Financial Services Laws General Amendment Bill & Special Pensions Amendment Bill: Briefings & Adoption and Insurance Laws Amendment Bill: Briefing

Meeting report

Briefing on the Financial Services Laws General Amendment Bill
Ms Jo-Ann Ferreira (Chief Director: Legislation, National Treasury) briefed the Committee on the on the background, proposed amendments, transitional provisions and consultation process of the Financial Services Laws General Amendment Bill (see attached document).

The Bill 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.

Discussion
Mr E Sogoni (ANC, Gauteng) suggested that the Public Finance Management Act (PFMA) was reviewed as well.  He noted that additional powers were granted to the Financial Services Board (FSB) to ensure enforcement of the laws.  Previously, the security services were responsible for ensuring enforcement.  He requested clarity on the responsibilities of the FSB and the security services with regard to enforcement.  He asked who was responsible for determining whether an individual was ‘fit and proper’ and how was this requirement monitored.  He asked if the original FSB Act made provision for a specific number of members of the Appeal Board.

Mr B Mkhaliphi (ANC, Mpumalanga) said that financial intermediaries were not held publicly accountable.  He said that the competency of certain financial services intermediaries was questionable.  He suggested that strict competency requirements for everyone involved in providing financial services were incorporated in the regulations.  He noted that amendments to the laws arose from the Fidentia affair, which was not yet concluded.  He was concerned that further amendments may be necessary once judgment was made in the Fidentia case.  He requested clarity on the provisions affecting trust funds for minors and the limitation of liability clause in the FSB Act.

Mr Sogoni asked what legal recourse was available to the persons who had lost their pension benefits in the Fidentia matter.  He asked what was done to ensure that the victims had access to resources.  With regard to the NPS Act, he asked if the Competition Commission investigation had been concluded.

Ms Ferreira explained that the amendments to the FSB Act made provision for the establishment of an Enforcement Committee under the FSB.  The amendments to the Security Services Act repealed the Security Services Committee.  There will be no overlap of the enforcement responsibility.  She said that criminals will always try to circumvent the law but the legislation and regulations attempted to impede the entry into the industry by persons with criminal intent.

Ms Ferreira said that the Fidentia case highlighted the weakness in the system that allowed pension funds to transfer the death benefits of members to beneficiary trusts.  Such trusts were not under the control of the FSB.  The amendments made provision for all beneficiary trusts to be registered with the FSB and allowed the FSB to regulate such trusts.  With effect from 1 January 2009, pension funds were not allowed to transfer benefits to beneficiary trusts unless the trust was registered with the FSB.

Ms Ferreira said that the concept of administrative sanctions was relatively new in South Africa.  Legislation made provision for only criminal sanctions to be applied.  The limited enforcement options undermined the effectiveness of the legislation.  The FSB had been very effective in implementing legislation.  The amendments enhanced the ability of the FSB to act more speedily and more effectively.  The application of administrative sanctions was not intended to undermine the court process.  The application of administrative sanctions was an executive decision and provision was made for recourse to the Appeal Board.

Ms Ferreira said that financial legislation tended to be complex and difficult to understand by the average person.  The FSB had a communication and education unit as well as a complaints department.  Similar services to the public were provided by the ombudsman.  The regulators were aware of the complexity of the legislation and attempted to communicate more effectively.

Mr Mkhaliphi was concerned over the visibility and accessibility of the FSB offices.  The offices were not located in the city centre of Pretoria and were difficult to find.

Ms Ferreira replied that National Treasury was aware of the accessibility and visibility concerns and intended to consider ways of improving the services offered.  National Treasury planned to review the legislation on consumer protection over the next three years.

Ms Katherine Gibson (Director: Financial Services, National Treasury) said that the issues regarding the physical access to financial services and the physical availability of products was under consideration.  Formal financial structures tended to be located in areas not readily accessible by all.  National Treasury was considering risk mitigation products for the poor and exploring the possibility of using the existing channels of communication provided by organisations such as church groups and trade unions.

Ms Gibson said that the report of the commission of enquiry into retail banking was released on 25^th June 2008.  The process followed by the enquiry created a panel to provide guidance to the Commissioner to conduct further investigations.  Ongoing discussions regarding matters of policy and the formulation of regulations were being held between industry stakeholders, National Treasury, the banks, the South African Reserve Bank (SARB) and the public.  It was important to incorporate the recommendations within the regulatory framework and allow access to the payments system without undermining or compromising financial stability.  The process was expected to be lengthy.

Ms Ferreira explained that other organisations and the Post Bank were providing banking services through the commercial banks.  The amendments to the NPS Act allowed for such organisations to operate under the clearing system and to be regulated.  She confirmed that the FSB Act had specified the number of members of the Appeal Board but the proposed amendments allowed the Minister to appoint additional members if necessary.  She reiterated that beneficiary funds will be brought into the FSB regulatory environment.  She said that not all the applicable laws made provision for limiting the personal liability of personnel.  The proposed amendment to the FSB Act limited the personal liability of staff members, provided that the person acted within the scope of the relevant legislation.

Mr M Robertson (ANC, Eastern Cape) suggested that National Treasury considered the co-operative banking system as a vehicle to provide physical access to financial services to more people.

Mr Mkhaliphi asked if the limitation on personal liability extended to intermediaries who promised returns on investments, which subsequently failed to materialise.

The Chairperson said that forecasts of financial returns can not be predicted with accuracy.

Ms Ferreira confirmed that the limitation of personal liability did not extend to financial services intermediaries.  Investments were subject to risks.  The FAIS Act made provision for prosecution if false information was given and specified the minimum educational requirements for intermediaries.  Provision was made for ongoing education of intermediaries as well.  She said that estimated investment returns cannot be guaranteed.

Mr Robertson proposed that the Bill was accepted by the Committee.  Mr Mkhalipi seconded the motion.  The Chairperson asked Ms D Robinson (DA, Western Cape) to compile the Committee’s Report on the Bill.

Briefing on the Special Pensions Amendment Bill
Ms Ferreira briefed the Committee on the background, objectives, proposed amendments, the anticipated cost of implementation and the consultation process of the Special Pensions Amendment Bill (see attached document).

The proposed amendments included reducing the qualifying age from 35 to 30 as at 1 December 1996, made further provisions for the rights of surviving spouses or orphans to pensions, made provision for funeral benefits and made provision for the migration of pensioners from lower to higher pensions as they reach the age thresholds specified in the schedules.  The amendments made provision for improved administration of the Act.

Discussion
Mr Sogoni requested clarity on the benefits payable to surviving spouses and dependents.  The dire financial circumstances of persons who did not qualify for the special pensions were a matter of concern for the National Council of Provinces (NCOP).  The NCOP had requested other Departments to introduce measures to alleviate the plight of such persons.  He noted that provision was made for benefits to be payable from the date of application and asked why benefits can not be backdated to 1996 in order to provide some relief to the applicants.

Mr Robertson sympathised with the plight of the persons affected but pointed out that the cost of implementation of the Bill amounted to R3.7 billion plus an additional R500 million per annum.  He asked what further benefits would cost the fiscus.

Mr Mkhaliphi was concerned over the cut-off date for applications.  He understood that applications can not be open-ended because of the risk of fraudulent applications but was concerned that people were not aware of their rights to the special pensions.  He said that one Department had advised the Committee that National Treasury had requested that the Department made provision for special pensions in its budget.  He requested confirmation if such a request was made by National Treasury.

The Chairperson agreed that removal of the cut-off date for applications allowed for an increased risk of fraudulent applications to be submitted.  The biggest concern was the verification of applicants’ membership of the prescribed organisations as the special pensions can not be made available to all.  He said that legislation can not be made emotively.  Many youth development programs were introduced by Departments and there was a need to co-ordinate efforts and to mobilise resources to ensure ongoing commitment.

Ms Ferreira explained that the spouse’s pension of 50% of the pension received by the deceased member was in line with the industry norm applicable to contributory pensions.  In the event that the deceased member had no surviving spouse, the benefits were payable to the dependents of the member.  She was aware of several programs to assist veterans and agreed that the initiatives needed to be coordinated.  She pointed out that benefits payable to the 30 – 35 age group will be backdated to 2001 but benefits in respect of new applications will be effective from the date of application.  She said that the total estimated cost of implementation of the Bill was R6.9 billion.  She said that when the qualifying age was reduced to 35 in 2006, National Treasury embarked on a massive awareness campaign but there were still people who were not reached.  She confirmed that a similar awareness campaign will be conducted again.

Mr Robertson proposed that the Bill was accepted by the Committee.  Mr Sogoni seconded the motion.  The Chairperson asked Mr Mkhaliphi to prepare the Committee’s Report on the Bill.

Briefing on the Insurance Laws Amendment Bill
Ms Gibson briefed the Committee on the background, proposed amendments and consultation process of the Insurance Laws Amendment Bill (see attached document).

The Bill included amendments to the Long Term Insurance Act and the Short Term Insurance Act.

A letter from Lindsay Keller Attorneys dated 13 June 2008, addressed to the Speaker, the Chairperson of the NCOP and the Chairperson of the Portfolio Committee on Finance, challenged the constitutionality of the Bill on the grounds that inadequate consultation took place.  Lindsay Keller Attorneys acted on behalf of Day1Health (Pty) Ltd.  A copy of the letter was circulated to Members of the Committee.

Discussion
The Chairperson advised that the Caucus was aware of the issues raised in the letter from Lindsay Keller Attorneys.

Ms Gibson said that concerns were raised by both the health insurers and the medical schemes on the demarcation between the two parties.  The proposed amendments attempted to avoid protecting specific interests.  The organisations involved were trying to protect their own interests and feared that the enhanced powers granted to the insurers were at the expense of the medical schemes.

Ms Ferreira advised that National Treasury was aware of the content of the letter from Lindsay Keller Attorneys.  Although objections were raised against the Parliamentary process followed, National Treasury reviewed similar cases referred to the Constitutional Court and were comfortable that the consultation criteria were met in the case of this Bill.  As a Section 75 Bill, not as many obligations were imposed as was the case of a Bill under Section 76.  National Treasury considered that all the legal requirements of consultation were met.

Mr Sogoni said that the point was made that public hearings were not held by the NCOP.  He suggested that public hearings were scheduled.  He pointed out that the objections were made by organisations that were consulted on the drafting of the Bill.

Mr D Botha (ANC, Limpopo) pointed out that Sections 59 and 72 of the Constitution were affected.  He was concerned that the short period of two weeks that was allowed for the passage of the Bill created the impression that the Bill was being fast-tracked through Parliament.  He was very concerned over the long term implications if the adequacy of the consultation process was challenged in the Constitutional Court.

Ms Robinson agreed with the comments made by Mr Botha.  She referred to the statements made in the letter from Lindsay Keller Attorneys that insufficient time was allowed for the gathering of evidence, that insufficient time was allowed for objections and that the public was not given the opportunity to comment on the Bill.  She said that adequate consultation must be seen to have taken place.

Mr Robertson referred to the statement made in the letter that the explanation provided by the Chairperson of the workshop held on the Bill was that the short time allowed was because of a ‘curtailed Parliamentary schedule’.  He agreed that such an explanation was not acceptable and that it will backfire on Parliament if the Bill was proceeded with.  He suggested that public hearings were held on the Bill.

Mr Sogoni agreed that public hearings had to be held.  He pointed out that Section 72 of the Constitution pertained to the processes followed by the NCOP.  Section 59 referred to the process followed by the National Assembly.

Ms Gibson pointed out that the objection was raised by one particular organisation.  She said that National Treasury had broad agreement with many other stakeholders.  She said that the legislation made provision for the demarcation process to be facilitated.  Allowance was made for the process to go forward and the Bill did not prescribe the demarcation between the two parties.

The Chairperson said that it can be expected that the matter will be referred to the Constitutional Court and that the Bill will be referred back to Parliament.  The options were either to hold public hearings, to consider the comments made and then to proceed with the Bill or to proceed with the Bill and allow it to be challenged in court.  He asked what the most prudent course of action was.

Mr Sogoni remarked that the Chairperson had spelt out the route that needed to be followed.  He said that the number of organisations that raised objections was not material as a single objection was sufficient for the constitutionality of the Bill to be questioned.  He said that the process followed by Parliament in passing the Bill and the content of the legislation were the issues that mattered.

Mr Botha asked how many persons were represented by Day1Health (Pty) Ltd.  He wanted to know how many organisations were consulted with.  He said that the process of the Bill was what was objected to.  He pointed out that the Bill was not discussed in the NCOP before this hearing.  He was reluctant to approve a Bill unless he was assured that sufficient consultation had taken place.

The Chairperson said that the Committee needed to give careful consideration on whether the correct processes were followed.  The Committee needed the details of the consultations that had taken place as the stakeholders were not present at the hearing.

Ms Robinson felt that the Bill should not be accepted by the Committee at this point in time.

The Chairperson suggested that a time was scheduled for public hearings on the Bill and that the stakeholders were invited to attend.  He disagreed with the proposal from Lindsay Keller Attorneys that a timeframe of six months was allowed as the Bill should not be delayed for such a long period.

Mr Robertson pointed out that Members only received the documents on that day.  According to Lindsay Keller Attorneys, the time allowed for the passing of the Bill was too short.  He agreed to the proposals made by the Chairperson and said that the Committee should not be pressurised in passing the Bill.

Mr Mkhaliphi agreed with the suggestions made by the Chairperson.  He said that a claim that the Parliamentary schedule prevented Members from exercising due diligence in passing legislation would be damning.

Ms Ferreira commented that the Committee needed to do what it was comfortable with.  The Portfolio Committee on Finance was requested to forward the documents pertaining to the Bill to the Select Committee.

The Chairperson requested that the Committee was informed by National Treasury of all the organisations that were consulted with and provided with the opportunity to submit comments.  He said that the issue was about the credibility of the legislative process rather than about individual objections.

Ms Ferreira said that the amendments proposed for the demarcation between insurers and medical schemes were prompted by a Supreme Court judgment handed down in March 2008.  The Bill therefore differed from other legislation presented to Parliament.

The Chairperson suggested that a date for public hearings was scheduled and that advertisements and invitations to attend were issued.  A subsequent briefing to the Committee needed to be arranged.

Mr Sogoni cautioned against deviating from the normal procedures followed by the Committee in considering legislation.

The Chairperson indicated that the Committee will be available on 29 July 2008 for the briefing by National Treasury, following the public hearings on the Bill.

Mr Botha asked if Day1Health (Pty) Ltd will be invited to the hearing.

The Chairperson confirmed that a written invitation will be sent.

The meeting was adjourned.