscene.

Mr D Maynier (DA) agreed with the Chairperson. He asked if Treasury had access to actual data for the Committee to get some sense of the prevalence of such market misconducts.

Committee Process

The Chairperson indicated that the bulk of changes proposed by NCOP were discussed during the Committee process. Members and Committee advisors would have a week to look into the Bill then voting would be done in the coming week.

Adv Frank Jenkins, Senior Parliamentary Legal Advisor, explained that once the Committee had looked into the proposed amendments, the Bill could not go back to NCOP. The rules stipulate that the Committee had to consider the Bill then table it before Parliament. Entirely new issues could not be brought up at this stage. 

NCOP Amendments
Mr Ismail Momoniat, DDG: Tax and Financial Sector Policy, National Treasury, pointed out that changes were put into five categories, namely; omissions, minor corrections, protection of financial customers- account closures, as well as alignment with the Financial Intelligence Act and the Insurance Bill.

The Chairperson interjected that National Treasury should only point out major changes proposed by NCOP as Members were already familiar with the Bill and would have an entire week to look into the amendments before the vote.

Mr Roy Havemann, Chief Director: Financial Markets and Stability, National Treasury, took the Committee through amendments proposed by NCOP.

Clause 79(3) (f) - Financial System Council of Regulators
The ‘Chief Executive Officer of the Council for Medical Schemes’ was amended to ‘Registrar of Medical Schemes’.

Clause 106(5) (a) - Functions
Mr Momoniat said Treasury also supported the amendment as it would enhance customer protection. Treasury thought at least the customer should be given reasons as to why the account was being closed. Many other countries had also enacted similar rights of customers. He added that the industry was not opposed to such a provision.

Mr Maynier indicated that he had characterised the clause in the media as the “Gupta-clause”, and was surprised to see it in the proposed amendments by the NCOP given the fact that the Committee had rejected a similar provision. What gave rise to the clause? There were no significant submissions during public hearings in support of the clause. It was only after the closure of Gupta bank accounts that the clause was parachuted into the Bill by Treasury. What problem was Treasury trying to solve, and was there a problem in the first instance?

Ms T Tobias (ANC) said she was pleased that the NCOP considered clause 106 as the Committee did not have time to engage on the clause extensively. The legislature ought to formulate laws that can preempt conduct in the marketplace. The responsibility of authorities was not only to regulate service providers but to also protect consumers. There was need to strike a balance between how the market conducts itself and consumer protection. She pleaded with Members to be objective and do away with particular events/side issues as they were ephemeral; legislation should not be limited to events in the current conjecture. What would be the fall back position of the poor if their bank accounts were to be closed without any explanations? Those who could be vulnerable in future should be protected by legislation.

Mr D Hanekom (ANC) said the clause should be adopted irrespective of the reasons behind it. On its own merits, the amendment was good because it spoke to conduct and market standards. The clause was not even prescriptive and binding.

The Chairperson said the clause was introduced during former Minister Pravin Gordhan’s stint as Minister of Finance, and had nothing to do with the Guptas. Mr Maynier was obsessed with the Gupta argument and the obsession should be foregone. The clause was reasonably consistent with the arguments brought forth during transformation of the financial sector hearings. It would tilt the balance of power between banks and customers. Banks have had sway for too long and the Committee had to support the clause.

Clause 132- Powers to conduct supervisory on-site inspections
Ms Jeannine Bednar-Giyose, Director: Financial Sector Regulation, National Treasury, said the changes in wording were meant to address concerns raised by some sections on the constitutionality of searches and investigations in the event of suspected cases of illicit financial flows.

Clause 160- Designation of financial conglomerates
Ms Bednar-Giyose said amendments were necessitated by the need for procedural fairness in provisions for the designation of financial conglomerates.

The Chairperson said he would write a letter to the Minister of Police, SAPS and the Hawks on issues the Committee felt should be raised about illicit financial flows.

Mr A Lees (DA) indicated that Members were worried about the ultimate cost of regulations to consumers during previous discussions. As per the NCOP report, the cost was expected to be on an ongoing basis, at around R3.3 billion annually. He asked where the figures came from. Was a robust cost-benefit analysis carried out?

The Chairperson said during exhaustive discussions on the costs, it was pointed out that consumers would ultimately bear a significant share of the burden. In the final analysis, it was a tradeoff mindful of the challenges brought by lax regulations in 2007-8. He asked Treasury if NCOP figures tallied with those presented by Treasury initially.

Mr Havemann replied that figures were slightly updated based on an impact assessment that was carried out for the Money Bill.

Ms Tobias asked if there was any significant variance between proxy estimates and actual implications of the regulation levies.

Mr Momoniat replied that the regulatory process was more important. The first five years of implementation would be critical in assessing the actual impact of regulations on levies and fees. 

The Chairperson asked if there were any outstanding issues on the Bill.

Mr Momoniat replied that nothing new and significant was added by the NCOP.

The Chairperson suggested that the Committee consider the adoption of non-controversial amendments and get them out of the way. He asked Treasury why some amendments were made to the FSR Bill and not to the Insurance Bill, as the latter process was moving at a very slow pace.

Mr Havemann explained that the FSR Bill created the idea of financial conglomerates and seeks to address regulatory overlaps by having clear distinctions between insurance companies/groups and banks.

Adoption

The Chairperson moved for the adoption of clauses 160, 162, 163 and 166. The Committee adopted the amended clauses. The remaining clauses would be discussed next week on a date yet to be confirmed.

The meeting was adjourned.

 

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