FFC Remuneration referral; Customs and Excise Bill; PIC Committee Bill: adopted; Financial Matters Amendment Bill: public hearings

Meeting report

The Chairperson welcomed everyone and indicated most of the agenda items had been discussed at great length the previous week. He invited the Parliamentary Legal Advisor to take the Committee through the Financial and Fiscal Commission (FFC) referral.
 
Deliberations on FFC Remuneration referral
Adv Frank Jenkins, Parliamentary Legal Advisor, indicated the Committee had requested some background information on the upward re-determination of FFC remuneration so that Members could apply their minds and report back to the House. The Committee had to approve, in part or whole, or reject the President’s re-determination of the remuneration of FFC commissioners as public officer bearers. The letter sent to the President from the FFC indicated that there had not been any re-determination of its salaries since 2012. The said letter’s recommendations put the permanent chairperson and part time members of the FFC at levels 14 to 16 of government’s employee grade system.
 
Mr A Lees (DA) wanted to know how the decision by the FFC, in its recommendation, to equate its chairperson to a departmental director-general was arrived at. There appeared to be no motivation for that. He was not sure how that determination was made and what would have to follow from that.
 
The Chairperson said his understanding was that heads of Chapter 9 institutions were in some sort at par with director-generals of government departments. The Committee had requested Adv Jenkins to prepare a one page report to be adopted by Members.
 
Adv Jenkins said the Chairperson’s understanding was correct. Also, the FFC chairperson is employed on a permanent basis. He could do further follow-ups if necessary. He took the Committee through the report which recommended that the re-determination of FFC remuneration by the President be approved as is by the House.
 
Ms T Tobias (ANC) moved for the adoption of the report.
 
Ms P Nkonyeni (ANC) seconded.
 
The report was adopted.
 
The DA reserved its position on the report.
 
The Chairperson said the report would be sent to the House for approval before being forwarded to the President.
 
Deliberations on the Customs and Excise Bill
The Chairperson indicated the Customs and Excise Bill was directly linked to the Carbon Tax Bill passed the previous week. The only issue that remained was the joint tagging mechanism (JTM). The Committee would process the Bill in principle then wait for the tagging before formally voting on it.
 
National Treasury briefing
Ms Yanga Mputa, Chief Director: Legal Tax Design, National Treasury, briefed the Committee on the Customs and Excise Tax Bill. When the Carbon Tax Bill was published in December 2017, it included an amendment of the Customs and Excise Tax in schedule 3. However, on advice of the State Law Advisor, this amendment was removed as it could not form part of a Money Bill. This administrative amendment had to be processed separately as the Customs and Excise Tax Bill. The Bill sought to provide for the administration and limitation of allowances, the licensing of certain premises prescribed by rule and the regulation of actions pertaining to the submission and verification of accounts. It will also allow the commissioner of the South African Revenue Service (SARS) to make rules regulating duties, powers and rights relating to carbon tax collection and payment. The proposed implementation of the provisions was 1 June 2019.
 
Mr Lees asked if Parliament was going to play any role in the formulation of regulations for the Customs and Excise Tax Bill.  
 
Ms Mputa replied Parliament would play no role in the regulatory aspects of the Bill. It was agreed upon that Treasury together with SARS would publish the rules and regulations earlier, in March 2019, to give the public ample time to comment and make submissions on them.
 
The Chairperson appreciated the briefing and indicated voting on the Customs and Excise Tax Bill would be deferred up to the time the JTM gets done, by early next week at the latest.
 
Deliberations on the Public Investment Corporation (PIC) Bills
Committee’s PIC Bill
The Chairperson said additional changes had been made to the Committee’s PIC Bill following the Error! Hyperlink reference not valid. discussions. The amendments made go beyond what had been agreed upon the previous week were the provision for three PIC executives, including the CEO, or somebody of a similar designation to be appointed to the board of directors, and for the Minister to designate the Deputy Minister of Finance to be the chair, or alternatively, in consultation with cabinet, a deputy minister from one of the departments in the economic cluster. This would ensure the PIC board is chaired by a political office bearer even in an event that the Deputy Minister of Finance is unavailable for whatever reason.
 
Mr N Nhleko (ANC) said the principle of accountability should take precedence in the determination of a PIC board chairperson. Having a deputy minister as the entity’s chairperson should not appear to be selective. If any other deputy minister from a portfolio within the economic cluster is designated, issues of accountability should then be looked into given the Minister of Finance would remain as the PIC’s executive authority. The line of accountability would be zigzagging and this was a possible area of danger which should be looked into.
 
The Chairperson pleaded with Members not to reopen previously traversed policy debates.
 
Mr Lees said the way out of this conundrum was to go with the DA proposal of having the PIC chairperson appointed through a public nomination process. This would guarantee the independence of the board.
 
ANC Members disagreed with Mr Lees’ proposal.
 
Mr F Shivambu (EFF) identified the need for clarity on the way forward following the resignation of the Deputy Minister as PIC chairperson. There was currently no clear determination from cabinet and this was problematic. The PIC could not be allowed to operate without a board for too long. Also, the suggestion from the DA should not be entertained as it was an attempt to capture the public asset manager.  
 
Mr Lees said appointing three executive members to the PIC board was sensible, but it would be irresponsible not to have the CFO as part of the three. He could not conceive of a board anywhere that does not include the CEO and CFO within its board. It would be in order to stipulate that the CFO as well as another executive member of the PIC should not be excluded by the Minister upon making board appointments.  
 
Ms Tobias said Members should not blur the lines by seeking to take away the discretion of the Minister as the executive authority representing government, the major PIC shareholder. This was a matter of principle.
 
The Chairperson pleaded with Members not to continue with the quibbling as the Bill should be sent to the House next week. The rest of the outstanding issues could be dealt with by the National Council of Provinces. In addition, Clause 10(1) was further amended to indicate the guidelines in relation to the corporation’s investment policy were subject to subsection 3 and 4 of the Act. This was simply to align the Bill with the original Act. On the Report on the PIC Bill, it states that following public consultation processes, the Committee resolved to remove the clause which mandated the PIC to provide housing loans to members of the GEPF who are in the missing middle. It was proposed that the provision of housing loans should be dealt with by the GEPF in terms of the Pension Funds Act which already makes some provision for this. The Committee therefore recommended that GEPF consider amending its rules to accommodate for this. The Committee strongly believed that the GEPF law should be reviewed reasonably soon after the new Standing Committee on Finance is established in the sixth Parliament.
 
Mr Lees said the revision of the GEPF law as suggested should surely be based on the outcome of the PIC commission of inquiry and other inputs.
 
The Chairperson pointed out that the commission of inquiry was looking into the PIC, not GEPF; though inevitably the GEPF would be traversed as well. Perhaps it would be more productive to look into amending GEPF law following the completion of the PIC inquiry. The Committee had decided to proceed with the PIC Bill despite the work of the commission of inquiry; otherwise, it would lapse with the termination of the current parliamentary term and it would be up to the next Finance Committee whether or not to revive it. 
 
Mr Shivambu pointed out the commission of inquiry currently underway was looking into the PIC not GEPF. The need to provide housing schemes to public servants was a policy issue that could be dealt with even outside the legislative framework. It was untoward that the majority of public servants do not have housing whilst R2 trillion was being gambled with in the stock market every day. Also, the vacuum at PIC should be filled. He reiterated that such a big institution should not go without a board for an extended period of time as a lot of wrongdoing could happen. The Minister should account as soon as possible and see to it that a new PIC board is appointed.
 
The Chairperson said the concerns raised by Mr Shivambu were being looked into. On housing loans, there were no political party differences but the Committee would come back to that and see how this could be taken forward. The majority was not opposed to the proposal. He took the Committee through the Bill page by page and put the Committee’s PIC Bill and Report up for adoption as amended.
 
Ms Tobias moved for the adoption of the Bill and the Report.
 
The Committee’s PIC Bill and the Report were adopted.
 
The DA reserved its position.
 
Mr D Maynier’s (DA) PIC Bill – Motion of Desirability
The Chairperson said the motion of desirability on Mr Maynier’s PIC Bill had been drafted. The motion noted the majority in the Committee had decided to reject the Private Member Bill. It had decided to vote on the Committee’s instead. He put the report on motion of desirability up for adoption.
 
The motion of desirability was adopted.
 
Submissions on the Financial Matters Amendment (FMA) Bill
 
The Chairperson indicated that the Committee allowed for submissions up until the very day it votes on a Bill. If all concerns were not exhausted, there would be further hearings as and when necessary. Treasury would respond to public comments on Wednesday 6 March and stakeholders were welcome for a second bite. Stakeholders had plenty of time to give inputs.
 
COSATU submission
Mr Matthew Parks, Parliamentary Coordinator, COSATU, welcomed and supported government’s Financial Matters Amendment Bill. The federation expressed for support of the broad objectives and provisions of the FMA Bill with some proposed amendments to further strengthen its public accountability and oversight provisions with regards to its proposed amendments of the Banks and Auditing Professions Acts. The objectives of the Banks Amendment Bill - tabled by Mr F Shivambu -were also supported.  As with the FMA Bill, COSATU supports the proposed provisions providing for state-owned entities (SOEs) to be granted banking licenses. The broad objectives of both Bills in providing legal frameworks for SOEs to be granted banking licenses were in line with COSATU’s long standing calls to open up the banking sector to competition. Workers believe that there is a critical need to allow for state banks to enter the sector. This will help to inject badly needed competition to a sector that has been heavily characterised by monopolies, collusion, high charges and interest rates, lack of transformation and a general reluctance to support the needs of the poor and workers. COSATU believes that the entry of state owned banks will help to bring about: more competition; and more affordable banking products and lower interest rates for consumers and SMMEs. This was badly needed to help spur economic growth, improve the lives of the poor and especially the rural areas as well as to support SMMEs to grow. On SOE bank licensing requirements, COSATU supported the provision that SOEs will not be exempt from any of the existing banking license requirements of the Banks Act and that they too will be accountable to the South African Reserve Bank. Consumers and industry needed to be assured that all banks, including state banks are held to the highest standards and codes of conduct.  It is workers and the poor who are the first to suffer when there is a failure of good governance in banks. It is taxpayers who are called upon to pay bail outs when banks risk collapse. COSATU believed that as it is taxpayers who will pay the bill if a state bank collapses that is there a need for strong oversight provisions to minimise such risks.
 
Whilst COSATU welcomes and supports the provisions of the Banks Amendment Bill, the federation was concerned that it does not include checks and balances or public accountability provisions beyond those already provided for in the Banks Act.  Given the explosion of corruption and collapse of good governance in many and especially the largest SOEs, such anti-corruption, accountability and transparency measures are badly needed and must be included. However the federation is concerned by the lack of checks and balances and public accountability provided for in the Banks Amendment Bill. These could be addressed through the provisions provided for in the FMA Bill as well as COSATU’s proposed additional amendments as follows:
On SOE Bank Licensing Requirements, the provisions of the FMA Bill itself do not go far enough to ensure oversight and accountability. COSATU therefore proposed the following additional provisions to be inserted into the FMA Bill:
 
Approval of Line Function Minister and Finance Minister
·         Amend Section 11.4 (b) with the insertion of wording to the effect of the “relevant oversight Minister and the Minister responsible for Finance”.
 
Cabinet Approval
Insert in Section 11.4 (b) wording to the effect of the “and the approval of Cabinet”.
 
The FMA bill is silent on Parliament’s oversight role. COSATU believes that Parliament, as the elected representatives of the public, must and can play an oversight role.  This is critical in the fight against corruption and the collapse of SOEs. COSATU believes that such an oversight mechanism is critical and must be included.  COSATU therefore proposes it be included as follows:
·         Insert in Section 11 e.g. an 11.5 wording to the effect of the “the relevant oversight Minister and the Finance Minister must submit to Parliament notification of the intent for the SOE to apply for a banking license for Parliament’s comment.  Parliament should be provided with a reasonable timeframe within which to comment e.g. 30 days.”
 
Mr Parks thanked the Committee for the opportunity to share COSATU’s views on these two critical and progressive bills. He reiterated COSATU’s strong support for the objectives of both bills to provide a legislative framework for granting qualifying SOEs banking licenses. The additional provisions in the FMA Bill to provide much needed checks and balances on the granting of banking licenses to SOEs were welcome. However these checks and balances and oversight mechanisms need and must be further strengthened as outlined in our proposed amendments. COSATU urged the Committee to support and adopt its proposed amendments and to ensure Parliament adopts the amended bill before the 2019 general elections.
 
Banking Association of South Africa (BASA) submission
Mr Gary Haylett, General Manager: Strategic Projects, BASA, in submission on the Financial Matters Amendment Bill, the Banks Act in particular, said the banking industry has no objection to the introduction of the state as a potential owner or operator of competitors as long as they were regulated in the same way as all other banks. BASA supports all new banks in SA insofar as they were subject to similar legislative and regulatory supervision to ensure a level playing field. BASA approved the fact that conditions and limitations would be placed on which state-owned enterprises would be eligible to establish a bank. The proposed amendments were welcome as they address some of the concerns raised in the previous submission in respect of the EFF’s Banks Amendment Bill, particularly with respect to: Placing conditions and limitations on the eligibility criteria to restrict application of the amendments to certain state-owned companies; and the need to address the inconsistencies between the Banks Act and certain other legislation with respect to state-owned companies. However, the rationale for this amendment was still not clear. Further, BASA remained concerned regarding the funding mechanism for the proposed bank, challenges facing state-owned companies and potential conflicts of interest. The banking industry places reliance on the SA Reserve Bank and the Prudential Authority to discharge their responsibilities and objectives without fear or favour in their respective supervision of regulated financial institutions, including state-owned banks.
 
On the proposed amendments to the Insolvency Act, BASA was supportive of the proposed changes following on from meetings with National Treasury and the Department of Justice and Constitutional Development (DoJ) over the past 3 years. BASA believed that should the additional changes requested to the Insolvency Act not materialise, systemic risk will be introduced into South Africa’s economy. As the proposed amendments are currently drafted, the Insolvency Act will allow the secured creditor immediate access to its Initial Margin (IM), but the proposed section 83(10B) then allows any other creditor, or the Master to dispute the preference, and after considering submissions from both parties, if the Master is of the opinion that the dispute is well founded the secured creditor is obliged to pay the proceeds of the IM to the trustee. This effectively negates the right of immediate access. In BASA’s view if such a process exists, it could not be said that the collateral is immediately available to the secured creditor.
 
Deloitte submission
Ms Carla Budricks, Regulatory Leader, Deloitte, in submission, commented on proposed amendments to the Auditing Profession Act. She told Members it was not necessary to increase IRBA’s powers as it already has sufficient powers to request and obtain documentation. The extended powers would not pass constitutional muster as they are not justifiable or proportional in relation to the invasion of privacy. The consequence of the current proposal was that not only auditors but also any other person may be subject to the search and entry procedure. If it is however believed that IRBA’s powers must be extended notwithstanding the above concerns, Deloitte recommended the following:
 
-A search and entry warrant must be the exceptional remedy of absolute last resort after all available remedies have been exhausted and the judicial officer is satisfied that no other recourse is available. Search and entry procedure should only be applicable to circumstances where a judicial officer is satisfied that there are reasonable grounds to suspect non-compliance with section 47(3), 50(4), 50(5), 50(11) (c) or 50(12) and that the entry and investigation of the premises are likely to yield information pertaining to such non-compliance.
 
-Search and entry may not be conducted on the grounds of mere consent by the respondent due to the extensive liability that may be incurred where third party information is held and an ignorant respondent had no access to legal advice or representation. Provisions allowing for search and entry with consent should be deleted.
 
Deloitte believed unlimited sanctions with no recourse to an appeal procedure may be a deterrent to entry and continued service in the profession.Unlimited sanctions with no recourse to an appeal procedure may be a deterrent to entry and continued service in the profession. The Bill sets no monetary limit for the setting by the Minister of the maximum fine that may be imposed in terms of the proposed section 51B (ii). Deloitte proposed that a maximum be placed on the limit that the Minister may determine. This would be similar to the approach adopted in other pieces of legislation such as section 7(1) of the National Credit Act or section 74(1) of the Competition Act outlined in the Report on the Observance of Standards and Codes (ROSC) : Accounting and Auditing by the World Bank , 2013 adopted by the Minister of Finance in 2014, and echoed by the IRBA in its Annual Report 2018 and in the Standing Committee on Finance on 9 May 2018, there is an increasing need for comprehensive oversight of all parties involved in the financial reporting chain. Deloitte supports this sentiment.
In order to truly instil confidence and trust in the South African capital markets, it believed a cohesive regulatory regime which encompasses the main participants of the financial reporting ecosystem –including assurance providers, those charged with governance, and the preparers of financial statements -is crucial.
Ms Budricks, in conclusion, indicated the amendments to the Auditing Profession Act constitutes only the first step in the development of much needed comprehensive oversight. An invitation was extended to the IRBA to work with Deloitte and the profession to assist in the development of this improved regulatory regime.
 
South African Institute Chartered of Accountants (SAICA) submission
Mr Freeman Nomvalo, CEO, SAICA, thanked Treasury for taking note of its previous comments and the subsequent changes to the Bill but noted that the period for comments on the Bill was very short and believed that more time should have been provided for comments. The short comment period was not conducive for registered auditors and other interested parties to duly consider the proposed amendments and the impact they may have on the profession and other relevant stakeholders. It is not entirely clear from the draft Bill what the objective and purpose of the amendments are in all instances and what specific problems or challenges the Bill as intended to address.
 
On proposed amendments to the Auditing Profession Act, SAICA was not questioning the IRBA’s right and duty to review its processes and make revisions to improve efficiency and effectiveness as a responsible regulator. The proposed amendments may very well have positive outcomes in the context of the issues or challenges that it addresses, but because the draft Bill does not set out a complete picture, some assumptions have to be made in commenting on the proposed changes to specific sections. In the absence of a fuller understanding of the specific problems or challenges which the draft Bill was intended to address and their impact, some of the proposed amendments could even be seen to diminish or dilute the functions of the Regulatory Board (the board) and introduce a risk that the outcome of some of the processes could be open for challenge. SAICA also believed that the amendments to the Bill could have been an opportunity to also amend other sections that could be clarified.
 
On amendment of section 24A of the APA (Powers to enter and search premises), the inclusion is new to the Bill and this needed to be balanced with the Constitutional right to privacy and other rights as set out in the Constitution.

The enter and search powers as included in the Bill appear to be quite extreme and allows the Regulatory Board’s inspector right to access any premises. The official authorised by the Regulatory Board is entering the premises for the purposes of conducting an investigation. There is, up to this point, no proof that the registered auditor has committed an offence. The proposal also allows the authorised official to enter “any premises” which would not just be limited to the registered auditors’ home, a client or any other person known to the registered auditor.
The right to enter and search is normally included in criminal cases investigated under the Criminal Procedures Act and not for other type of offences. With regards to the Registered Auditor, the Auditing Profession Act (APA) already allows for the Regulatory Board to inspect a registered auditor’s practice and documents. The proposals seem to be very extreme and allow this authorised official powers which is not balanced by the registered auditor’s rights. The registered auditor seems to be investigated in a manner that is usually only used in criminal procedures. Therefore, SAICA’s recommendation was that existing measures requiring auditors to provide relevant information be strengthened.
 
Discussion
Mr Shivambu said BASA was being opportunistic by expressing support for the Banks Bill and going on to say the rationale for the amendment was unclear. The Banks Act was being amended to make way for the establishment of a state-owned bank- that was very clear. Also, SAICA’s concerns on process were frivolous and should be dismissed with the contempt they deserve. The Committee should proceed and finalise the piece of legislation, particularly the amendment to the Banks Act.
 
Ms Tobias commented on submissions relating to the Auditing Profession Act. The overarching objective was to legislate the conduct of audit companies. She expressed disappointment that independent experts had not availed themselves to give inputs on the proposed amendments. It was questionable that the very same companies which were meant to be regulated by the said proposals were also arguing against these amendments. Their objectivity was surely in question.
 
The Chairperson encouraged Treasury to meet with stakeholders in-between Committee meetings to discuss technical aspects of the Financial Matters Amendment Bill. The Committee was not rushing to finish it. On proposed amendments to the Banks Act, there would be no further negotiations about the establishment of a state-owned bank. The ANC resolution on this goes back years and years. On proposed amendments to the Audit Profession Act, what has been happening over the past years was outrageous and the Committee could not sit while these auditors were being tapped on the wrist. On penalties for wrongdoing on the part of audit firms, the Minister must be allowed to impose the severest of penalties. The majority believed current penalties were too lame such that the Committee had on countless times urged the executive to bring amendments to strengthen IRBA. In principle, he has nothing against search and seizure because it will not be opposed if the person had nothing to hide. He urged Treasury to meet with SAICA and IRBA in particular as well as the rest of the stakeholders to ensure the Bill is processed expeditiously. Lastly, the submissions were devoid of the expected and usual substance given the stature of the stakeholders present. He invited comments from IRBA after noting there were no further inputs from stakeholders.
 
Mr Bernard Agulhas, CEO, IRBA, pointed out the objective of the amendment to the Auditing Profession Act was to strengthen IRBA’s mandate and ability to deliver on its mandate. This was in response to challenges within the audit profession as well as criticism from various quarters. Further strengthening the independence of the organisation and auditors was crucial. Improving IRBA’s efficiency would ensure that emphasis on public interest cases is made possible. Also, there appeared to be a lot of confusion with regards to some of the amendments on the part of stakeholders, hence the need for further engagements as suggested by the Chairperson.
 
The Chairperson thanked everyone for their cooperation.
 
The meeting was adjourned.