The Financial Services Laws General Amendment Bill included amendments to the Pension Funds Act, the Financial Services Board Act, the National Payment Systems Act, the Financial Institutions (Protection of Funds) Act, the Financial Advisory and Intermediary Services Act, the Collective Investment Schemes Control Act and the Securities Services Act.
The Bill was made available for public comment and attracted comments from 28 organisations and individuals. The Chief Director: Legislation, National Treasury and the Director: Financial Markets, National Treasury presented a detailed summary of the comments, responses and proposed amendments to the Committee.
Members asked questions about the application of both administrative and criminal sanctions, the employment and remuneration of the Principal Officer, on-site inspections, the appointment of trustees of funds and the appointment and skills required of the Chairperson of the Enforcement Committee.
Briefing by National Treasury
Mr Baron Furstenburg (Director: Financial Markets, National Treasury) and Ms Jo-Ann Ferreira (Chief Director: Legislation, National Treasury) took the Committee through each of the comments, responses and proposed amendments to the Pension Funds Act (PFA), the Financial Services Board Act (FSB Act), the National Payment Systems Act (NPS Act), the Financial Institutions (Protection of Funds) Act (FIPF Act), the Financial Advisory and Intermediary Services Act (FAIS Act), the Collective Investment Schemes Control Act and the Securities Services Act (see attached document).
The Chairperson noted that the wording of several clauses to the Bill still needed to be finalised before an updated version of the Bill can be submitted to the Committee. He asked if the Financial Services Board (FSB) consulted with the accounting bodies on the wording of the proposed amendments.
Mr Gerry Anderson (Deputy Executive Officer, FSB) confirmed that consultation with the accounting bodies had taken place.
Ms Ferreira advised that the final version of the Bill was expected to be ready for submission to the Office of the State Law Advisor and the Parliamentary Law Advisors by Friday, 30 May 2008.
Ms N Mokoto (ANC) noted that the process of applying administrative sanctions would be halted if criminal proceedings were instituted. She was concerned that the criminal court proceedings may not necessarily address administrative problems. She asked if all transgressions would be covered.
Ms Ferreira replied that the issue of double jeopardy was still an open legal debate. The Bill provided for both administrative and criminal sanctions and allowed the Regulator the discretion to apply the most appropriate sanction to the transgression. The issue was under discussion with the State Law Advisor. National Treasury agreed not to insist on the power to enforce both administrative and criminal sanctions for a transgression. She confirmed that criminal proceedings will stay any administrative sanctions that may be pending. The Enforcement Committee ensured compliance and the organisation may lodge an appeal with the Appeal Board.
Dr D George (DA) referred to the proposed amendments to the PFA. The suggestion from several commentators that the Principal Officer should be employed and paid by the fund was not accepted. He asked which entity should be responsible for employing the Principal Officer.
Mr Jurgen Boyd (Deputy Executive Officer, FSB) replied that there were different types and sizes of funds in existence and payment of the Principal Officer could erode the benefits to members in the case of the smaller funds. The remuneration of the Principal Officer was normally a matter of negotiation between the employer, the fund and the fund’s administrators.
Dr George commented that inspections were seen to be unusual occurrences by organisations and asked how perceptions would be changed by the implementation of the amendments.
Mr Anderson replied that on-site visits as part of the ongoing supervision by the Regulator was a well-established tool, both locally and internationally. On-site visits to Financial Service Providers (FSP) proved to be beneficial to both parties as the inspections assisted the FSP’s with their practice management and improved compliance.
Dr George asked if the amendments provided adequate protection to the members from the fund’s trustees.
Mr Boyd explained that guidance documents were published on the appointment of trustees and how they were required to act. There was a requirement that training was provided to trustees if they did not have the necessary skills. The intention was to include the requirements regarding trustees in the Regulations.
Mr S Marais (DA) referred to the proposed amendments to the FIPF Act. He noted the concern of the banking sector over non-banking entities that were allowed to operate without meeting the set criteria and fell outside the system. He asked if it was possible that loopholes could be created.
Mr Marais asked how the Chairperson of the Enforcement Committee was selected or appointed and what assurances there were to ensure the impartiality of the appointment. He remarked that considerable power was vested in the Chairperson of the Enforcement Committee and wanted to know what skills, knowledge and qualifications were required for the position.
Mr Gerhard van Deventer (Executive Director, FSB) explained that the Chairperson and Deputy Chairpersons were appointed by the FSB. If the Board failed to appoint a Chairperson, provision was made for a Chairperson to be appointed by the Enforcement Committee. The Chairperson and Deputy Chairpersons must have a legal background, for example a retired judge or an advocate of more than ten years’ standing. Such persons were independent by reason of their background and training and were independent of the FSB. Members of the Enforcement Committee were also independent of the FSB and were appointed according to their skills, knowledge and expertise. The Enforcement Committee can appoint panels. The Chairperson of a panel must also be from the lawyer group. Panels sat on the basis of a majority vote. He cited the example of an investigation into allegations of insider-trading and window-dressing to manipulate share prices. In this case, a retired stock broker and investment manager appeared alongside a judge to decide the matter. The expertise of the investment manager allowed for the speedy resolution of the case and the imposition of a R2 million fine.
Mr Marais said that the Chairperson of the Enforcement Committee had the discretion to impose substantial penalties and to decide on whether or not the organisation would be allowed legal representation at the hearings. Cases could be lengthy and complicated and end up being contested in court. He asked if organisations should not be allowed the right of legal representation at Enforcement Committee hearings.
Ms Ferreira replied that it was important to make provision for discretion to be applied in the matter of legal representation. Legal representation was not always appropriate and can be costly. The provisions for both administrative proceedings and the Appeal Board were intended to allow for the speedy resolution of non-compliance. Generally, a legal process impeded speedy resolutions. Not all cases ended up in court.
Ms Ferreira explained that the Appeal Board was a different entity to the FSB. There was a general wariness of Regulators and Appeal Boards but an element of trust needed to exist and there were remedies available to the organisation. Provision was made for the application of reasonableness in the Bill.
Mr van Deventer explained that the Securities Services Enforcement Committee to ensure compliance in the capital markets existed since 2004 and worked very well. The intention of an Enforcement Committee was to speed up the process of ensuring compliance. Enforcement through the courts worked well but was a lengthy and expensive process.
Mr Van Deventer agreed that the right to legal representation of the entity at Enforcement Committee hearings was very important. The current Chairperson of the Securities Services Enforcement Committee insisted on allowing legal representation at hearings and always granted the right to the organisation involved.
Mr Van Deventer explained that there will not be an Enforcement Committee hearing in all cases. Subsection F stated that the Chairperson of the Enforcement Committee decided whether a hearing will take place or not. He explained the process that was followed. When the FSB made allegations of contraventions, a charge sheet was filed with the Enforcement Committee and served on the respondent. Time was allowed for the respondent to reply by affidavit. The Enforcement Committee considered the response and if the matter was disputed, the respondent was advised of a hearing date. Many cases were simple and were decided on papers in chambers. In such cases, there will not be a hearing that required legal representation. He said if legal representation at a hearing was a requirement, it could be argued that there was a right to a hearing as well. This was not the case and would lead to problems with implementation. He said that in practice, the right to legal representation was usually granted. In many cases, respondents accepted the transgression and entered into a plea-bargain. In such cases, a hearing did not take place and a very fast resolution was arrived at. Respondents had the right of appeal to the High Court.
The Chairperson said that the Committee will consider the Bill once all the proposed amendments were included.
The meeting was adjourned.
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