Financial Sector Regulation “Twin Peaks” Bill: adoption

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Finance Standing Committee

07 June 2017
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Financial Sector Regulation Bill was passed by the National Council of Provinces (NCOP), subject to proposed amendments, on 25 May 2017, and referred to the Standing Committee on Finance. The proposed amendments by the NCOP pertained substantially to three areas:

- First, the protection of financial customers in respect of matters that arose during the hearings on the transformation of the financial services sector.

-Second, alignment of the powers given in the Bill to enter and inspect premises subject to the Bill to similar powers assigned in the recently passed Financial Intelligence Centre Amendment Bill.

-Third, amendments to address issues in respect of financial conglomerates that arose in the public hearings on the Insurance Bill.

The issue of closing of bank accounts was raised during the public hearings on the transformation of the financial services sector. The NCOP proposed to amend clause 106 of the Bill to provide the Financial Sector Conduct Authority with the responsibility to make conduct standards in respect of refusal, withdrawal or closure of a financial product or a financial service by a financial institution. The Committee supported this proposed amendment. The NCOP further proposed amendments to clauses 132, 135, 137, 138 and 140 to align the powers given in the Bill to enter and inspect or investigate premises subject to the Bill to similar powers assigned in the recently passed Financial Intelligence Centre Amendment Bill. Whilst the Committee supported these proposed amendments, it found that these clauses required fine-tuning to ensure consistency with the Financial Intelligence Centre Amendment Bill. Hence the Committee removed for investigations the power given to an investigator to enter and search premises without the prior authority of the head of the financial sector regulator or senior staff member of that regulator, as is provided in the Financial Intelligence Centre Amendment Bill.

The Committee further added for inspections and investigations that consent to enter private premises must also be given by the person apparently in control of the business, in addition to the occupant. This is the position in the Financial Intelligence Centre Amendment Bill. Lastly, the grounds for issuing a warrant by a magistrate or a judge were aligned with the similar provision in the Financial Intelligence Centre Amendment Bill. In respect of amendments to address issues in respect of financial conglomerates that arose in the Insurance Bill, the Committee supported the proposed amendments of the NCOP to Chapter 12 of the Bill. These amendments further entrench the right to administrative action that is lawful, reasonable and procedurally fair provided for in section 33 of the Constitution and contained in the Promotion of Administrative Justice Act, 2000.There were two issues the Committee could not proceed with, in terms of the Rules of Parliament, because they were not related to any amendments made by the NCOP Select Committee:

  1. Costs of transitional amendments: In Clause 304 on “Additional Transitional Arrangements” to insert a new sub-section 3: “When performing duties or functions in terms of this section, the Minister shall take into account the costs of implementation to businesses, as well as the implications for financial inclusion of all South Africans.” The Committee agrees with this proposed amendment but cannot effect it. It proposes that the Minister takes into account this proposed amendment.
  2. Minister must submit fees and levies proposals to National Assembly for Approval: In clause 239 on “Budget, Fees and levies proposals” it was proposed that in the first financial year the Minister must submit the proposals “to the National Assembly for approval, together with the finalised budgets for reference”. The Committee did not discuss this proposal at any length. However, it will consider it when it processes the Financial Sector Levies Bill or any other relevant Bill introduced to Parliament reasonably soon.

The Committee, having reconsidered the Bill, was not authorised to propose any amendment which is not strictly relevant to the amendments proposed by the NCOP in terms of rule 307(2) (b) of the Rules of the National Assembly. As the Constitution permits a reconsideration of the Bill, taking into account the proposed amendments of the NCOP, the Committee recommended that the rule be reviewed to ascertain whether it is constitutionally permissible to allow more latitude to make amendments that were not proposed by the NCOP.

The Committee, having considered the Bill, subject to proposed amendments, adopted the FSR Bill.     

Meeting report

The Chairperson, in his opening remarks, indicated that the Parliamentary Legal Advisor met with Treasury to identify issues of concern about the FSR Bill as per the Committee’s directive. What was presented reflected the discussions.

Adv Frank Jenkins, Parliamentary Legal Advisor, said major amendments were made to align the Bill with the Financial Intelligence Centre Amendment (FICA) Bill.

The Chairperson said Members were impressed by clauses dealing with financial conglomerates.

Clause 166- Approval and prior notification of acquisitions and disposal

The Chairperson sought clarity on 3(b) (iii); - ‘invite the holding company to make submissions on the matter, and give reasonable period to do so.’

Mr Ismail Momoniat, DDG: Tax and Financial Sector Policy, National Treasury, said the amendment was introduced to get the process of dealing with conglomerates right. The context was to identify the recourse or the minimum rights conglomerates have.

Adv Jenkins said provisions were consistent with the Promotion of Administrative Justice Act.

The Chairperson asked if Treasury had addressed concerns raised by black-owned emerging financial services providers during hearings.

Mr Roy Havemann, Chief Director: Financial Markets and Stability, National Treasury, replied that clause 165(2) (a) essentially gives the regulator powers to issue directives in line with concerns raised about financial conglomerates.

Clause 165- Directives to holding companies

Mr Havemann said changes mainly related to articulating the difference between supervisory on-site inspections and premise searches for purposes of conducting investigations.

Clauses 132, 137, 138

Adv Jenkins said clauses 132, 137 and 138 were not carbon copies of the FICA Bill but made a distinction between supervisory on-site inspections and premise searches for purposes of conducting investigations.

Ms T Tobias (ANC) expressed satisfaction on the amendments. There were disagreements between Mr Maynier and other Members on the clauses during previous engagements and the amendment clarified issues. The amendment was legally sound in relation to powers of investigators to enter and search private residences. People misconstrue the difference between inspection and investigation.

Mr D Maynier (DA) said Members had to be satisfied that deviation from the FICA was constitutional.

The Chairperson said clause 137(1) was straightforward. He asked Members not to open up debates that were resolved on the FICA Bill.

Clause 132(1)-Powers to conduct supervisory on-site inspections

Advocate Empie van Schoor, Chief Director: Legislation, National Treasury, said further requirements were added for powers to conduct supervisory on-site inspections on clause 132(1) as follows:

A financial sector regulator may conduct a supervisory on-site inspection at the business premises of a supervised entity with prior notification to the supervised entity and, if the business premises of a supervised entity is a residence, with prior agreement of-

  1. The person apparently in control of the business reasonably believed to be conducted at the private residence; and
  2. The occupant of the private residence or the part of the private residence to be inspected.

Ms Tobias felt the term ‘apparently’ was ambiguous in this context and was open to various interpretations.

Mr Havemann explained that ‘apparently’ might not have been the ideal term to use but it was meant to plug loopholes that could be exploited by subjects in question.

Adv Jenkins said the term ‘apparently’ was carbon copied from the FICA Bill.

Proposed DA Amendments to FSR Bill

Mr A Lees (DA) said amendments were satisfactory but the Democratic Alliance had expressed concerns about costs for a long time. Costs needed to be contained as part of economic austerity. The Democratic Alliance proposed the following amendments to the Bill:

Words in [bold type in square brackets] indicate omissions from existing enactments.

Words underlined with a solid line indicate insertions in existing enactments.

Clause 239 – Budget, fees and levies proposals

 

1) For each financial year, each financial body must prepare and adopt –

(a) a budget in accordance with section 248 that includes an estimate of its expenditure;

(b) a proposal for the fees that will be charged and levies that will be imposed by the financial sector body; and

(c) projected estimates of its expenditure for next 2 financial years.

(2) A proposal for levies may include a proposal for one or more special levies, and in the case, the estimate of expenditure must include an estimate for the special expenditure in relation to a special levy proposal.

(2) An estimate of expenditure for a financial year may include a provision for one or more reserves, but the total accumulated reserves included in the estimate of expenditure may not exceed 15% of the total estimated expenditure, excluding the reserves.

(4) The financial sector body must take into account submissions made in respect of the budget as well as the fees and levies proposal, which it receives in terms of section 240.

(5) The financial sector body must submit the finalised budget, together with the fees and levies proposals, to the Minister.

[(7)] (6) In respect of the fees and levies proposals for the first financial year following the commencement of this section, the Minister must [approve] submit the proposals for all the financial sector bodies to the National Assembly for approval, together with the finalised budgets for reference.

(7) For any financial year other than when subsection (6) applies, the Minister must approve the fees and levies proposals and submit them to Parliament contained within the annual Rates and Monetary Amounts and Amendment of Revenue Bill applicable to the respective financial year, and the Minister must simultaneously table the finalised budgets for reference purposes.

(8) The fees and levies proposed by each financial sector body may only be charged and imposed following the promulgation of the Rates and Monetary Amounts and Amendment of Revenue Bill containing such proposed fees and levies.

[(6) The Minister must be allowed a period of at least 30 days to consider the proposals and provide comments, if any.

(8) In respect of the Tribunal, the Minister must approve the fees and levies proposals for any financial year following the commencement of this section.

(9) (a) In respect of financial sector bodies, other than the Tribunal, for any financial year other than when subsection (7) applies, the Minister must approve the fees or levies proposals, if the fees or levies proposals are based on an estimate of expenditure in excess of the amount calculated as- previous year basis x 1.025 x (current index / previous index).

(b) For the purposes of paragraph (a) –

“current index” means the value of the index at the date the amount is to be indexed, or if the value is not available, the latest available value for the purposes of the preparation of fees and levies proposals for the current financial year; “index” means the Consumer Price Index, as published by Statistics South Africa; “previous index” means the value of the index that was used for the value of the “current index” in the fees and levies proposals prepared for the previous financial year; and “previous year basis”, for a financial year, means the estimate of operating expenditure adopted in terms of this section for the financial year before the year for which the calculation is being done.

Clause 304 – Additional transitional arrangements

(1) In order to facilitate the coming into effect, appropriate implementation and operation of this Act, the Minister may make Regulations providing for transitional arrangements regarding the exercise of powers, the performance of functions and duties, and other matters that may be necessary in relation to—

(a) the establishment of the financial sector regulators and other bodies in terms of this Act;

(b) the coming into operation of different provisions of this Act; and

(c) the repeal or amendment of different provisions of a law repealed or amended by this Act.

(2) Without limiting subsection (1), Regulations in terms of this section may provide for—

(a) the Reserve Bank to exercise specified powers and to perform specified functions and duties of the Prudential Authority, should it be necessary for powers and functions of the Prudential Authority in terms of this Act to be exercised for a period prior to the Prudential Authority being formally established; and

(b) the Financial Services Board to exercise specified powers and perform specified functions and duties of the Financial Sector Conduct Authority, should it be necessary for the powers and functions of the Financial Sector Conduct Authority in terms of this Act to be exercised prior to the Financial Sector Conduct Authority being formally established.

(3) When performing duties or functions in terms of this section, the Minister shall take into account the costs of implementation to businesses, as well as the implications for financial inclusion of all South Africans.

Mr Havemann explained how levies were determined. There is a formula Treasury uses to determine levies. Treasury assesses how levies would increase on an ongoing basis.

The Chairperson asked Adv Jenkins if it was procedurally correct to consider proposals from the DA at this stage. Some of the proposals were agreeable.

Adv Jenkins said the Committee was not authorised to propose any amendment which is not strictly relevant to the amendments proposed by the NCOP in terms of rule 307(2)(b) of the Rules of the National Assembly- DA proposals were not part of NCOP proposals.

The Committee, having considered the Bill, subject to proposed amendments, adopted the Bill.

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