ATC190307: Report of the Standing Committee on Finance on the Financial Matters Amendment Bill [B 1 – 2019], dated 7 March 2019
Report of the Standing Committee on Finance on the Financial Matters Amendment Bill [B 1 – 2019], dated 7 March 2019.
The Standing Committee on Finance, having considered and examined the Financial Matters Amendment Bill [B 1 – 2019] (National Assembly- section 75) referred to it, reports as follows:
The Financial Matters Amendment Bill (FMAB) was introduced in the National Assembly on 31 January 2019. The FMAB proposes amendments to-
• the Insolvency Act, 1936 to amend the regulation of over-thecounter derivative (OTC) markets in line with G-20
• the Military Pensions Act, 1976 to address discriminatory provisions;
• the Banks Act, 1990 to enable state-owned companies to apply for banking licences subject to executive approval;
• the Government Employment Pension Law, 1996 to change the debt approach applied to public servants following divorce to a less burdensome approach of pensionable service reduction; and
• the Auditing Profession Act, 2005 to address challenges and limitations that the Independent Regulatory Board for Auditors faces in discharging its regulatory and oversight responsibilities.
Amendments to the Insolvency Act, 1936
After the 2008 global financial crisis G-20 states agreed that noncentrally cleared OTC derivatives contracts should be regulated in accordance with a unified international standard. From 2016 the National Treasury, Prudential Authority and Financial Sector Conduct Authority began the process of proposing amendments to the Insolvency Act to ensure that South Africa complied with its international obligations. The proposed amendments to the Insolvency Act will ensure that:
• creditors who enter into derivatives contracts and exchange collateral will be able to keep the proceeds during insolvency;
• South Africa will meet the G-20 deadline of September 2019 to strengthen the regulation of OTC derivatives;
• domestic banks will continue to enter into OTC derivatives transactions with their foreign counterparties; and
• systemic risk will be reduced and financial stability maintained.
Following stakeholder consultation, the Committee made changes to the amendments to the Insolvency Act in the FMAB. The changes include-
• clarification that the Master will only adjudicate disputes of preference and settlement of disputes will be in terms of submitted documents;
• provision for a court to direct a creditor under a Master Agreement to repay the net proceeds of the realized collateral;
• a definition of “well founded” to provide that the Master must be satisfied that the reasons furnished by the trustee or any other creditor reasonably and sufficiently challenge the validity of documentation submitted as proof of the secured claim.
Amendments to the Military Pensions Act, 1976
These amendments are necessary to recognise all types of relationships, including life partnerships, to qualify for benefits and to ensure gender neutrality in accordance with the Constitution.
Amendments to the Banks Act, 1990
As the FMAB included provision for the formation of a state-owned bank, it was considered together with the Banks Amendment Bill (B12- 2018) (BAB), introduced by Mr Floyd Shivambu, as a Private Members Bill which has the same objective.
The amendments to the Banks Act provides for state-owned companies meeting the prudential and other requirements of the Banks Act to apply for authorisation to establish a bank. The substance of the amendments to Banks Act amendment in the FMAB were already extensively deliberated following the introduction of the BAB.
The Committee decided that the FMAB was better than the BAB because it provides for more qualifications and checks and balances on the formation of a state-owned bank and is drafted in the context of other applicable legislation that National Treasury is responsible for including the Public Finance Management Act and the Financial Sector Regulation Act.
There were 3 areas in particular that the FMAB was stronger:
1. It requires that if a state-owned company (SOC) wants to apply for authorisation to establish a bank it must first get the approval of the Minister of Finance, acting with the concurrence of the Minister responsible for the SOC.
2. The assets of the SOC, its holding company and, if applicable, the holding company of the holding company, must exceed its liabilities.
3. It excludes municipal owned companies from applying for authorisation to establish a bank.
While the Committee fully supports state-owned banks and in particular the expeditious processing of the licencing of the Postbank, we believe that because of the possible fiscal risks posed by state-owned banks which may require bailouts, the above qualifications are necessary to restrict the circumstances in which state-owned banks are formed and therefore believe that the FMAB provisions on state-banks are better than those in the BAB.
The Committee decided not to deal with whether provincial SOCs should be allowed to establish banks and, if so, under what conditions, as there is a need for a more extensive discussion on this and there simply was not the time to do this.
Amendments to the Government Employment Pension Law, 1996
These amendments address the prejudice suffered by divorced public servants through the current debt approach. It entails a debt (a “forced” loan) which accrues interest. Upon exit, the member may receive a reduced or no cash payment (gratuity) and, if the gratuity is insufficient, the annual pension paid monthly will also be reduced. The reduction of pensionable service is the approach adopted by most pension funds and results in a more predictable outcome for the member. The Public Service Co-ordinating Bargaining Council adopted a resolution in support of the service reduction approach. The Public Protector also received complaints about the current debt approach.
Unable to process amendments to the Auditing Profession Act, 2005
The Committee deeply regrets that it was unable to process these amendments especially as they are so urgently needed and the Committee itself has been putting pressure on NT for some while to bring these legislative amendments to Parliament. It was just not possible to process the amendments in view of the very limited time available before the 5th term of parliament ends. The National Assembly rises on 20 March and the NCOP on the 28 March for the 8 May elections, and after consultation between the decision-making authorities in both Houses, the Committee was advised that the NCOP will not be able to process the amendments to the Auditing Professions Act before the end of the 5th term of Parliament as they are too elaborate and they are being contested. Also, the Standing Committee on Finance (Scof) just did not have enough time to process these amendments.
The Minister of Finance is urged to bring these amendments to the next Parliament as soon as possible after it is convened and we recommend, with due respect, that the incoming Scof processes these matters expeditiously.
The Committee expresses its severe criticism of NT for introducing the FMAB so late on the eve of the ending of the 5th term of parliament, and had it not been for the fact that we had, as explained, extensive discussions on policy issues related to state-owned banks through considering the BAB we would not have been able to finalise this aspect of the FMAB. Fortunately, the amendments to the Military Pensions Act and Government Employees Pension law were basically technical amendments and could be processed easily. Following extensive consultation between NT, the SARB, JSE and BASA there was agreement on the insolvency provisions and following representations by the SARB Governor and in view of the urgency of the matter, as explained above, the Committee considered these amendments and the further amendments that came through and decided to vote on them.
The Standing Committee on Finance reports a re-draft of the Bill [B1 B - 2019] The DA reserve their position
Report to be considered.
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