Financial Matters Amendment Bill: National Treasury briefing

Meeting report

The Chairperson welcomed the Select Committee on Finance to a meeting with National Treasury (NT) on the Financial Matters Amendment Bill.

Financial Matters Amendment Bill

Adv Empie van Schoor, Chief Director: Legislation, National Treasury, took the Members through the technical amendments of the Financial Matters Amendment Bill.

National Treasury said that the Financial Matters Amendment Bill made amendments to the following Acts:

• Associated Institutions Pensions Fund and Temporary Employees Pension Fund Act,
• Military Pensions Act,
• Government Employees Pension Law,
• Financial and Fiscal Commission Act,
• Agricultural Development Bank Act,
• Auditing Profession Act.

See presentation for amendments to the relevant Acts.

Discussion

The Chairperson said that most of the amendments were technical in nature. On the Auditing Profession Act amendments, he said that amendments were made in 2018/19, only for new amendments to be made in 2021. He asked what does this suggest in terms of the quality of legislation brought before Parliament. He said that the quality of legislation had become a notable issue over the years.

Regarding sanctions, he said that the sanctions imposed against people transgressing the law were far too mild. He felt there should be stricter sanctions. He asked whether the sanctions were applied retrospectively. From his understanding, he said that sanctions could not be applied retrospectively, with the exception of a few specific instances. He asked whether the sanctions would apply to transgressions before the Auditing Act came into effect or is it only applicable after the enactment date.

Mr M Moletsane (EFF, Free State) asked if divorced spouses receiving pension funds was done through a lump sum. Would there be a monthly penalty that would have to be paid from the pension fund?

Mr D Ryder (DA, Gauteng) appreciated the inputs on the Financial Matters Amendment Bill. He noted that pension funds were a target in the past. He said that the predecessor to the Financial Sector Conduct Authority (FSCA) was involved in skulduggery related to pension funds, especially defunct funds left with lots of money. He asked whether the amendments aimed to fix these potential conflicts that may arise.

He noted an attorney who was appointed as administrator for dozens of pension funds and paid himself substantial amounts of money without delivering any benefit. He asked whether the amendments would fix issues such as this.

The Chairperson asked what the response was from the Standing Committee on Finance (SCoF), regarding the letter sent to the two Chairpersons. He assumed that they agreed that the selected clauses should be deleted.

He further asked what changes the SCoF made to the Bill based on their own consideration of the policy issues submitted from the public hearings.

Responses

Adv van Schoor felt that the two amendments regarding the Auditing Profession Act were an embarrassment. National Treasury explained that the one amendment was due to a misunderstanding between them and the Independent Regulatory Board of Auditors (IRBA) about what auditing profession meant.

The second amendment was influenced by the IRBA wanting to proceed with dealing with outstanding cases. Based on senior counsel's advice, the second amendment was another way for it to do this. National Treasury felt that they still had a good track record regarding the quality of their legislation.

National Treasury explained that the second error relating to tagging of the Amendment Bill by the FSCA was only noted in December last year after the Amendment Bill was tabled.

On sanctions, National Treasury explained that the enforcement committee may only introduce certain types of sanctions. A person could use the admission of guilt process as an escape to only be subjected to minor sanctions even though the transgression was very serious. Where the enforcement committee is of the view that the transgression warrants a more serious sanction, it will be referred to the disciplinary committee.

Adv van Schoor said that, by law, a harsher sanction than was applicable at the time of conducting the improper conduct could not be imposed. The harsher sanctions introduced by the 2021 Amendment Act may only be applied to improper conduct after the enactment in April 2021.

Regarding SCoF’s response to the letter, Adv van Schoor said that the Committee had not met since receiving the letter. SCoF had the briefing and public hearings, though they only planned to hear the responses to public submissions the following week. NT planned to explain the proposal mentioned in the letter to the Committee during that meeting.

Adv van Schoor said that, at this point, there were no proposed changes except from the two National Treasury mentioned in the letter. The submissions were generally positive. COSATU raised concerns regarding the compulsory rotation rule, however they supported the other comments.

There was another submission regarding the details of the amalgamation of the two funds into the Government Employees Pension Fund (GEPF) and whether it would have a negative financial impact. National Treasury said that the reports were shared with stakeholders and the Committee. There was another written submission from Deloitte that National Treasury planned to respond to.

On the clean break principle, National Treasury requested that they could explain the process of paying spouses from pension funds in a following meeting or in a written report.

Regarding the FSCA, Adv van Schoor said that the matter dealt with other pension funds and not the two smaller government pension funds. She asked if this could also be explained in the report. She said that as far as she knew, there were no difficulties similar to that which the FSCA experienced. She said that the report would include input from the actuaries on the matter.

Mr Imre Nagy, Chief Executive Officer (CEO), IRBA, concurred that the fines in the 2021 Amendment Act were not retrospective. Transgressions prior to April 2021 would have to be done in terms of the old Act.

Mr Nagy said that there were two minor amendments. The first amendment concerned strengthening the process surrounding auditors admitting guilt. Based on legal counsel, the second amendment concerned the board decision in January to have a new way to deal with the 16 cases in terms of the old Act. This rendered the amendment in the current Bill moot.

Ms Jillian Bailey, Investigations Director, IRBA, said that the first amendment did not reflect an error in the Act. She explained that when they were drafting their disciplinary rules for the APA, they consulted their legal counsel. Senior counsel advised them that if an auditor admitted guilt, in terms of Section 49(4)(b) requires an auditor to have an admission of guilt process and receive a fine. This must happen irrespective of how serious the transgression is.

IRBA was of the understanding that Section 1 – 49 empowered the investment committee to refer to a disciplinary committee where the conduct requires harsher sanctions. However, due to the differences with senior counsel, IRBA wanted to pursue the amendment to clarify that in instances of gross misconduct, the enforcement committee would refer the matter to the disciplinary committee to potentially impose harsher sanctions.

The amendment indicated that respondents charged prior to the amendment of the Act must be dealt with in terms of the old Act. This presented a challenge as the disciplinary committee at the time was reconstituted to remove auditors in accordance with the new Act. This meant that the 16 RA’s could not be prosecuted as the committee was no longer in compliance with the Act prior to the amendment.

The amendment took 18 months, resulting in respondents starting to query the matter. IRBA anticipated that this would have affected the effectiveness of the sanctions at the time. After consulting counsel, IRBA was advised to use Sections 19 and 20 to delegate powers and establish a transitional disciplinary committee.

Ms Bailey said the committee would comply with the requirements prior to the amendment of the Act to deal with the outstanding matters. The board concurred that this was a faster, more effective way to deal with the matter and moved to establish a transitional disciplinary committee.

The transitional disciplinary committee was ready to hear the 16 unresolved matters. This was why they were requesting the withdrawal of the particular amendment.

The Chairperson asked whether the Bill affected the issues raised by the widows who visited Parliament. It was mandated that SCoF must address the individual cases concerned in their quarterly review of the fiscal framework. He felt they might intersect as the widows relied on pensions.

He asked when SCoF would pass the Bill. His understanding was that when the date was offered on the programme, it was agreed that SCoF would pass the Bill. He thought that most items in the Bill would still be applicable with few changes by SCoF.

Mr S Du Toit (FF+, North West) said, unrelated to the matter, that the complete calculations for the Southern African Development Community (SADC) and the Common Monetary Area (CMA) were requested many times and are yet to be provided. He asked if this could be looked into and have National Treasury react in a manner of urgency.

Adv van Schoor responded that the Bill did not impact the widows mentioned. The amendments only referenced the amalgamation and updates to the Acts.

Regarding the SCoF, the date for final adoption by the Committee is 16 May. After that, it will go to the National Assembly to pass the Bill. That was the latest date, as communicated to National Treasury.

The Chairperson asked Mr Du Toit for clarity on what he was referring to.

Mr Du Toit clarified that he was asking about the SADC and CMA payments. He said that, in the previous meeting, this information was requested. National Treasury responded without including the calculations.

The Chairperson said this concerned the Standing Committee on Finance Chairperson as it did not involve a provincial issue. He said he would attend to the matter in 48 hours. He said that National Treasury must comply by providing all the relevant information. 

The Chairperson asked National Treasury how many other Bills would be attended to in 2023.

Adv van Schoor responded that the Public Procurement Bill and Conduct for Financial Institutions Bill were still to be considered.

The Chairperson noted that the Public Procurement Bill was meant to be submitted at the end of March. He asked National Treasury when they thought it would be submitted.

Adv van Schoor said it is currently before Cabinet in an intense engagement on the Bill. National Treasury said that it is eager to get the Bill before Parliament.

The meeting was adjourned.