Financial Services Ombud Schemes Bill: deliberation and voting

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Finance Standing Committee

24 October 2004
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Meeting report

FINANCE PORTFOLIO COMMITTEE


25 October 2004
FINANCIAL SERVICES OMBUD SCHEMES BILL: DELIBERATION AND VOTING

Chairperson: Dr R Davies (ANC)

Relevant Documents

Financial Services Ombuds Scheme Bill [B20-2004]
National Treasury / FSB Proposed Amendments to Financial Services Ombud Schemes Bill
Proposed amended clause 11
Proposed amended clause 13
Proposed amended clause 19
Proposed amendments to clause 11(3), 11(3)(a), 11(3)(b), 11(3)(c) and 16(2)

SUMMARY
The Committee continued its deliberations on the Financial Services Ombud Schemes (FSOS) Bill. The Members highlighted the issue of payment for audits. The original proposal had been for any audit to be at the cost of the Council and it was suggested that if a scheme was guilty of wrongdoing, there should be some cost recovery. There was considerable debate about the requirement for consumers to be educated. It was agreed that this had to be part of a co-operative agreement and there was debate about who would lead this co-operation. An amendment was agreed, limiting the jurisdiction of the statutory ombud. Clarity was also obtained on the role of the FSOS ombud in respect of SROs and consensus was reached with the JSE. The Bill was adopted by the Committee, as amended and noting the opposition of the DA.

MINUTES

Financial Services Ombud Schemes Bill
Mr J Dixon (Chief Director: Financial Policy: National Treasury); Mr B Furstenburg (Deputy Director: Financial Services: National Treasury); Ms Ferreira (National Treasury); Mr Battista (National Treasury); Mr G Anderson (FSB: Deputy Executive Officer); Mr L Wessels (FSB: Legal Department); Mr Phiyega (FSB); Ms E van Vuuren (JSE: Legal Counsel); Mr N Stander (Bond Exchange); and a delegation from the State Law Advisors Office, attended the meeting.

Clause 11: Application for recognition by a scheme
Sub-clause 11(3)This had been amended by the addition of (3)(a) and (b).

Mr Dixon said that, on the issue of the recognition of dispute resolution schemes, it seemed that there was nothing in the legislation per se reflecting conflict with the SSB. The Treasury and FSB recommended schemes be recognised in terms of FSOS and recognised the concerns raised by SROs of the additional administration thus incurred. There were two options: the original model envisages where the SRO submitted directly to the FSOS Council and the registrar; and a model in which the SRO submitted only to the registrar who would then confirm compliance. The benefits of the latter were lower costs and the registrar's ability to adjust the rules to meet minimum standards. The Committee had expressed a clear preference for the second option. Treasury and the FSB had proposed an amendment to Clause 11. The registrar would confirm with the Council that the dispute resolution rules of the SROs met the qualifications and the SROs would be excluded from the payment of the applicable fees. He felt that this amendment would address the concerns about duplication and precedence. The Treasury was strongly opposed to the proposal to totally exclude SROs from the Act. FSOS set a statutory minimum dispute resolution threshold, thus ensuring more equitable rulings and greater consumer protection. SROs in particular should be subject to an additional layer of performance checks. Standards required that SROs should submit their rules to the registrar for approval. It was very important to have a set of minimum standards by which to check compliance. The requirement that SROs be recognised by the Council was of benefit to the registrar, the financial sector as a whole and ultimately to the consumer.

Ms van Vuuren said that the proposal was moving towards the second option. There was now an obligation on the registrar to facilitate but she was uncertain of the extent of the facilitation. Was the amendment intended to lessen the regulatory powers of the SSB? It still did not remove the registrar's discretion. She did not agree that there was no discrepancy. In addition, Clause 10(1)(i) allowed for additional requirements and it was not certain what these would be. FSOS was focused entirely on the consumer, and SSB on industry, so there was divergence. She asked for clarity on the ongoing monitoring of compliance and whether the registrar or the Council would do this. A further discrepancy occurred in respect of whose procedures would take precedence - FSOS or the SSB. In respect of timing, it would be preferable to have the Council up and running within six months so that applications could be approved. The SSB powers were much stronger on reporting requirements, particularly if the board of the scheme was involved. She asked for clarity on the way in which the JSE ombud and statutory ombud would fit together as both were statutorily determined. She said that as "scheme" was defined, statutory schemes would have to comply unless this was amended to exclude them. If they were not excluded the budget would have to be revised.

Ms Hogan suggested that, in the interests of time, the JSE discuss these issues with the FSB and revert back to the Committee.

The Chairperson flagged the issue but noted that he had said that just dropping sub-clause (a) did not appear to be the way out.

Ms R Taljaard (DA) said that two very important questions were raised. The first was the conflict between two statutory ombuds. In pursuit of parity, too much parity may have been achieved and the conflict would cause immense legal uncertainty for the JSE. It placed an inordinate burden on the registrar of the FSB to adjudicate between two statutory ombuds. The second question was sub-clause (b). She asked whether there were specific aspects of Clause 10 that the JSE was alarmed about.

Mr Dixon said that the proposal did not produce a clash between two statutory ombuds. Clause 13 clarified jurisdictions and made it clear that FSOS had no jurisdiction over recognised schemes.

The Chairperson said that the issue had been flagged and noted that the existing numbers would move up.

Ms Hogan referred to the LOA submission on Clause 11(5) and asked for comment.

Mr Anderson said it appeared that the LOA had raised a concern about ongoing monitoring and this had been discussed the previous Friday. An independent body would oversee the voluntary scheme and he gathered the Committee would want more clarity on the role of the body and its monitoring. The issue was flagged.

Ms Taljaard pointed out that the flagging of Clause 10(1)(i) was also important in terms of the LOA submission on Clause 11(4) and that issue would also have to be flagged. The Chairperson noted this.

Clause 12: Suspension, reinstatement or withdrawal of recognition
Sub-clause 12(1)
This was amended by the excision of "a". This was agreed to.

Clause 13: Jurisdiction
Mr Dixon suggested that it might be necessary to flag sub-clause (1)(b) for SROs. Sub-clause (1)(c) clarified the point that the FSOS ombud was there to fill the gaps. The amendments to sub-clause 13(2)(a) gave greater clarity, and the LOA proposals in terms of Clause 13(2)(b) had been adopted after discussions with the Committee.

The Chairperson noted that jurisdiction had been demarcated.

Mr Anderson said that a revised sub-clause (3) had been substituted for (3)(a) and (4)(b).

The Chairperson flagged sub-clause (1)(b) in respect of the point regarding SROs.

Ms Taljaard asked for clarification on whether the statutory ombud under the SSB was reflected in sub-clause (1)(b). Its initial recognition was under the SSB, so this would need work and she asked how it would be resolved. She asked whether the wording in sub-clause (1)(c) would be sufficiently tight. She suggested that the wording in sub-clause (3) needed reworking.

Mr Anderson replied that the JSE scheme would not be a statutory ombud. The JSE was required to set up a dispute resolution mechanism, not a statutory ombud. In line with consistency, he believed that the rules that the JSE and other SROs were required to bring to the table in terms of the SSB, to avoid duplication of regulation, would enable the FSB to facilitate recognition. Although Clause 13(1)(b) had been flagged, he did not believe there was any problem with it.

The Chairperson suggested asking the State Law Advisor, as he could not see that the proviso was a problem.

Ms Taljaard said there was a different perspective between the JSE and the FSB. The JSE saw its body as a statutory ombud and she agreed with the JSE. She believed that it would be seen as a statutory ombud and asked for legal advice.

Mr Anderson took the point and the Chairperson flagged Clauses 13(1)(b) and 13(3).

Mr Anderson said that the demarcation argument had been raised and that Treasury and the FSB had both rejected the argument that would enable the voluntary ombud schemes to encroach on the Pension Funds Adjudicator or FAIS ombud's jurisdiction, or establish a parallel jurisdiction. Mr Wessels had circulated a detailed response.

Ms Taljaard reiterated her concern at the extension of the jurisdiction of the FAIS ombud in Clause 14, as this was material to Clause 13(2).

Clause 14: Authority of statutory ombud to entertain certain complaints
Sub-clause 14(1)
This had been amended to add that it was subject to section 19, and that the ombud may deal with complaints on the basis set out in subsections (3) and (4).

Ms Taljaard said she felt constrained to return to the conceptual debate as this was reopened by the clauses. She appealed to the FSB to reply to the issue of increased scope in general. She felt it would be preferable to amend the FAIS Act.

Mr Anderson replied that, in earlier discussions, the FSB had looked at the most expedient and best way to create an ombud to catch the complaints falling between the gaps. As the FSB was in the process of finalising the office for the FAIS ombud, it was proposed that the FAIS ombud wear two hats. The FSOS Act did not extend the jurisdiction of the FAIS ombud and that remained as contemplated in the FAIS Act. Because the FAIS ombud office had infrastructure and staff, it had been deemed advisable to propose that the FSOS ombud be housed in this infrastructure. It was important to realise that the ombud would assume the role of the statutory ombud where required. This would result in great costs savings. In his opinion, if the FAIS ombud was to wear the two hats, it would only increase the burden on that office by five per cent.

Mr Wessels said that, in reading Clause 14 it was necessary to refer to Clauses 13 and 19. It was correct that the statutory ombud envisaged in Clause 14 was only there to deal with complaints that were falling through the cracks. On the question of constitutionality or of amending the FAIS Act, he gave the example of a water court judge who was also a judge in terms of the High Court Act. An easier solution to extend the jurisdiction of the FAIS ombud would be change the Regulations under the FAIS Act.

The Chairperson he was happy with the principle but felt that thought should be given to the possibility that the workload could be substantial.

Ms Taljaard said that, from what she understood Mr Wessels to say, for the scheme to work, the Minister of Finance might be required to provide new regulations under the FAIS Act and this was a departure from normal procedure. She asked the State Law Advisors whether it was constitutional to give the Minister power to regulate under two statutes. She also asked whether the current wording in Clause 19 was constitutional.

Sub-clause 14(2)
Ms Hogan said that the JSE submission said that, if a financial institution had no ombud, it would fall under the statutory ombud. She asked whether Clause 14(2) entitled a client to refer to the statutory ombud if provision was made only for arbitration.

Mr Wessels said that if provision was made only for arbitration, the scheme would not pass the requirements for recognition.

Ms Hogan asked if this meant that the event would not arise. Mr Wessels said that this was so, if the complainant was a client as defined.

Ms Hogan asked who would constitute the client base of the JSE. Mr Wessels replied that this would be the client base of the JSE members.

Mr Dixon said that the clients would be individual investors. Arbitration had been excluded as a route for individuals because it was an expensive option. It was allowed for members, for example brokers.

Mr Wessels pointed out that a client could be more than a natural person, but there must be a client: broker relationship. In the derivative markets, for example, there was not a true client: broker relationship.

Ms van Vuuren said that a client was an investor. It could be an individual, but it also made brokers clients of the JSE. The JSE had commercial relationships, all of which referred matters to arbitration. These were not investor issues.

Mr Anderson agreed and proposed that those matters be allowed to continue under arbitration.

Ms Taljaard said that the Committee did not want to interfere in contractual relationships and asked if this would necessitate an amendment to the SSB Bill.

Mr Anderson replied that this applied only through FSOS and that there was no intention of interference.

Ms Hogan asked whether part of the problem was not that dispute resolution procedures referred not only to consumer complaints. Confusion now arose where matters of dispute on the Stock Exchange were now subject to consumer dispute resolution. She asked the team to look at these issues for better resolution.

Mr Dixon confirmed that the Treasury and FSB were in discussions with the JSE to cover these concerns. There was no intention to interfere and the Bill dealt only with client complaints.

Ms Taljaard suggested that this was an artificial distinction.

The Chairperson said the intention was that where a contract was entered into and not delivered on, the client could complain to the ombud. He suggested the FSB go back as this was not a contract between brokers but between a client and a broker. The issue was flagged.

Sub-clause 14(2)(b)
"Has been" was replaced by "is".

Sub-clause 14(2)(c)
Ms Taljaard expressed her concern at the wording and asked who would decide that the ombud lacked jurisdiction.

Mr Dixon replied that this was clarified by the addition of Clause 13(1).

Mr Wessels said that it was usually the voluntary ombud who would inform the client that he did not have jurisdiction and the client would then move on to the next ombud.

Sub-clause 14(3)
Ms Taljaard said that this was the practical implementation of the two hats of FAIS. She was concerned that procedures might not be applicable when FAIS acted in its second hat. The wording "apply with the necessary changes" was problematic.

Mr Dixon said that the term had been checked with the State Law Advisor.

Ms Taljaard said that provisions affecting the promotion of administrative justice required clarity and suggested that wording of this nature would not comply.

Mr Wessels replied that all parts of the FAIS Act could have been written in, but had been referenced to avoid duplication. Clause 14 was prefaced by reference to Clause 19 making provision for regulation. The FAIS ombud was thus not absolutely tied down to the FAIS regulations when operating as the FSOS ombud.

Ms Taljaard suggested that this needed as much clarity as possible. She felt it would be unconstitutional and believed that key aspects of this legislation were unconstitutional. She felt that simply creating administrative procedures in legislation did not qualify as legal clarity. Clause 19 was too broad in its scope.

Ms Hogan asked whether the question was that the FAIS ombud and statutory ombuds existed, and the FAIS ombud was to pick up whatever fell between the cracks. She asked whether Ms Taljaard was looking for the steps the ombud was obliged to follow when assuming the hat of the FSOS ombud. She asked what the basic rules would be.

The Chairperson replied that FAIS as FAIS dealt with advice matters. It would follow those procedures, but the necessary changes would have to be made so that those were not limited to FAIS schemes.

Mr Dixon agreed and said that FAIS in its other hat would follow the procedures in Chapter 6, Part 1 of the FAIS Act. There might be cases where those were not completely appropriate here, hence "applied with the necessary changes" to allow for adjustment.

Ms Hogan said that the statutory ombud then dealt with all cases. Would it not be possible to amend the Bill to clarify the exact responsibilities of the ombud?

Mr Dixon replied that Clause 14(3) dealt only with the steps followed, not the jurisdiction.

Mr B Mnguni (ANC) suggested that it was not necessary to put all the administrative procedures in the Bill.

The Chairperson said that some things had to be specific to advice related complaints and others to general, hence the necessary changes had to be made.

Ms Taljaard said that she had had no intention of replicating administrative procedures. The problem would remain whether the changes were in the regulations of in delegated legislation as there was no safeguard. This reintroduced the debate on the overall reach of the FAIS ombud. The broader discussion was the constitutional and administrative justice issue.

Mr Wessels pointed out that there was no reference to subordinate legislation in Clause 14(3).

Ms Taljaard said that Clause 14(1) read "subject to sections 13 and 19 …" and therefore brought Clause 19 into play.

Ms Hogan said that the FAIS Act seemed to spell out the procedures in fair detail and they did not seem to be advice specific. She suggested omitting "with the necessary changes".

Mr Anderson said that the FAIS Act set out the procedures in detail and they referred to the FAIS office. This might necessitate changes. The Chairperson flagged the issue.

Sub-clause 14(4)
Some amendments had been proposed.

Ms Taljaard asked what board was referred to. The Chairperson replied that "board" was defined as the FSB.

Clause 15: Prescription and saving of rights
Sub-clause 15(1)
An amendment had been proposed and addressed the issues of suspension of contractual time.

Ms Hogan asked whether that reached the concern of Vorster and Pereira. Mr Wessels replied in the affirmative and said it would meet Mr Mason-Jones's proposal, and excluded common law.

Ms Taljaard said that she did not recall the exact detail, but asked whether the lack of inclusion of common law was on of his points. Mr Wessels replied that he had been referring to the Usury Act. The voluntary ombud schemes all had similar provisions in their rules.

Clause 16: Report of ombud
Sub-clause 16(1)(a) and (b)
Ms Hogan said that this clause related to the report of an ombud and asked what about the board of directors of a scheme?

Mr Anderson said that the FSB was proposing an amendment to Clause 10 to deal with this. The problem was dealt with where the FSOS Act gave the independent body authority to monitor.

Ms Hogan asked whether the JSE had to report to FSOS.

Mr Anderson replied that the FSB were still consulting with the JSE and would revert. The Chairperson flagged the issue.

Ms Taljaard said she assumed that the provisions of the Act were still flagged.

The Chairperson replied in the affirmative, but said that the Committee was moving to remove them.

Ms Taljaard said that Clause 16(2) would be a corollary consequence of having to ensure clarity on which board was intended.

Mr Anderson replied that the words "independent body" were used in Clause 10.

The Chairperson said that "board" referred only to the FSB.

Clause 17: Declaration as financial institution
Sub-clause 17(1)
The suggested amendment added "and the Council". This was agreed.

Sub-clause 17(2)(c)
The proposed amendment was read.

Ms Hogan asked whether the board would have the ability to present a different report.

The Chairperson said that this was the case and the Minister would then decide between the two.

Mr Dixon remarked that this went in line with the independence of the Council.

Clause 18: Prohibition and exemptions
Sub-clauses (1), (2) and (3)
No amendments were proposed.

Ms Taljaard said that she could not recall a discussion on the rationale for the Minister to have exempting powers.

Mr Dixon replied that these had been included for flexibility and unforeseen circumstances.

Ms Taljaard asked whether banks and dedicated banks were intended.

Mr Dixon replied in the negative. The customers of dedicated or customary banks were not excluded from the FSOS Bill.

Sub-clause 4(a)
The amendment was similar to previous amendments.

Ms Taljaard referred to Clause 18(2) and asked if consumer protection was the point of the legislation, how was the consumer to have awareness of substantive compliance. She wondered whether other publication provisions were sufficiently broad as consumer rights were affected.

Mr Anderson replied that he believed that consumers could be made aware through consumer awareness campaigns and press releases, as there would be changes from time to time.

Ms Taljaard asked whether the "and" in Clause 18(4)(a)(ii) placed too high a threshold and suggested it be changed to "or". Mr Dixon concurred.

Ms Hogan said that all exemption clauses had been referred to in an extensive submission from the JSE and asked if those issues could be referred to the bilateral and flagged.

Sub-clause 18(4)(c)
Ms Taljaard said that a conditional exemption had not been mentioned previously and that the notion of conditional created a legal uncertainty.

The Chairperson said that the exemption referred to in Clause 18(4)(b)(i) was the conditional exemption.

Sub-clause 18(4)(d)
Ms Taljaard said that, while this clause might want to introduce flexibility, surely the condonation was of concern.

Mr Anderson requested that this be flagged.

Sub-clause 5(1) and (b)
A new sub-clause had been proposed.

The Chairperson said that this answered his question on the consequences of non-registration.

Ms Taljaard asked whether the FSB had an idea of the impact in terms of how many schemes existed. She wondered what transition mechanism would be allowed and whether it would allow for a smooth transition process.

Mr Wessels replied that this sub-clause had been inserted at the request of one of the existing ombuds. The term "ombud" was well known as an independent person. The wording required clarification.

The Chairperson suggested that this would have to be phased in after the Council had been established and had had time to receive applications.

Mr Wessels noted that it was directed at internal complaints resolution offices.

The Chairperson said that, as it currently stood, the term "ombud" could not be used.

Ms Taljaard felt it was not necessarily sound to create a criminal offence for the use of "ombud", although she agreed with the intention.

The Chairperson replied that it was a form of fraud for the ombud not to comply with the requirements.

Mr Dixon agreed and said that one of the objectives of the Bill was to achieve consistency and minimum standards.

Ms Taljaard said that she wanted to avoid creating the impression that simply using the word created an offence.

Ms Hogan felt that it was clear and that there should be penalties.

The Chairperson said that the priority was clarity and protection for the consumer.

Ms Taljaard felt that the definition of schemes was not sufficiently tightly drawn, and that this had been flagged.

Clause 19: Regulations
The proposed amendments were read.

Ms Taljaard asked whether Parliament was not delegating too much authority and questioned the constitutionality of the clause. She understood that the Committee had to content with the precedent of the SSB Bill and expressed concern at the use of "expedient".

The Chairperson replied that, in terms of delegated legislation, the board might make rules under the FAIS Act.

Mr Dixon said that the State Law Advisor had been consulted on these issues.

Mr Wessels said that, unless there was a limitation through the regulations, the statutory ombud might have far too wide a jurisdiction. The intention was to clip the wings of the statutory ombud.

Ms Taljaard argued that this ran both ways.

Mr Dixon replied that the intention was to limit the justiciable amounts.

Ms Taljaard said that this allowed further power for the Minister to potentially resolve the matter by default and create further arenas for the statutory ombud. Delegated legislation had the same standing as enacted legislation. A legal possibility was created regardless of the intention.

Mr Dixon suggested rewording and inserting "and limitations on the jurisdiction of the statutory ombud", and deleting "or expedient".

Ms Taljaard said that she still had concerns but would accept the change if she was in the minority.

Ms Hogan said that a precedent had been set and it had been a judgement by the Constitutional Court that created difficulties in looking at what powers might be prescribed by the Minister. She suggested the FSB look at the Constitutional Court judgement and bring a considered opinion to get a more consistent approach in future.

The Chairperson flagged the issue and suggested looking again at Chapter 26 of the FAIS Act to check on a possible overlap.

Ms Taljaard said that Clause 19(b) was quite broad and asked to what "permitted" referred. She would welcome a cool headed debate and informed legal opinion as "expedient" was a highly problematic word.

Mr Dixon said that the lawyers had been asked to look at it again and had received assurance.

The Chairperson agreed to flag it and asked the FSB to tell the Committee what was to be added by keeping it in.

Clause 20: Short title and commencement
Ms Taljaard said that there were no transitional provisions in the Bill and asked whether there were areas requiring some degree of transition.

The Chairperson agreed with particular reference to when the term "ombud" could no longer be used. Different parts would be put into effect at different times.

Mr Dixon referred to Clause 18(3) and said that existing schemes would continue for eighteen months. That clause dealt with transitional issues.

Ms Taljaard said that the Committee was not in charge of the time window and queried whether eighteen months was adequate.

Mr Dixon said that the industry had been consulted and were comfortable with the provision.

The Chairperson said that the Committee would now return to the flagged items.

Long title
The Chairperson said that this amendment had been agreed.

Ms Taljaard differed and said that she had not agreed. She accepted the issues had been flagged and discussed but she had not agreed based on the conceptual discussion.

The Chairperson said that the agreement had not been unanimous but that the majority had agreed. He noted that "agreed" would refer to a majority decision for the rest of deliberations on the Bill.

Definitions
The definition of "person" was altered to delete "any partnership or".

"Scheme" was flagged. Mr Anderson said that this would be addressed in discussions with the JSE.

Ms Taljaard noted that the definition of the statutory ombud had raised problems in Clause 14 and had therefore been flagged. The Chairperson said there had been majority agreement and removed the flag, noting disagreement from Ms Taljaard.

"This Act" was altered by the deletion of "the Council or the board, under this Act". This was agreed.

Ms Taljaard questioned whether there were any consequences to this deletion.

Mr Anderson said that it could be deleted without impeding on the Act or on (b) itself.

Clause 2: Establishment of Financial Services Ombud Schemes Council
Sub-clause 2(2)
This sub-clause was a proposed insertion.

Mr Anderson proposed increased clarity on the point that the Council was directly accountable to the Minister.

Mr Y Bhamjee (ANC) asked whether it could include a reference to relative autonomy.

Mr L Gabela (ANC) expressed concern that the proposals had no different effect to what was already covered and he asked whether it was really necessary to clarify this.

The Chairperson re-flagged the issue pending a re-formulation. The first clause stood, the second was flagged.

Clause 3: Composition of Council
Sub-clause 3(1) was agreed. Sub-clause 3(2)(a) and (b) were flagged. Sub-clause 3(3) was agreed with the proposed deletion.

Clause 4: Term of office of members of Council
The amendments were agreed.

Clause 5: Vacating of office by members of Council
Sub-clause 5(1)(b) was flagged. Sub-clauses 5(1)(c), (d), (e) and (f) were agreed.

Sub-clause 5(2) was deleted. Sub-clause 5(3) became 5(2) and was agreed.

Ms Taljaard requested to keep the option open to revisit the wording.

Clause 6: Meetings and decisions of Council
The Chairperson suggested that Clause 6(1) remain flagged, as there was still no formulation. There was some imperative on the Council to meet at least twice a year or as business commanded.

Sub-clause 6(2)(a) was agreed.

Ms Hogan referred to Clause 6(2)(b) and said that the requirement of five members to form a quorum was still if there were only seven members.

Mr Anderson said that the Council would have nine members: a chairperson, deputy chairperson and five others. There was a minimum of five and a maximum of nine other members.

The Chairperson flagged it and suggested the quorum should be 50%.

Mr Gabela suggested reducing the number of members of the Council, making it between three and five additional members.

Ms Taljaard said that, given the importance of the role of the Council, it would be a problem to have only three members, especially if they held opposing views. She requested that the wording be flagged.

Mr Gabela pointed out that this would be a Council of specialists and a cumbersome Council was not desirable. A small committed team would be better.

The Chairperson said that at present there would be a chairperson and deputy and a minimum of three and maximum of seven other members. Mr Gabela was proposing between three and five. The quorum in each case should be a percentage, or at least half the members. He supported changing the number of additional members to between three and five. Sub-clause 6(2)(b) would then become "at least half of the members form a quorum".

Mr Dixon suggested this should be clarified to "at least half the appointed members". This was agreed.

Clause 7: Remuneration of members of Council
This was agreed.

Ms Hogan said that she had suggested that the Minister should approve rather than determine the remuneration.

Mr Gabela suggested that it be consistent with the clauses dealing with budgetary consequences.

The Chairperson said that the Minister made decisions under the Act, whether or not they were on advice.

Mr Wessels said that the intention of the wording was that the Minister would not be involved in expenses but in setting remuneration. Expenditure was the domain of the board.

Ms Taljaard suggested that the wording did not tally with what was intended and the distinction was not made.

Mr K Durr (ACDP) asked whether that was not the budget of the Council as approved by the Minister. It was not expenditure but what was going to be spent. There had to be consistency in remuneration.

The Chairperson said it was not the budget but the remuneration of individual members. It would follow the same pattern as similar institutions.

Ms Hogan said her concern was that the Minister was tied down to determine Council remuneration.

The Chairperson said a norm was required and that the Minister was the only person who could regulate.

Ms R Joemat (ANC) expressed agreement with "approves", as the Minister would then see if it was outside the norm.

Mr Dixon pointed out that a comma had been inserted to separate expenditure from remuneration.

Ms Taljaard said that the wording was insufficient and that the comma did not capture the distinction.

Mr Gabela asked if it was necessary to have the words "after consultation" and "expenditure". He asked whether this was not covered elsewhere and moved to omit it.

The Chairperson agreed to flag it but suggested that the wording be amended to "approved by the Minister".

Ms Taljaard asked about the independence of the Council in the arena of the budget and asked what the advice of the State Law Advisor had been.

The Chairperson referred to the FSB and JSE bilateral on the issue of dispute mechanisms and the question of the Minister's powers under Clause 19 and the constitutional question. He asked for a general explanation of the decisions reached.

Mr Anderson said that there had been consensus agreement on the accommodation of SROs. A new sub-clause 11(1)(ii) had been proposed, with a slight amendment to Clause 16 and a minor amendment to the definition of "scheme".

Mr G Hoon (State Law Advisor) said that the new sub-clause 19(a) empowered the Minister and that guidelines had been drafted in.

Clause 8: Functions of Council and registrar
Ms Hogan said that, in terms of sub-clause 8(1)(b), the agreement had been that monitoring provisions would remain if the independent body was properly spelled out in terms of corporate governance procedures. She asked to see the amended clauses around the issue.

The amendment to sub-clause 8(2)(b) was agreed. Sub-clause 8(2)(c) was flagged.

Ms Hogan had believed it would be at the cost of the Council.

Mr Wessels said that it had been changed to make it clear that it would be at the cost of the scheme. The issue was re-flagged.

Sub-clause 8(3) was agreed as amended.

Ms Hogan referred to Clause 8(4) and said it needed to be very clear that the Council was accountable to the Minister although there was a dual reporting requirement.

Mr Anderson said that it was proposed to insert this under Clause 2. The issue was flagged.

Ms Taljaard asked whether the FSB had obtained legal advice on the direct accountability of the Council to the Minister.

Mr Wessels said that there was double reporting, but the amendment to Clause 2 would add that the Council was directly accountable to the Minister. The Chairperson reiterated that the issue had been flagged.

Clause 10: Requirements for recognition of a scheme
A suggestion was made to add "and submit to the Council a report on these matters", in Clause 10(1)(b)(ii).

Mr Wessels suggested the wording "and report any non-compliance to the Council". The independent body would monitor and report non-compliance.

Ms Hogan said that this related to the full range of issues and suggested holding the discussion until the full range was agreed. The issue was flagged.

The majority agreed to sub-clause 10(h).

Ms Hogan said that she had had some idea that the ombuds would jointly advertise and cut across all ombuds so that all information was located in one place. The requirement in sub-clause (h) referred to voluntary schemes, but under Clause 8(2)(b) it held that the Council must, if necessary, co-ordinate activities. This seemed confusing.

Mr Wessels said that the Council would co-ordinate as one of its primary functions. The guidelines would include directions for complaints. There was also a provision for this in the FAIS Act. The idea of a call centre was a good one.

Ms Hogan said she believed that everyone agreed on the need for a call centre, but it was unclear who would be responsible for co-ordination.

The Chairperson suggested, "the scheme must provide for its involvement in public awareness programmes".

Ms Hogan pointed out that no provision had been made for a call centre in the budget.

Mr Wessels said that this was a sensitive issue. It had originally been provided for, but there had been concerns about its impact on the independence of the voluntary ombuds.

Mr Gabela felt that the issue was a matter of principle. The Council had to play a role in the process of educating consumers. The Chairperson's suggestion covered the concerns.

Mr Anderson said that this also arose in Clause 8(1)(c). The intention had always been that the extensive education initiative of the FSB should include all ombud schemes and the Council would work under this. The FSB would execute the instructions of the Council.

Mr Dixon said that Clause 8 as it stood did not dictate the way in which the scheme was required to make the public aware. He said that there was no budgetary provision for this as it would fall within the large budget allocation of the FSB's own budget.

The Chairperson said it seemed to point to a scheme-by-scheme initiative, not a co-operative and co-ordinating approach. Should the issue be flagged?

Ms Hogan said that there had to be a co-operative element. The Council had to be responsible for promoting education and facilitating co-ordination.

Mr S Asiya (ANC) agreed with the Chairperson's suggestion and Mr Gabela and said that someone had to be held accountable. The office of the ombud had to be held accountable.

The Chairperson flagged the issue and noted some support for the rewording as "the scheme must provide for its involvement in appropriate public awareness programmes".

Clause 11: Application for recognition by scheme
New amendments had been proposed and were circulated and read.

The Chairperson suggested that Clause 11(3)(a) be rephrased and this was accepted.

Ms Taljaard said that Clause 11(3)(c) appeared to be an improvement and asked how it was envisaged that the programme would run under the SSB.

Mr Stander said that this was also covered in the amendment to Clause 16(2).

Mr Anderson said that the amendments were all aimed at eliminating regulatory duplication.

Mr Dixon said that this was in line with the principle where the regulator was seen as the contact person and FSOS provided a reference point. If a company had a query, it would contact the registrar as a contact point.

Ms Taljaard asked the State Law Advisor about the legal situation of referring to an Act that had not yet been promulgated, with reference to the SSB.

Mr Hoon said that it needed to be passed by both Houses, and then could be referred to in the Act.

The Chairperson said the clause had the requisite agreement.

Ms Hogan suggested that Clause 11(6) would fall away if the independent body's role was enhanced.

Ms Taljaard said that that was one of the concerns in respect of regulatory powers. Clause 11(6) as it stood did not contain that aspect.

Ms Hogan said she would imagine that the sub-clause should be there and motivated for its retention. The issue was flagged.

Clause 13: Jurisdiction
The first part of Clause 13 would fall away.

The Chairperson asked if the colon used in sub-clause (3) was a drafting problem.

Mr Hoon said that it was not a drafting problem, and qualified the first part of the sub-clause.

Mr Dixon said that the wording had been changed, and the sub-clause had now been split into (3)(a) and (b). This was agreed to.

Clause 14: Authority of statutory ombud to entertain certain complaints
Sub-clause 14(3)
Mr Anderson said that the issue of "the necessary changes" had been discussed and if Sections 20 - 28 of the FAIS Act were read, there were certain places that provided that the "Board may …". The FSOS Act changed that where it brought the Council into the picture and that was what was meant by the changes.

Ms Taljaard questioned the interpretation and said her concern was that there might be areas of potential clashes. She asked whether the wording catered adequately for the problem.

The Chairperson said he did not see such problems, except for some possible minor problems.

Ms Taljaard agreed and asked whether the wording should be strengthened. Mr Anderson replied that he believed the wording was sufficient.

The Chairperson reflagged the issue and suggested that there be a proviso that where the Advisory Committee was meant in the FAIS Act, the Council would play that role.

Ms Hogan suggested it be circumscribed to read "consequential changes". The issue was flagged.

Clause 16
Sub-clause 16(2)
It was proposed to insert a new Clause 16(2).

Ms Hogan asked whether the Council's activities would fall under the authority of the Public Finance Management Act.

Mr Dixon replied that the Council would fall under the PFMA in terms of its being a subsidiary body or Council of the FSB. The accounting authority would be the board of the FSB.

Ms Hogan said she had thought the independent body and not the ombud would have the monitoring role. She asked what amendments would deal with the full corporate governance of this body.

The Chairperson suggested saying the ombud and the controlling body of the ombud.

Mr Anderson said that an attempt had been made to accommodate this in Clause 10(1)(b) but he would be happy to accept the Chairperson's suggestion.

Ms Taljaard said that, although she could see the potential desirability of this, an overview was needed of how all the corporate governance structures would interact.

Ms Hogan felt that the amendment proposed by the Chairperson created enormous difficulties.

The Chairperson said that a report would be submitted by the executive authority and the body concerned. The role of the controlling body should be given some substance.

Mr Wessels said that current practice was that the independent body would stay in place and participate in the report back. The amendment was correct.

Ms Hogan said that it raised questions about lines of accountability if two people were reporting. She asked what body was required to report.

Mr Dixon said that he took the point that the body needed to take accountability for the report. The basic content should be obtained from the ombud. He would support that the ombud should compile the basis of the report and that this be accompanied by the analysis and opinion of the body.

Ms Hogan said that if people felt it would not create conflict, she would accept it. The amendment was agreed.

Clause 18: Prohibition and exemptions
The amendments to Clauses 18(4)(a) and (d) and 18(5)(a) were agreed by majority decision.

The proposed new Clause 18(5)(c) was an attempt to address one of the points raised.

Ms Taljaard asked about a scheme that qualified for exemption, was exempted and then failed to comply. Was the Bill not creating problems in not staggering an implementation date for exemptions as well?

Mr Dixon said that no exemptions were envisaged up front. The Chairperson referred to the addition of sub-clause 18(5)(c) and pointed out that schemes had eighteen months.

Clause 19: Regulations
Mr Wessels said that what might be regulated had been broken up. The new Clause 19(b) sought to make it clear that the regulations with reference to the statutory ombud would be a type of limitation and not an extension. Guidelines were needed on how the Minister would be restricting this jurisdiction. The purpose was to make it clear that the statutory ombud exercised jurisdiction in respect of consumer complaints with capped jurisdiction.

The Chairperson pointed out that "expedient" had been deleted from Clause 19(c).

Ms Taljaard felt this was a great improvement and asked the reasons for selecting the specific items in (b).

Mr Wessels said that the FSB had tried to frame some guidelines. The legal relationship was related to the type of contract. This type of restriction was also in the FAIS ombud rules and the long-term ombud.

Mr Gabela pointed out that the numbering needed to be corrected.

The Committee returned to the flagged issues.

Mr Dixon said that the parties had agreed with (a) and made an addition under (b). He felt that "and the statutory ombud" should be included. This was agreed.

Sub-clause 2(2) had now been broken into two sub-clauses, i.e. 2(2) and 2(3). These were agreed.

Sub-clauses 3(2)(i) and (ii) were agreed. The principle of sub-clause 3(2)(b) was agreed. Sub-clause 3(3) was agreed.

Sub-clause 5(1)(b) was agreed.

Ms Taljaard said that the question on sub-clause 6(1) was about transparency on rules and procedures. There would be an interest in having them public and transparent.

The Chairperson said that the assumption was that they would be transparent and expressed concern that it might appear that the rest was not transparent if a provision was inserted here.

Ms Hogan said, in respect of sub-clause 8(2)(c), that she felt the Council should pay as it would determine the parameters and the parameters would determine the costs.

The Chairperson said that if a scheme had done wrong, the Council should be able to recover its costs.

Mr Wessels said that if the Law Society investigated a firm, the firm paid for the audit. The audit would only happen if the scheme had been remiss.

Mr Anderson said that when the FSB did examinations, costs were recovered depending on the level of contravention.

Ms Hogan felt that that was a better model and asked how it could be incorporated.

Ms Taljaard suggested that it was a flawed analogy and raised the question as to whether or not the structure was quasi-regulatory or a standards setting body.

Mr Anderson said that the Council had a limited monitoring role and checking was a necessary evil. The wording should look at where the guilt fell. The issue was flagged.

Sub-clauses 10(1)(b) and (h) were unflagged.

Ms Hogan felt that education could not be left to the individual schemes. There had to be a central point and agency designated to pull it together. The Chairperson agreed that the principle was understood and pointed out that the Committee was looking for a formulation.

Mr Dixon suggested, "to provide for appropriate public awareness in a way approved by the Council". He agreed that it needed to be made more explicit.

Ms Joemat said that that function should be included under sub-clause 8 to ensure that it was monitored.

The Chairperson pointed out that it was covered under sub-clause 8(1)(c). He also wanted individual schemes to have a collective responsibility.

Ms Hogan asked who would take the lead on providing a single stream of information to the consumer. Ti could not be the Council because it had no jurisdiction over FAIS.

Mr Dixon replied that it would ultimately be the FSB.

Ms Hogan felt it was unclear who was responsible for consumer education and this could mean that people would shift responsibility.

The Chairperson replied that, since it was not clear and no ready model was in place, it must be clear that the scheme was responsible in a co-operative way as well. He suggested re-flagging the issue.

In sub-clause 14(3), Ms Hogan had proposed an amendment to the "necessary consequential changes".

Mr Dixon agreed with the proposal. The amendment was agreed.

The Chairperson proposed returning to the two re-flagged items; sub-clauses 8(2)(c) and 10(1)(h).

Ms Hogan said that she was aware the consumer education was a critical component of the co-operative relationship but said it was part of the bigger co-operative relationship. Co-operation needed to be build into the Bill and a central call centre should arise out of co-operation in the Bill.

The Chairperson suggested using "co-operative".

Sub-clause 8(2)(c)
Mr Wessels proposed deleting "at the cost of the scheme" and inserting ", may recover the costs from the scheme", as this allowed discretion. This was agreed.

Sub-clause 10(1)(h)
Mr Dixon proposed an amendment to read, "The scheme must provide for ways in which it will co-operate with the Council's functions of promoting the education of clients and co-ordinating the activities contemplated in section 8(2)(b)".

Ms Hogan felt that the co-operation was on one side and not the other.

Mr Dixon proposed that "if necessary" be deleted under sub-clause 8(2)(b) to make it clear that this was a function of the Council. Another possibility would be to move the sub-clause to 8(1), to make it "must" not "may".

Ms Hogan said she could not see the Council having the staff or budget to run a call centre and was concerned that if it was moved to sub-clause 8(1) there would be an obligation to set it up. She asked for more emphasis on co-operative relationships so that collective strengths and weaknesses could be exploited.

The Chairperson agreed to the deletion of "if necessary" under sub-clause 8(2)(b) and the promotion of the co-operation and co-ordination of all bodies in respect of education, as proposed. It would be moved to sub-clause 8(1).

Ms Hogan referred to sub-clause 16(1)(b) and asked whether both the ombud and the independent body needed to report. She recommended that "The ombud of" be deleted. Mr Anderson concurred.

The Committee agreed to endorse the Bill without waiting for a final draft as the majority of Members had agreed to the amendments.

Ms Taljaard felt it would be wise to have a consolidated form of the Bill before formal adoption.

The Chairperson said that most Members had agreed to the changes. He read the Motion of Desirability of the Bill and it was agreed that the Bill was desirable. The opposition of the DA was noted. He then read the Report of the Committee adopting the Bill. The Bill was adopted with the opposition of the DA noted.

The meeting was adjourned.


 

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