The Standing Committee on Finance was briefed by the Financial Sector Conduct Authority (FSCA) on its transition from the Financial Services Board (FSB), as part of formal implementation of the Twin Peaks model of financial sector regulation, as envisaged in the Financial Sector Regulation Act (FSRA). Differences between the disbanded FSB and the new FSCA were highlighted. Further existing sector-specific laws were to be replaced by an overarching, cross-cutting Conduct of Financial Institutions Act (CoFi) which goes to the conduct of all financial institutions. The presentation also outlined the changed governance structure from the FSCA compared to the FSB.
With the establishment of FSCA, financial institutions already licensed under sector laws will not be affected, and any new licences would still be issued under sectorial law. Notably, banks would be licensed by the Prudential Authority (PA) but the FSCA may set conduct standards. Insurance licensing moved to PA but the FSCA may issue price regulation schemes. Although credit providers were licensed by the National Credit Regulator, the FSCA may also set conduct standards relating to credit. In addition, the FSCA will issue each provider with a single licence. Further, the new organisational design would facilitate centralised groups for conduct of business supervision, licensing and authorisations, investigations and enforcement, provision of specialist technical support to supervision functions, a centralised regulatory policy group responsible for carrying out key research and regulatory and supervisory framework development functions. Assurances were given that the transition would be as smooth and non-disruptive as possible.
Members asked if there were reasons why the FSCA would have no Board to oversee the work of its executive committee and commented on market conduct reports with businesses, at times, behaving contrary to set out principles on how to treat consumers - the FSCA strategy in dealing with market conduct issues would be important.
The Committee Report on Budget Vote 7: National Treasury was considered and adopted with amendments. The DA reserved its position.
Members discussed the status of the South African Airways (SAA) briefing on the following day. The DA argued against having a closed meeting on the basis that the Committee had not taken a resolution to do so. The Acting Chairperson said the Committee, during a prior engagement with SAA, agreed in principle that sensitive matters must be discussed in closed meetings. A Member suggested that SAA present its quarterly report in an open meeting but information deemed sensitive be set aside up until the Committee’s position is verified using Parliament’s official records. It was then decided the status of the meeting would be clarified and communicated before the Committee convenes the following day.
The Acting Chairperson welcomed everyone and indicated the Chairperson was outside the country on work-related commitments. This meeting was a follow-up of National Treasury’s last briefing on regulations of the Financial Sector Regulation Act (FSRA).
Briefing by the Financial Sector Conduct Authority
Mr Ismail Momoniat, DDG: Tax and Financial Sector Policy, National Treasury, noted that Treasury presented the Regulations during a previous meeting where questions about whether the Regulations were formally submitted to Parliament arose. The Prudential Authority also gave a presentation on that occasion. However, the Financial Sector Conduct Authority (FSCA) could not give its own on that day due to time constraints.
Ms Caroline Da Silva, Executive, Financial Sector Conduct Authority, took the Committee through a presentation outlining the transition from the Financial Services Board (FSB) to the FSCA to date. The transition was part of formal implementation of the Twin Peaks model of financial sector regulation, as envisaged in the FSRA. She highlighted differences between the disbanded FSB and the new FSCA. Notably, the FSCA will exercise oversight on all financial institutions – this was a departure from the FSB which conducted oversight on the non-banking financial sector. Whereas the focus of the FSB combined prudential and market conduct regulation, the FSCA becomes a dedicated market conduct regulator. Further, existing sector-specific laws were to be replaced by an overarching, cross-cutting Conduct of Financial Institutions Act (CoFi) which goes to the conduct of all financial institutions. On governance structure, whereas the FSB was overseen by a Board appointed by the Minister, with governance sub-committees, the FSCA would be overseen by an executive committee comprising the FSCA Commissioner and Deputy Commissioners, appointed by the Minister of Finance, and with governance sub-committees appointed by National Treasury. The FSCA Commissioner would be accountable for day-to-day management of the FSCA and for performing its functions other than certain key functions (including standard setting and licensing), which is to be performed by executive committee as a collective.
The overview of FSCA implementation activities was as follows: in 2012, the Twin Peaks Implementation Steering Committee (TPISC) was established and supported by various sub-work streams to start work on plans to implement FSRA. In 2014, the TPISC was then replaced by the Regulatory Strategy Committee (RSC) and, between 2012 and 2015, Promontory was appointed to provide recommendations on various aspects of the Twin Peaks transition. KPMG was subsequently appointed in 2015 to develop a more detailed transition plan. The RSC had since developed its own Strategy and Transition Plan building on KPMG and Promontory inputs. Further transitional projects in the process of being implemented included the FSCA Regulatory Strategy, which was drafted for consideration by the future FSCA leadership, a Business Process Mapping, to ensure all processes are mapped for the new organisational design, as well as a Staff Placement Strategy that would facilitate smooth operationalisation of new organogram.
With establishment of the FSCA, financial institutions already licensed under sector laws will not be affected and any new licences would still be issued under sectorial law. Notably, banks would be licensed by Prudential Authority (PA) but the FSCA may set conduct standards under the FSRA. Insurance licensing moved to PA but the FSCA may issue price regulation schemes and the Minister may issue conduct regulations. Although credit providers were licensed by the National Credit Regulator, the FSCA may also set conduct standards under the FSRA relating to credit. In addition, the FSCA will issue each provider with a single licence that authorises it to perform one or more specified activities. With the licensing model being function and activity-based, it would replace the current institution or sector-based model. This meant, for example, that rather than being licensed by the FSCA as a “bank” (as per the institutional approach to licensing), an entity acting as a typical retail bank will be licensed as a financial services provider, authorised to issue and provide services in relation to specific products to retail customers. The FSCA will also allow for consolidation of fragmented licences. Further, the new organisational design would facilitate centralised groups for conduct of business supervision, licensing and authorisations, investigations and enforcement, provision of specialist technical support to supervision functions, centralised regulatory policy group responsibility for carrying out key research and regulatory and supervisory framework development functions. These centralised functional groups include a combination of cross-cutting and sector-specific teams and expertise.
Ms Da Silva gave assurances that the transitional process would be as smooth and non-disruptive as possible.
Ms P Nkonyeni (ANC) asked if there were reasons why the FSCA would have no Board to oversee the work of its executive committee.
The Acting Chairperson commented on market conduct reports - businesses, at times, behaved contrary to set out principles on how to treat consumers. Therefore, the FSCA strategy in dealing with market conduct issues would be important.
Mr Momoniat said governance of the FSCA would be structured such that its Board would not be involved in any regulatory matters. Rather than having subcommittees taking decision on specific areas, as was the case for the FSB, the FCSA would have a Commissioner with deputies making decisions on financial institutions (licensing and approvals) as a collective. The FSCA would still consist of various departments but key decisions would be taken collectively. Rather than having a King IV type of board, the FSCA’s governance, remuneration and audit committees would be appointed externally by the Director-General. He pointed out the FSCA was meant to be much more than what the FSB was. The FSCA would do much more work on market conduct and consumer protection. Although the FSCA was building on the FSB, it was going to be a new institution and would need to develop a clear market conduct structure.
Draft Report of the Standing Committee on Finance on Budget Vote 7: National Treasury, dated 15 May 2018
The Acting Chairperson put the Committee Report on Budget Vote 7: National Treasury, for adoption. The Report was sent to Members prior for perusal.
Mr A Lees (DA) commented on observation and recommendation 5.3 which stated the Committee does not support wholesale privatisation of state-owned companies. He suggested the recommendation be spelt out as majority of the Committee as the DA was not in agreement with it. Also, the DA did not agree with the observation that insufficient attention was paid to radical socio-economic transformation in Treasury’s budget. There certainly was much emphasis on transformation in the budget.
Mr N Nhleko (ANC) disagreed that the aforesaid recommendation should be spelt out as majority of the Committee - this would be incorrect and undemocratic. The Committee takes decisions as a collective and decisions should be reflected as such. If need be, minority views could only be captured in a separate document, not in the Committee Report.
The Acting Chairperson agreed with Mr Nhleko and added the Committee could not produce a minority report to capture the DA’s objections. The objections were noted but could not be captured in the Committee Report or in a separate document.
She noted minor typographical errors to be corrected by Committee Staff. She moved for adoption of the Committee Report on Budget Vote 7: National Treasury, with amendments.
The Committee Report on Budget Vote 7: National Treasury was adopted with amendments.
The DA reserved its position.
Briefing by South African Airways the following day
Mr Lees expressed concern about having a closed session for the briefing by South African Airways (SAA) the following day. He had no memory of any resolution taken by the Committee to that effect. Also, minutes for the previous Committee meeting with SAA did not reflect that such a decision was taken by the Committee. He asked for evidence that an application was made to the Speaker’s Office to facilitate the closed meeting.
The Acting Chairperson pointed out that she was not in attendance during SAA’s briefing in March. However, she had been advised by the Chairperson that the Committee had decided to have a closed session for its next meeting with SAA. She sought clarity from the Committee Secretary.
Ms Teboho Sepanya, Committee Secretary, said the Chairperson, during the March meeting, gave an instruction to the effect that a closed meeting with SAA be facilitated. The instruction went unopposed and thus an application was made and subsequently approved.
Mr Nhleko noted that he was not a Member of the Committee at that time but his understanding was if indeed the Chairperson gave such an instruction, which went unopposed, the instruction would stand as a Committee decision. He suggested the Hansard record of the meeting, when the decision was purportedly taken, be used as verification.
The Acting Chairperson said the Committee, during a different engagement, agreed in principle that sensitive matters must be discussed in closed meetings. This was agreed upon when the Committee was dealing with the Jonas Makwakwa matter.
Mr Lees said a discussion between the Committee Secretary and Chairperson could certainly not be taken as a resolution of a meeting. The Committee did not explore the possibility of having a closed meeting with SAA. He asked whether parliamentary rules would allow having a public entity’s quarterly report presentation in a closed meeting. Also, the Makwakwa matter was different - it qualified for a closed session by virtue of being prejudicial to a particular person. He emphasised that having a closed meeting could not be a Committee decision if it was not provided for in the Rules.
The Acting Chairperson believed parliamentary rules empowered a Chairperson to make determinations about whether meetings should be open or closed. She was bound by the decision of the Committee in her absence.
Adv Frank Jenkins, Senior Parliamentary Legal Advisor, had checked the Committee’s minutes and there was no reflection that such a resolution was taken by the Committee. Secondly, the Rules say Parliament, by default, is an open institution and the public must have access to it. However, in some instances, to protect sensitive information, Committees might decide to close meetings. The test, as set out in the Constitution, was whether it would be reasonable and justifiable to close a meeting. If a decision to close the meeting was indeed taken, it was up to Members to object to a closed session on grounds that what was to be discussed did not constitute sensitive information. Lastly, it could not be known if the information was sensitive to warrant a closed session until such information was received from SAA.
The Acting Chairperson said SAA’s turnaround strategy is market sensitive and there was no way it should be discussed in an open session.
Mr Lees said closing the meeting would be unconstitutional as the Committee’s meeting agenda, as per Parliament’s Z-List, was presentation of SAA quarterly report. A closed meeting was unwarranted under such circumstances.
Ms D Mahlangu (ANC) suggested that SAA present its quarterly report in an open meeting but information deemed sensitive be set aside up until the Committee position is verified using Parliament’s official records.
The Acting Chairperson said the matter would be clarified and communicated before the meeting the following day.
The meeting was adjourned.
- Committee Report on Finance on Budget Vote 7: National Treasury
- Financial Sector Regulation Act: definitions
- Financial Sector Conduct Authority presentation
- Financial Sector Regulation Act - Implementation: National Treasury presentation
- Draft Regulations in Terms of Financial Sector Regulation Act, 2017 Consolidated Public Comments
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