National Treasury and FIC on Amendments to Schedule 1, 2 & 3 of the Financial Intelligence Centre Act

Meeting report

Opening Remarks
Chairperson Maswanganyi pointed out that item four on the meeting agenda was “Consideration and adoption of the Committee Report on the amendments to schedule 1, 2 and 3 of the Financial Intelligence Centre Act, 2001 (Act 38 of 2001)”. He asked why this was scheduled and highlighted that it is not the proper way of processing Committee business. Reports cannot be tabled for consideration and adoption just after a briefing was heard. After the briefing, Members must consult i.e. invite public participation. The report is then compiled for the Committee to consider and adopt. Thereafter, they present the report to the Chamber, where it gets adopted and thereafter referred to the NCOP. That is the procedure they have to follow.

The Chairperson said that he will make a ruling about the item after he has heard from legal services and after clarity-seeking questions.

Chairperson Carrim was also surprised that there was a report to be adopted. He inquired about the item and the response he got was that legal services will explain it. The Committee should be wary, even when there is no requirement for a public hearing, about getting a briefing and reporting on it immediately thereafter. There might be exceptions but they should hear legal advice. Item four on the agenda should be left out for another time. National Treasury needs to provide an answer as to why they have come to the Committees so late with a matter that is supposedly urgent, wanting the Committees to rush the matter.

Mr Ismail Momoniat, National Treasury Acting DG, said that the current worry and focus is to ensure South Africa does not get on the Greylist. He apologised for the confusion, and highlighted that in this case, the Financial Intelligence Centre (FIC) and Treasury have to come before Parliament. There are no clear rules on what to do when passing legislation, and whether Parliament needs to have hearings or not. But the rules do say that Parliament needs to adopt and pass regulations.

He said that Chairperson Carrim brought up a fair question. The process has been a slow one, with the consultations. It is true that they could have brought the matter to Parliament much sooner but they were not trying to use urgency to get the Committees to consider and adopt the matter during the meeting. But, considering the potential of South Africa being grey listed, it is better to deal with the matter sooner than later. He said they have spoken to Adv. Frank Jenkins [senior parliamentary legal advisor] about the process of bringing the matter to Parliament. It seems like it is by resolution of the two Houses, but there is no clear indication of the sequence, whether the NCOP or the NA gets to hear it first. The presentation will highlight what the issues are. He acknowledged the concerns voiced by the two Chairpersons.

Briefing By National Treasury and FIC on Amendments to Schedule 1, 2 and 3 of the Financial Intelligence Centre Act, 2001 (Act 38 of 2001)
Mr Momoniat said that the regulations are a form of Treasury regulations, but there is a clause in the FIC Act that states that Parliament must approve the regulations.  

Mr Pieter Smit, Executive Manager: Legal and Policy, FIC, said that the proper wording is that the Minister will make amendments to Schedule 1, 2 And 3 by placing a notice in the Gazette. But, before the Minister places a notice in the Gazette, Parliament must approve the amendments.

Treasury was trying to figure out what ‘approved’ meant. There was a precedent in 2010, where there was an amendment to the schedules and a process that took place. The amendments proposed then were technical, meaning there were references to the legislation that was outdated and needed to be updated in the amendments. It did not affect any new entities that need to come into the Financial Intelligence Centre Act, which did not require the need for public consultation.

Mr Momoniat said that the amendments to the schedules are already in the Act. When he uses the word ‘Treasury regulation’, he is putting it in a legally-safe way. This is a process more akin to the Treasury regulations but what they are bringing can change the scope of the Act. Because of the current mutual evaluation, they are currently reviewing the legislative framework and have indicated to Parliament that they will be bringing urgent legislation in July. That it is something they can do in terms of current legislation and a consultation process was started months ago. The amendments to schedules to the FIC Act will widen the application of the Act by including additional categories of institutions and businesses under its scope. They will have to report, per the FIC Act, on suspicious transactions, cash transactions, etc., and have a customer due diligence approach. The amendments improve the FIC’s ability to provide high-quality financial intelligence to law enforcement agencies.

He said that South Africa’s anti-money laundering system is behind international standards. The mutual evaluation highlighted key areas that need improving. The Financial Action Task Force (FATF) standards require member countries to extend the scope of the AML/CFT/CPF regulatory framework to a specified list of financial institutions, designated non-financial businesses and professions (DNFBPs); and, since October 2019, virtual asset service providers (VASPs). 

Weaknesses identified in the Mutual Evaluation Report on the regulation of DNFBPs
The mutual evaluation report identified that some sectors (including potential high-risk DNFBPs) are not yet captured by the AML/CFT regime, and their risks are not yet assessed. The FATF report also identified that dealers in precious stones and other high-value goods are not adequately covered in the country’s AML/CFT regime. The amendments to the schedules are intended to address the deficiencies relating to the scope of the schedules by including necessary sectors and business activities in the schedules, such as company service providers, and virtual asset service providers. In addition, the new schedules also streamline the number of supervisory bodies and thereby enhance the quality of supervision and enforcement identified in the mutual evaluation report.

This will address specific areas of weakness and there is more that Treasury needs to do to address the weakness. Mr Momoniat said that they have been working and had to avoid grey listing. They have been working with the National Prosecuting Authority (NPA), the Hawks, and other agencies and regulators to ensure they take the necessary steps to address the weaknesses identified in the mutual evaluation report, which was reported to Parliament sometime last year.

Consultation process followed
The consultation process commenced in March 2017, with consultations with relevant sectors and supervisory bodies. It was a two-year process. In June 2020, they published the proposed amendments to the schedules with a closing date of 18 August 2020. The comments that were received were incorporated, where relevant. There are about 2 295 non-material comments received from Dear South Africa that received comments from the public. The amendments were rejected by 1 983, while 312 of the comments supported the proposed amendments. The Minister approved that the amendments be tabled in Parliament at the end of March 2022, and the amendments were tabled on 17 May 2022. The reason it took so long to bring this in front of the Committees is that they were working on FATF.

Motivation: schedule one amendments
Item 1: Legal practitioners (technical amendment) – Schedule 1 applies to private sector businesses and financial and non-financial institutions. These institutions are required to comply with all the requirements of the FICA, from identifying the customer, identifying the customer transaction, applying financial sanctions, etc. The first item on the schedule refers to legal practitioners, which covers attorneys. It refers to old legislation, the Attorneys Act, 1979 (Act 53 of 1979), that governs the attorneys' profession. That legislation is being replaced with the Legal Practice Act, 2014 (Act 28 of 2014) (LPA) - the legislation needs to be updated. It will not affect the profession's coverage by the FICA. Since the inception of the FICA Act, the profession has always been covered. The change has prompted the Legal Practice Act, 2014 (Act 28 of 2014) to allow certain categories of advocates to practice in the same way as attorneys for their own account. The advocates that practice on the same basis as attorneys will be covered by the item on the FIC Act because they are covered by the Legal Practice Act.

Item 2: trust service providers (amendment to include certain activities carried out by trust and company service providers, including accountants) – This item refers to companies that provide trust services. The intention of the amendment is aimed to be more clear about the nature of these businesses and clear that it covers the provision of setting up trusts, managing trust, property, acting as professional trustees, etc., regardless of the profession of the person who is providing these services. The services are not only provided by attorneys; they are also provided by accountants, financial advisors, etc. The effect of the amendment is that it is clear, regardless of the profession of the provider. The FIC Act would cover them under this amendment if they provide professional trust services. The aim is to ensure that the scope of the FIC Act is in line with international standards. The coverage of the trust providers is a key issue because trusts can be used to conceal the true ownership of property. This amendment would provide FIC with access to information regarding the parties operating behind a trust.

Item 4: authorised user of an exchange (technical amendment) – this refers to stock brokers that trade on the stock exchange such as the Johannesburg Stock Exchange (JSE). It does not extend the scope of the FIC Act but it updates reference to the newer legislation. The Securities Services Act, 2004 (Act 36 of 2004), was repealed and replaced by the Financial Markets Act, 2012 (Act 19 of 2012).

New Item 7A: cooperative banks to be included - this item includes the new businesses that will come into the FIC Act, which were not previously covered by the Act, namely co-operative banks. These banks are now being regulated because they provide financial services to customers.

Item 8: long-term insurance business (amendment) - The scope of the item will be widened by the amendment. The amendment is required to update references to repealed legislation such as major parts of the Long-Term Insurance Act, 1998 (Act 52 of 1998), and the Short-Term Insurance Act, 1998 (Act 53 of 1998). The Acts were replaced by the Insurance Act, 2017 (Act 18 of 2017), which covers long-term and short-term insurance. But the item will only cover a wider scope of long-term insurance than what was previously covered. The aim is to ensure that insurance companies are also seen as financial institutions in the financial system.

Item 11: credit providers (amendment) – credit providers are a category of financial institutions that has to be covered to meet international standards. Also, there is a scope of abuse for credit providers in terms of money laundering. This amendment will widen the scope to include micro-lending, which was not previously covered in the FIC Act.

Item 12: financial services provider – this is a technical amendment that will make it expressly clear that a person who provides either of those services falls within the scope of this Item. It is proposed that Item 12 of Schedule 1 to the FIC Act be amended in two respects: firstly, to replace “and” with “or” so that it would read “to provide advice or intermediary services”.

Item 16: deletion of the reference to Ithala Development Finance Corporation – the amendment is to delete the reference to this institution because the main business of the institution is to provide credit. Item 11 will encompass Ithala Development Finance Corporation and other similar institutions like the Land Bank.

Item 19: money remitters (amended to widen this category) – the item refers to anyone who is responsible for receiving and sending money on instruction or on behalf of a client. But it specifically refers to money. So, it does not apply to instances where the method of transmission of value is not monetary. The item extends this category to include the transfer of not just money but also other instruments that can transfer value. Some business models rely on the net settlement of value between remitters without money being sent on a transaction basis. The FATF found that concerning item 19 the authorities have not taken any substantial action to address the informal (underground) remittance sector.

New Item 20: dealers of high-value goods – this item will include businesses dealing in high-value goods, receiving payments in any form of R100 000 or more per item. These businesses would have to comply with the FIC Act for that particular transaction. As per international standards, it would cover Kruger rand dealers, dealers in precious metals and precious stones. The wording of the new item does not limit the item to dealers in specific types of goods.

New Item 21: South African Mint Company (RF) Proprietary Limited (SA Mint) – its business includes selling collectable and non-circulation coins of different precious metals to the retail trade. The SARB (South African Reserve Bank) and SA Mint requested that they be specifically listed to manage their compliance with the FIC Act.

New Item 22: Crypto asset service providers (CASPs) – This item covers the selling of Bitcoin, Ethereum and other cryptocurrencies. It also covers providers that allow people to store their crypto assets in wallets and exchange them for other currencies. This sector was necessitated by the revision in the FATF standards, which require that countries regulate CASPs in the money laundering legislation of the country. South Africa took this step long before FATF standards because there were cases and abuses of people trying to turn their criminal proceeds into crypto assets and trying to hide virtual assets from investigations because they thought it was not traceable transactions. FIC is working with Crypto asset service providers (CASPs) to freeze the assets of those found abusing the system.

New Item 23 (clearing system participants for facilitation of electronic funds transfer) – this item has the potential to expand the scope of the FIC Act in future. This service is currently limited to banks, which are covered in a different item of the FIC Act. The policy from the Reserve Bank and National Treasury is to expand the ability to enter this market for institutions that are not banks. There are no such institutions yet but they will be covered under this item should they come to exist in future. The Schedule 1 amendments mostly referred to the private sector.

Motivation: Schedule Two Amendments
The amendments to Schedule 2 of the FIC Act will reorganise the structure of supervisory bodies that are responsible for supervising compliance with the FIC Act. This reorganisation is required partly because of amendments in other legislation and partly because certain supervisory bodies do not actively perform a supervisory function as far as the FIC Act is concerned.

Technical amendments to Items 1 and 2 – The items refer to the Financial Services Board and Registrar Banks, respectively. The institution does not exist anymore. The legislation that provided their mandate was repealed and replaced by the Financial Sector Regulation Act, 2017 (Act 9 of 2017). The items refer to replacing the reference to the Financial Services Board with a reference to the FSCA, and the reference to the Registrar of Banks with a reference to the Prudential Authority.

Deletion of Item 5 (Independent Regulatory Board of Auditors) – The item seeks to delete the reference to the Independent Regulatory Board for Auditors (IRBA). When the FIC Act was passed, they understood that auditors and firms provide a range of services that also include those of a financial nature. IRBA was expected to provide a supervisory role to ensure compliance of auditing firms for the auditing and financial services. But there is a better regulatory framework for such auditing firms that provide additional services. They were first regulated by the Financial Services Board, now by the FSCA for the services that make them financial services providers. So, there is no need for the FIC Act to have a reference to IRBA. The peer auditing function that is regulated by IRBA is not subject to the compliance requirements of the FIC Act, except for reporting on suspicious transactions.

Deletion of Item 6 (National Gambling Board) – The National Gambling Board does not licence or supervise gambling activities of casinos, horse racing and betting. The regulation of these activities is subject to the exclusive jurisdiction of provincial licensing authorities in terms of the National Gambling Act, 2004 (Act 7 of 2004, the NG Act), who are already supervisors under the FIC Act. The National Gambling Board (NGB) was expected to supervise internet gambling. The NG Act would make provisions to regulate internet gambling. However, the amendments have not been brought into operation since their enactment in 2008. It looks like internet gambling will remain illegal in future. The NGB currently has no responsibility for the regulation of gambling activities, meaning that Item 6 of Schedule 2, which lists the NGB as a supervisory body, must be deleted.

Deletion of Item 8 (Law Societies) – When the FIC Act was enacted, the Law Societies were the regulatory bodies for the attorneys' profession. They represented and regulated the profession and set ethical standards. However, the enactment of the Legal Practice Act, 2014 (Act 28 of 2014, the LP Act), removed the responsibility for the regulation of these services from the various provincial Law Societies and entrusted it to the Legal Practice Council.  The Legal Practice Council indicated that they do not intend to add the responsibility for the supervision of compliance by legal practitioners with the FIC Act to its functions because it does not have the capacity to do so. As a result, the FIC will become responsible for the supervision of legal practitioners in this respect. The FIC has the responsibility to supervise regulatory compliance in the case where there are no supervisory bodies for a category of institutions. The FATF findings were that attorneys are subject to no AML/CFT oversight.

Motivation: Schedule Three Amendments
Deletion of Items 1 and 2:  Motor Vehicle Dealers and Kruger Rand Dealers
This category has only one obligation: to report suspicious transactions and large transactions (R25 000 and above in cash and coins). They have no legal obligation to conduct customer due diligence or retain client and transactional records. The proposed amendments intend to delete these Items under Schedule 3 and that they are included as accountable institutions in the scope covering high-value goods dealers in Schedule 1. It will cover high-value goods in a general nature. It will not be specific to motor vehicles and Kruger rands.

Motivations for the amendments
Risks and costs of South Africa’s non-compliance with AML/CFT Standards
AML/CFT standards have received international priority. A country’s compliance with the FATF sets the benchmark for other institutions and organisations when they consider a country’s compliance with things like the UN Convention on Corruption and exchange for information in tax transparency.

South Africa’s mutual evaluation report pointed to areas in the FIC Act that cause other deficiencies, reduce the effectiveness of the customer due diligence requirements, etc. because it does not apply to certain institutions. Financial institutions and businesses in South Africa have something to gain from being recognised as responsible, well-regulated and well-supervised institutions, working in a clean and well-regulated environment. For instance, Crypto Assets Providers find it hard to do business with counterparts in regulated sectors and counterparts around the world who might be reluctant to do business with countries considered to have weak AML/CFT regimes.

Response by South Africa to other deficiencies identified in the mutual evaluation report
Mr Smit said that, apart from amendments that would expand the scope of the FIC Act, there are also efforts being made to address the findings from the mutual evaluation report in other areas. This has an endorsement from Cabinet and Treasury; the FIC has previously presented to the Standing Committee of Finance on the matter. It is not just about making amendments to the legislation, but it is also about making a better framework for South Africa to improve the effectiveness and implementation of the legislation to generate the necessary results from applying the legislation.

The analysis should lead to a better quality of information reported by various institutions to the FIC. As a result, it will allow the FIC to generate a better quality of information to pass on to law enforcement to follow up on (investigate, prosecute, asset forfeitures and convictions). The aim is to improve the legal basis and function of the anti-money laundering system.

Mr Smit emphasised that they are looking at innovation in their system. They are not just trying to meet the FATF requirements but also how those improvements can help introduce new ideas like unexplained wealth orders, etc. These are the discussions happening with agencies and departments helping with the follow-up process to the mutual evaluation, as required by the FATF. The process needs a solid foundation in legislation and provides it with the tools to fight financial crimes.

Conclusions
The amendments are a form of regulation.  Their nature is in a form of regulation in the sense that they are Executive actions that the Minister takes when empowering legislation that the specific provisions in the FIC Act that entrust the Minister with the power similar to make the regulation. The process of exercising this administrative action is the same as the making of regulations like following the prescribed consultation process, publishing a notice in the Gazette to bring the changes into effect, and parliamentary oversight.

The amendments are urgent to demonstrate that South Africa is committed to dealing with AML/CFT weaknesses and doing everything to avoid a FATF grey listing. The country needs to report back to FATF in October 2022, demonstrating the improvements that have been done to the country’s AML/CFT system.

Discussion
Mr D George (DA) said that it is alarming to hear about South Africa being potentially being grey listed because, based on his understanding, the FATF warned South Africa in October 2021. The country was essentially put on a watchlist in October 2022. If South Africa does not up its game in prosecuting financial crimes and pursuing illicit cash flows, the country will likely end up on the grey list. This would have dire consequences for financial institutions in South Africa. It would mean that banks might find it hard to transact internationally, and financial institutions could get fined. Dr George expressed how it is shocking that there are only four months until October. Why has this taken so long? If Parliament does not pass the regulations, is South Africa going to end up with this dire consequence? It is a process to pass a regulation in Parliament, and it cannot be rushed.

There are concerns about illicit cash flows yet the requirements on ordinary South Africans are already onerous. When opening a bank account, one has to provide proof of address and FICA documents all the time. This appears to not be working because South Africans have to jump through various hoops, yet FATF is not satisfied. He said that there is something in the South African economy that FAFT is concerned about, which South Africa is not catching. The regulations are aimed to tighten up the requirements, which is reasonable. FAFT would be concerned about the recent revelation of foreign cash being stuffed in the ‘furniture’ of South Africa’s President.

Mr D Ryder (DA, Gauteng) said that he feels that the Committee is being pressured or bullied into something, by Treasury. What does grey listing mean?  The term grey listing needs to be unpacked for the Committee. He pointed out that the DG, in his opening comment, said that he does not know why the regulations should come to Parliament. Mr Ryder said that there is a reason why the matter was brought to Parliament, and it thus must be interrogated properly and carefully. He said that the regulations and recommendations look reasonable on the surface, and they are probably overdue. The process started in 2017 but is now being rushed at the end, which is concerning. 

Regarding the nonmaterial objections, Mr Ryder asked for clarification on who the obiters of the objections were and whether the objections were material or nonmaterial. He said that the Committee needs to hear more about the objections that were raised. Although it is an urgent matter, Mr Ryder was not comfortable with rushing the process. The Committee needs to be more flexible with its time, and it needs to give the matter the necessary consideration.

Mr S Du Toit (FF+, North West) said that it is concerning that the matter is being rushed. He asked for a deadline. When is the deadline? What is the last day by which this must happen? It looks like a good proposal, but he asked for a full document with all the details. He highlighted that an official had said that, even though it was done in 2010 and can be done again, this process could lead to things being overlooked. He said that rushing this process could mean that the Committee will not be playing its oversight role effectively. Members are responsible for making the right decisions. He asked for a legal opinion on deciding on the matter now.

Responses
Mr Smit (FIC) said that the reason he and the DG are in Berlin has nothing to do with the matter he presented to the Committee during this meeting. The Financial Action Task Force has three plenary meetings – one in February, one in June and another in October, every year.  South Africa is not under discussion in the June 2022 meeting. He said that South Africa will be under discussion in February 2023, and he will explain the process leading up to that point.

South Africa was assessed by the FATF via a mutual evaluation. The process involves FATF members evaluating each other. South Africa sends assessors to other countries and other countries send assessors to South Africa when it has to be evaluated. South Africa was evaluated towards the end of 2019, when assessors came to evaluate. Leading up to the evaluation, they were provided with masses of written material. After the first on-site visit, they produced the first version of their report in 2020. The report would have been discussed in June 2020 if it were not for COVID-19. As a result, the report was only discussed in a virtual meeting and adopted in June 2021.

As of June 2021, they had the report with the findings on the mutual evaluation. Treasury had identified the matter being discussed as an issue long before the FATF mutual evaluation report was adopted. Consultations started first with the FIC and Treasury inviting affected categories of business and institutions, which were identified as new businesses that are not currently covered by the FICA, to workshops sector by sector. Treasury/FIC had discussions with them on what it means to become accountable institutions, the implications for those industries, why they should become accountable institutions, the money laundering risks within those industries and why they would be expected to be regulated and supervised for compliance with FIC Act to confirm they work in an environment that is overseen and clean. They had to consult a number of institutions and representative bodies across various sectors. That is why it took a period of two years to consult and discuss. Only when that was done, around 2020, could they present the Minister with a proposal that could be considered for the Minister to follow the consultation process required by the FICA.

Treasury/FIC had to do preparatory work before the Minister could initiate the consultation process to ensure that the Minister had a well-considered proposal before he could make any amendments. That is when the discussion document was published, which was referred to in the consultation document. The consultation process that followed was that of the Minister, not the FIC and Treasury.

Regarding the non-material comments, a number of comments were received. Dear South Africa is one of the institutions that submitted comments during the consultation process. The institution distributes the consultation requirements widely to the public. They collect the comments and pass them off to the institution that is conducting the consultation. The consultation was not just focused on sectors affected by the amendment as required by FATF - consultation with credit service providers and virtual asset providers.

Some of the comments were not relevant to the issues the Minister needed to consider for the amendments and the impact it would have on those sectors if they become accountable institutions. That consultation process tricked the need for further discussions with either sectors, regulators or supervisors of sectors. This happened at the beginning of June 2021 till the discussions were exhausted and the Minister was ready to formalise the amendments through notices for submission to Parliament and the Gazette.

Regarding the listing, after the Mutual Evaluation report, a country is placed on a follow-up process by the FATF. This is done for every country regardless of the outcome of the evaluation. But the follow-up process is stricter on FATF members whose evaluation was poor, and more pressure is applied to address the findings of the report and on reporting back on the actions taken by the country to address those findings.

Mr Smit said that South Africa has to report back to FAFT in October 2022. He said there would not be a discussion or consideration of the report, but the information will be kept by the FATF record (as their follow-up report). This will be their first demonstration to the FAFT of what actions they have taken since the adoption of the report in June 2021. This is in preparation for the February 2023 meeting, which is when the FAFT will discuss whether to grey list South Africa. The amendments are one of the items on the long list to address in preparation for the meeting in February 2023. The information for that meeting has to be submitted in November 2022.

He said that the implications of grey listing are that South Africa will be placed on a list on the FATF website. The list includes members with strategic deficiencies in their AML/CFT systems. The purpose of the list is to help institutions around the world know about the deficiencies and decide whether they are material or not in dealing with their counterparts in the listed country. This means that foreign counterpart institutions will increase their risk monitoring in relation to their relationships with their counterpart financial institutions in the listed country. They would demand more transparency in the flow of cash through the transactions in those relationships and other assurances.

The impact of grey listing means that for local institutions, the cost of business goes up, business becomes slower, and the ability to enter new markets internationally becomes more restricted. The ability of South African banks to expand globally will become more restricted. Also, international trade will be impacted because the payments for imports and exports slow down and the cost of exporting will go up. This would put pressure on financial institutions that are tasked with financial systems and supporting the economy.

South Africa subscribes to these international standards voluntarily and provided its political commitment that it would uphold the international standards. Once a country commits, they are expected to comply with the standards. By being a member of the FATF, South Africa has agreed to scrutiny by the FATF and the consequences.

Mr Smit said that Treasury and the FIC are not trying to bully the Committee because they respect their process of how decisions are made. The fact remains that there is urgency to comply with international standards to avoid grey listing, so the amendments to the legislation are necessary.

Follow-up Discussion
Mr Du Toit asked again: when is the last date on which the Joint Committee has to approve the matter?

Chairperson Maswanganyi responded to Mr Du Toit and said that, as the two committees, they have to decide how they are going to go about the process.

Mr Du Toit expressed that he understood the process that the two committees have to go through, but wanted to find out when the matter should be concluded to prevent South Africa from being grey listed.

The Chairperson said that earlier in the meeting, he and Chairperson Carrim raised the issue of public participation and requested a legal opinion on how to process the matter of the amendments, not in the manner it is represented in the agenda. He asked Adv. Frank Jenkins to clarify whether it is appropriate to hear a briefing and then adopt a report on the matter immediately thereafter.

Adv. Frank Jenkins, Senior Parliamentary Legal Advisor, said that the process of dealing with the amendments in one meeting and approving them immediately would depend on the nature of the matter. When the amendments were referred to the two Committees, the referral in the ATC said that there needed to be a report consideration and a final report. The two committees need to report to their respective House. The report needs to indicate whether the Committee approves the amendments to the schedules because that is required by the FICA Act.

The Committee needs to comply with the Constitution and that there must be public involvement. Part of it was done by National Treasury and the FIC by seeking comments. The content of the amendments has been informed by business and government needs, but he encouraged the Committee to at least invite written comments. It is the best way for the Committee to understand what was said and expected, and what was accepted and not accepted by National Treasury. Also, it would be best to get Treasury’s response to the comments. That it is the best way to help the Committees to decide on the matter.

On the matter of Dear South Africa, they usually ask the website manager to provide Parliament with a report that indicates how many people voted for and against the amendments. This is more of an opinion poll than making substantive comments on what is correct, workable and affordable. The amendments are dealing with certain groups and new categories of groups, and so there is a risk Parliament needs to manage – the cost of the FICA exercise, which often goes to the consumers. He advised that Parliament invite written comments on the amendments, not to change them but to get assistance on whether to accept the amendments. From there, the Committees can decide if they need public hearings.

He said the comments provided on the amendments deal with how they should be phrased. Parliament’s question is whether to approve or not and the view of the public is needed in that. The invitation to comment can be opened for a week or two, or it can be advertised over the recess to be considered at the end of July or August. Alternatively, the Committees can use the standard four weeks to invite comments.

Mr Zakhele Hlophe, Content Advisor for SCOF, said the amendments to the schedules of the Act look at various things. For instance, with credit providers, there are over 6 101 institutions (like Woolworths) being brought into the fold. He said it is not clear what those institutions are. Does it also mean wholesalers if they sell goods above R100 000? What do you mean by goods? Does it include services?

He said that it is not just the regulations being changed. It is also the Act because the schedules are part of the Act; they are not regulations of the Act, even though there are provisions in Sections 73, 75 and 76, which give the Minister powers to consult, change and amend. But Parliament has its process that will bring various institutions into the fold. Does cooperative banking include cooperative financial institutions? If one includes credit providers, do they also include the National Credit Regulator to become the supervisory body? He pointed out that the amendments seem to be amendments to the Act rather than the regulations.
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Regarding compliance with the FATF standards, National Treasury has to tell FAFT that Parliament has to follow due process when dealing with these kinds of issues, and ensure public participation. Parliament does not know what the consultation process came up with. Parliament would come up be challenges if they do not allow people to comment on the matter.

Chairperson Carrim said that grey listing should be avoided at all costs, but most of what they heard was updating and strengthening the requirements. The Committees were informed that the meeting was a briefing and only discovered that there was a report on the day of the meeting. He asked Adv. Jenkins to provide clarification on whether the referral is for a joint sitting or report. Based on his understanding of section 75, it first goes to the NA before bringing it to the NCOP. Is it a joint report?

Secondly, as far as he knows, the legislation is framed in a way that there is regulation approval by Parliament. The Bill or legislation will say that and the Committee would adopt it or make changes to it, as they did so in the past. For instance, with the Municipal Systems Act, the Committee required the Minister to present all regulations to be approved by a parliamentary committee before implementation of the regulations. In that instance, they had a provision that in 30 or 60 working days, government can assume it was adopted so that they are not held up. He said that elsewhere, it states it is for tabling, where they table the matter and the Committee offers their views.

He said that, if ‘approved’ means what he thinks it means, then they should leave the NA to do its process, since this was just a joint meeting just like on any other Bill. Chairperson Carrim agreed with Adv. Jenkins that Treasury and FIC should provide a response to all the submissions made. But this should not stop the public from writing to Parliament and raising concerns.

He agreed with Mr Hlophe that amendments to the schedule are amendments to the Act. A regulation is like a rule the Act provides the Minister and Department to take into account. He thought that the Chairperson was approached by the Minister regarding the matter; his Committee already looked at the matter and adopted a report. The secretaries should consult on how something should be done, if they are not clear – to avoid adding items [to the agena] that are not part of the normal way of doing things. He asked where the report was.

He said that it seems that the FATF October deadline is not as urgent as the November deadline. He added that the NA is not going to be sitting again, so they cannot adopt this in the House. It would be best to refer to Section 75 – that it goes to the NA first. The NCOP does not want to adopt it before the NA because it is a Section 75. It is a national issue and has no provincial dynamic.

He asked if FIC and Treasury cannot ask FAFT for an extension, maybe for three months. The process of adopting will take time and the best they can do is September/October but there are no promises, because it depends on the scope of the matter that still needs to be looked into and the comments from public participation – which can impact the time the Committee takes to adopt. If the magnitude of the matter is more than what Treasury says it is, then they have to answer to it.

Adv. Jenkins said that three separate sections 73, 75 and 76 of the Financial Intelligence Centre Act require Parliament to approve any amendments to schedules 1, 2 and 3. In each, it sets out what schedule it is in. Also, it gives the Minister the power to amend the schedule to include or exempt someone from the schedule. If a person is affected by the amendment, they have 30 days to respond. If there is more than one category or persons affected, they have 60 days to respond. After the amendments have been made in a draft form, they must be published in the Gazette, but it needs to be approved by Parliament first.

Parliament has delegated the function to the Minister, and it should consult everyone who is affected by the amendment. If Parliament puts out an invitation for comment and finds that someone says they did not get an invite to comment, then they will be dealing with a non-compliance issue with the empowering provision of the Minister. Then Parliament will ask the Minister to redo the process, as required by legislation.

Regarding the matter of amending the Act or regulation, he said it is just a conceptual issue. Section 101 of the Constitution speaks to instruments of subordinate legislation. Whether they are regulations, proclamations or other instruments, these are all part of the Act. Regulations have the same powers as the Act; one has to comply with them. He compared them to international standards in terms of procedure. He said that there is no requirement that the NA must do it before the NCOP. The Committees can decide how to process; it is not a section 75 legislation. In this case, they would need two separate reports, as this is not a joint committee but only a joint meeting.

The Chairperson said the question of who drafted the [committee] report has not been answered.

Adv. Jenkins said that he does not know who drafted it, but he has seen it and recommended it clearly states whether the Committee recommends approval or not, by the House.

Closing Remarks
Chairperson Maswanganyi said that, as a legislative body, the committees have to do things the right way. The Constitution has a provision for the requirement for public participation when it comes to these matters. Public participation is regulated by Section 59 (1)(a) and Section 721(a) for the NCOP. Section 59 (1)(a) says the National Assembly must- (a) facilitate public involvement in the legislative and other processes of the Assembly and its committees.  Section 721(a) for the NCOP provides the same provision that public participation is required.

There are case laws regarding public participation and almost three cases. An example is the King and Others v Attorneys Fidelity Fund Board of Control and Another. Another example is the Constitutional Court Doctors for Life International v Speaker of the National Assembly and Others. The third case was the Matatiele Municipality and Others v President of the Republic of South Africa and Others. These cases make it clear that whenever Parliament embarks on legislative and other processes, it should involve the public. Section 59 (1)(a) makes it clear that public participation is a must.

Parliament has a public participation model that highlights that the core decisions are based on the will of the people. Those affected by a decision have the right to be involved in the decision-making process. Their inputs will be considered and acknowledged. The aim is to promote sustainable decisions by recognising and communicating the needs and interests of all participants, including decision-makers. Parliament has to seek out and facilitate the involvement of those impacted or interested in the decision. This is in line with what participatory democracy is about.

He noted that Treasury has gone through the process of consultation since 2017. However, from the feedback provided by Treasury, it seems like there are more people against the regulations. A total of 1 983 out of the 2 295 comments were opposed to the amendments; only 312 supported the amendments.

The best way forward is for NA is to embark on a public participation exercise to ensure that the affected voice their concerns. Parliament is an independent arm of the Executive, and it determines how to process deadlines. For this particular case, they will discuss with the support team. A report will not be adopted in the current meeting. Not having public participation could have legal implications for the Executive Authority of Parliament, if those who opposed decide to take the Speaker to court.

The Co-Chairperson asked that there be a discussion on the rules regarding a public hearing and further joint briefings on the legislation. Since regulations were involved and the matter is urgent, one possibility is that when NA has its hearings, the NCOP also participates.

Chairperson Maswanganyi welcomed and acknowledged Mr Momoniat being announced as the Acting DG. He was wished well in the role.

The meeting was adjourned.