Financial Matters Amendment Bill: public hearings

Meeting report

Submission by the Congress of South African Trade Unions (COSATU): Financial Matters Amendment Bill

Mr Matthew Parks, Parliamentary Coordinator, COSATU, said COSATU were of the opinion that it was an important Bill which had an impact upon workers, and hence their interest in it.

Overall, they welcomed and supported the Financial Matters Amendment (FMA) Bill, which builds on financial matters that are in other previous bills proposed by National Treasury. From their point of view, the Bill would help to address challenges that some military personnel and military partners had experienced when accessing pension benefits by their partners or ex-partners, or even during separations. He welcomed the provisions for extending the legal requirements to the Associated Institutions' Pension Funds thus providing the same rights and protections for those fund members. This was important for the workers and pensioners of such funds who did not enjoy the same legal framework rights and regulatory oversight.

He said that the Bill also sought to address problems experienced in the auditing profession, as seen recently when some auditors helped to cover up corruption in the firms and state-owned entities (SOEs) they were contracted to play an auditing role. COSATU fully supported the Bill's proposed amendments to the Military Pensions Act.

Mr Parks said that they welcomed the provisions of the "clean break" principles during divorces and separation of assets, especially for women and children, and particularly those in abusive relationships.

COSATU also supported the proposed amendments to the Auditing Profession Act, describing them as the correct response to issues highlighted in the Zondo Commission, which had exposed collusion between some auditors and the companies and SOEs they were paid to audit. While welcoming the proposed amendments to the Act and those in the previous FMA Act, COSATU remained concerned about the unhealthy relationship between some auditors and institutions they were hired to audit.

He said the Independent Regulatory Board for Auditors (IRBA) had instituted a rule requiring mandatory rotation of auditing firms after ten years. The rule was too broad and needed to be reduced to 5 years. However, the rule could be easily revoked. On 31 May, the Supreme Court of Appeal (SCA) ruled that the IRBA did not have the legislative power to institute the mandatory auditing firm rotation rule. The mandatory auditing firm rotation rule needed to be entrenched in law.

COSATU recommended inserting a new section in the Bill formalising in law the existing IRBA rule providing for mandatory rotation of auditing firms, and limiting lengths of auditing contracts of firms and SOEs to five years and not renewable thereafter.

National Treasury's response

Adv Empie van Schoor, Chief Director: Legislation, National Treasury (NT), said the NT appreciated COSATU’s support for the amendments contained in the Bill to the Military Pensions Act, as well as the Associated Institutions Pensions Funds Act dealing with the amalgamation of that fund into the Government Employees Pension Fund (GEPF), which would mean that the clean break principle applied.

On the submissions related to the Auditing Profession Act, particularly the mandatory rotation rule, Treasury's response was that it would be included when they did a review of the Act, and that would be tabled in Parliament only after the 2024 election, but as had been pointed out by COSATU, there was an SCA judgment that had found that the rule issued by the IRBA was not legal. The NT therefore acknowledges that there was some urgency to provide for that in the Auditing Profession Act as soon as possible. The challenge was that there were amendments in the Bill that were currently before the Committee that were urgent, particularly the Land Bank Amendment Bill and the amendments in relation to the two Pensions Acts. Treasury was asking the Committee not to consider inclusion of the amendment on the mandatory rotation rule now, because it would result in the National Council of Provinces (NCOP) having public hearings on the amendments anew. It would also have to be referred back to the National Assembly for consideration, and it would have to have public hearings, meaning that the Bill -- if approved by NCOP and later the National Assembly -- would be passed much later in the year. She asked that the Committee allow the Treasury to look at alternative ways of addressing the mandatory rotation rule as soon as possible.

Independent Regulatory Board for Auditors response

Mr Imre Nagy, Chief Executive Officer (CEO), IRBA, said that COSATU had correctly captured the impact and outcome of the recent judgment. The judgment had set aside the mandatory firm rotation rule based on the fact that the IRBA had no authority to put such a rule in place, and therefore it was declared illegal. However, the judgment did not address the issue of whether a mandatory firm rotation rule was of value or was actually needed. The IRBA still believed that there was a benefit to firm rotations, and they would continue to support this, and the legislation of the rule. He said that as of the previous week, about 91% of the Johannesburg Stock Exchange (JSE) listed entities had already rotated, so there was no immediate risk, but they had identified a number of entities that had been using the same audit firm for more than 25 years.

The IRBA were happy to support NT to fast-track the legislation of this rule where possible to address the gap, if there was nothing urgent in the Bill. They were happy to consult and assist by consulting their own senior counsel on how the rule could be incorporated into the Act. From a timing perspective, it was quite impossible now. The IRBA were ready to support Treasury on any alternative route to get the rule legislated as quickly as possible. They were unlikely to appeal the ruling because of cost, and taking it to the Constitutional Court would be time-consuming. They thought the best way to address the issue was to legislate the rule.

Mr Duncan Pieterse, Director: Economic Policy, NT, said that amendments to the Bill regarding the Land Bank amendment were being made to align the Land Bank Act with the Companies Act. The proposals were important because the bank had been in a state of technical default over the last two years, and it had been negotiating various liability solutions with its lenders. They had gone through four different liability solutions, none of which had been accepted or agreed upon between the lenders and the Land Bank. In the meantime, the bank had slowly consolidated its book and paid off its debt, but it had not been able to fulfil effectively its developmental mandate or its mandate in terms of the support that it gives to the agricultural sector. The amendment would allow the Department to close the liability solution and restore the Land Bank back to its previous role in terms of its support to the agricultural sector and its broader developmental mandate.

Discussion

Mr M Moletsane (EFF, Free State) asked whether all the military veterans were receiving pensions, especially those from Umkhoto We Sizwe, as promised by the government. He sought clarity on what the difference was between military pensions and special military pensions. Who were the people who qualified for special military pensions?

Mr W Aucamp (DA, Northern Cape) said there was a need to delve into the issue of the IRBA's auditing time limit being set aside by the courts. There was a proposal by COSATU that the term be limited to five years instead of ten, and he said it was important to get the input of various auditing professionals, as five years could be seen as a short term period. Auditors must also really understand the business model of their clients -- it was not only strictly a matter of auditing it. It was therefore important that changing the rule should not be rushed, and that inputs be gathered from the auditing profession as a whole so that the Committee did not burn its fingers with any legislation going forward. He reserved his rights to speak on the Land Bank and military pensions.

National Treasury's response

Adv Van Schoor said that the difference between the military and special military pensions was the different regulations which govern pension issues. She was not in a position to give an exposition of the different benefits under the three acts, but NT would compile a document explaining the benefits available and who qualified for them, and submit it to the Committee as soon as possible.

She said that if an amendment was proposed to the mandatory rotation rule, it would be a new one and Parliament, in terms of its procedures, would have to have public consultations on the amendment. The Treasury's preference would be if the Committee accepted that the National Treasury processed the amendment through a different Bill, but it did understand the urgency of getting it into law as soon as possible.

COSATU's response  

Mr Parks said there were challenges that the Department of Military Veterans had been trying to clean up, and there were huge problems with the payment of military pensions to Umkhonto We Sizwe veterans. He said that this was more a problem of administration, rather than the law.

COSATU welcomed Mr Aucamp’s call to have further special discussions on the mandatory auditing firm rotation rule, and there was an argument for the ten years period. For instance, the ten-year term was in line with the constitutional presidency and premiers' maximum term of rule. They would be happy with the ten years rule being reinstated, but their concern was that they had had a discussion in the 5th Parliament, when the FMA Bill was introduced in 2018. There had been amendments to the Auditing Profession Act, and National Treasury responded that they would come up with a bill after the 2019 elections. In 2020, a new Auditing Profession Bill came before Parliament, and there had been no provision for its mandatory rotation rule. Treasury had said they forgot to include it but would include it in a different bill. The discussion on the rule had been going on for five years. Their observation was that it seemed to take about five years for legislation to move from the Department to the point that it gets passed or shut down. It was concerning they had a significant court ruling last week, and the response was not to fix it now but to come back in a year. He said that the experience of how legislation was handled did not give one a lot of confidence in that regard.

He said the amendment was not a complex provision, and there was a small window of opportunity to include the amendment. He asked National Treasury to consider lifting the now repealed mandatory firm rotation rule by including it in the Bill, but if not, they should give a firm commitment that they would start drafting the Bill now so that when the 7th Parliament was sworn in next year, the Bill could be immediately tabled before Parliament.

It was a progressive bill which COSATU thought would make a significant difference in cleaning up the state society. Part of the reason that the country was grey-listed by the international community was because South Africa was very good at talking, but lacking in action. If the Bill was not admitted now, it would be a missed opportunity if the rule was not included. However, National Treasury could actually begin working on it so that by April next year, the Bill would already have been approved and would be ready for tabling.

Further discussion

From a timeframe perspective, the Chairperson asked what it would take for National Treasury to put together all the necessary documentation and ensure that the dossier came before Parliament as soon as possible. The timeframe issue being raised was quite important.

National Treasury's responses

Adv Van Schoor said Treasury estimated that once the NCOP proposed the Bill, it would have to get permission and then it would have to have public hearings on the proposed amendment. Once the NCOP adopted it, it would be referred to the National Assembly, and then the Standing Committee on Finance would also have to have public hearings. It was likely that the Bill would be passed by Parliament only around October, given that it was going on recess quite soon and it still had to be assented to by the President. Given the urgency of the amendment, particularly the one concerning the Land Bank, they requested that the mandatory firm rotation rule not be included now.

She said that there were alternative ways of bringing the amendment, not through an entirely new process, that would allow it to be brought sooner than tabling a bill after the 2024 elections, but that was something that they needed to explore and give a response to the Committee in the next week or so to explain whether that route was a feasible alternative.

The Acting Chairperson said that what COSATU was placing before the Committee made it very important for all the matters to be prioritised, and on the side of Parliament, they would obviously try everything that they could to expedite this matter, because it was related to service delivery and other issues.

He appreciated the response by the National Treasury, and hoped that the exercise was not one in futility. COSATU represented the public, and the issues raised by them resonated with the people on the ground. He wanted the issues raised to be taken into account when the Committee considered the interventions proposed in the Bill.

He thanked COSATU for always keeping their eye on the ball.

Adoption of Minutes

Minutes of 18 April

Ms D Mahlangu (ANC, Mpumalanga) proposed the adoption of the minutes. Mr Aucamp seconded the motion.

The Chairperson declared the minutes adopted

Minutes of 2 May

Ms M Mamaregane (ANC, Mpumalanga) proposed the adoption of the minutes. Mr S du Toit (FF+, North West) seconded the motion.

The minutes were adopted.

Minutes of 16 May

Ms Mahlangu proposed the adoption of the minutes. Mr Aucamp seconded the motion.

The minutes were adopted.

Minutes of 30 May

Ms Mamaregane proposed the adoption of the minutes. Mr Aucamp seconded the motion.

The minutes were adopted.

The meeting was adjourned.