ATC230614: Report of the Select Committee on Finance on Financial Matters Amendment Bill [B20b–2022] (National Assembly Section 75); Dated 14 June 2023
Report of the Select Committee on Finance on Financial Matters Amendment Bill [B20b–2022] (National Assembly Section 75); Dated 14 June 2023
1.Introduction and background
The Financial Matters Amendment Bill (FMAB) seeks to amend the Associated Institutions Pension Fund Act, the Temporary Employees Pension Fund Act, the Military Pensions Act, the Government Employees Pension Law, the Financial and Fiscal Commission (FFC) Act, the Land and Agricultural Development Bank Act (Land Bank Act), the Auditing Profession Act, and the Auditing Profession Amendment Act, of 2021.
2.Public Participation Process
On 02 May 2023, the Select Committee on Finance (SeCoF) received a briefing on the FMAB from the National Treasury. On 06 June 2023, the Committee held public hearings and received an oral submission from the Congress of South African Trade Unions (COSATU) and a written comment from Ms Nadia Taljaard-Nilsen. The National Treasury responded to the issues raised during the public participation process on the same day. The Committee held a meeting on 13 June 2023, to further process and adopt the Bill.
3.Overview of the objectives of the Financial Matters Amendment Bill
The FMAB proposes to amend the Associated Institutions Pension Fund Act, of 1963, the Temporary Employees Pension Fund Act, of 1979, the Military Pensions Act, of 1976, the Government Employees Pension Law, of 1996, the Financial and Fiscal Commission Act, of 1997, the Land Bank Act, of 2002, the Auditing Profession Act, of 2005 and the Auditing Profession Amendment Act, of 2021.
The section below summarises the proposed amendments explained in the memorandum on the objectives of the FMAB and the National Treasury’s presentation made to the Committee.
3.1Amendments to Associated Institutions and Temporary Employees Pension Fund Act
The proposed amendments in these Acts seek to align provisions with their administration by the Minister of Finance and make consequential amendments such as reflecting the responsible Department and its Head and removing the requirement to consult the Minister of Finance and updating references to other Ministers.
3.2Amendments to the Military Pensions Act
The purpose of the amendment is to address discrimination against life partners of military pensioners, retrospectively. The Financial Matters Amendment Act, of 2019 recognised life partners and allows life partners to claim benefits from the date that the Amendment Act took effect. The proposed amendment provides benefits to members’ life partners retrospectively, from 27 April 1994 when the interim 1993 Constitution took effect. Twelve months is allowed for the registration and submission of claims.
3.3Amendments to the Government Employee’s Pension Law
The proposed amendment seeks to facilitate administration and make the “clean-break” principle applicable to members of the Associated Institutions Pension Fund (AIPF) by amalgamation into the Government Employees Pension Fund (GEPF). The GEP Law provides for a “clean break” for GEPF members. The “clean break” principle means that the spouse of a member may claim pension interest immediately upon divorce or dissolution of customary marriage, and not wait for the member to become entitled to a portion of the pension.
3.4Amendments to the Financial and Fiscal Commission Act
The purpose of the amendment is to enhance good corporate governance. Currently, the Chief Executive Officer (CEO) of the FFC is also the Secretary to Commission. The proposal seeks to omit the role of the CEO of the Commission as its Secretary. National Treasury submitted that provision for the Secretary to the Commission should be discretionary and regulation in legislation is not necessary. Therefore, the Minister of Finance’s letter to the Chairpersons of the Finance Committees dated 5 April 2023 requested that the proposed amendment in the Bill be rejected since it should be included in a Bill tagged as a section 76 and not a section 75 Bill.
3.5Amendments to the Land and Agricultural Development Bank Act
The proposed amendment aims to align the Act with the administration by the Minister of Finance and with provisions of the Companies Act, of 2008. The Companies Act, of 2008 repealed most of the Companies Act, of 1973, including provisions relating to judicial management and replaced it with business rescue. The business rescue in Chapter 6 of the Companies Act, 2008 did not replace, by implication, the judicial management in Land Bank Act.
The amendment, therefore, proposes to replace the provision for judicial management for Land Bank with business rescue in terms of the Companies Act, 2008. Liquidation provisions in Chapter 6 of the Companies Act do not apply to the Land Bank. Section 44 of the Land Bank Act provides that the Bank may not be wound up except by or in terms of an Act of Parliament. NT further explained that passing this Bill might assist the Land Bank with its liability solution and enable the Bank to fulfil its mandate of supporting the agricultural sector.
3.6Amendments to the Auditing Profession Act and the Auditing Profession Amendment Act
The purpose of the amendment is to strengthen sanctions for auditors admitting guilt of seriously improper conduct. It adjusts the powers of the Enforcement Committee (EC) where the Auditor admits guilt. National Treasury explained that if the EC’s view is that conduct does not warrant the sanction of deregistration or disqualification from registration as an Auditor, it must follow the admission of guilt process and refer the matter to a Disciplinary Committee (DC) for sanctioning.
Subsequently, the Senior Counsel’s advice was obtained on how to deal with alleged improper conduct by Auditors committed and not finalised before 26 April 2021 when the Amendment Act took effect. Legal advice received by National Treasury clarified that Independent Regulatory Board for Auditors (IRBA) may establish an interim transitional DC to deal with these cases. Therefore, clause 22 is no longer required. National Treasury requested that clause 22 be rejected.
4.Key issues raised during the public participation process
COSATU acknowledged the importance of the Bill in addressing the challenges that military veterans’ partners have experienced in accessing pension benefits when their partners and ex-partners passed away or during separations; providing for the extension of existing legal requirements to AIPF, and addressing the problems experienced in the auditing profession.
COSATU, however, remains concerned about the unhealthy relationship between some auditors and the institutions they audit, noting that the King Report recommended time limits for auditing contracts and that IRBA has instituted a rule requiring the Mandatory Rotation of Auditing Firms (MRAF) after ten years. COSATU submitted that this MRAF rule needs to be entrenched in law and its timeframe be reduced to five years. Its concern is that in the face of massive resistance from compromised auditors, IRBA can simply delete the rule.
COSATU proposed an amendment for consideration by the Standing Committee on Finance (SCoF) to insert a new section in the Bill formalising in law, the existing IRBA rule providing for MRAF and limiting the lengths of auditing contracts of firms and State Owned Entities (SOEs) to five year non-renewable term.
Ms Nadia Taljaard-Nilsen tendered her support for the FAMB, acknowledging that this Bill has been many years in the making and aims to finally bring the rights of the previous spouses of AIPF members in alignment with private sector pension fund members.
5. Responses by the National Treasury to issues raised by COSATU
On COSATU’s proposal to include a provision for the MRAF for auditors in the Bill, NT explained that this will require the National Council of Provinces (NCOP’s) permission to propose this amendment since it is outside the scope of the Bill. The public hearings will have to be conducted and thereafter, the National Assembly (NA) will have to consider the NCOP’s proposed amendment, which includes public hearings by the SCoF. This, according to NT will result in the enactment of the Bill into law later than anticipated.
Given the urgent proposed amendments to the Land Bank Act that would facilitate its liability solution, NT requested that this proposed MRAF amendment to the Bill not be made by the SeCoF. NT committed to considering alternative ways of expediting this amendment to the Auditing Profession Act before the 2024 elections and, if not feasible, commence processes this year to enable the introduction of a Bill amending the Auditing Profession Act in Parliament after the 2024 elections, but still in 2024.
IRBA supported the NT’s proposed alternative to legislating the rule, indicating that the majority of Public Interest Entities (PIEs) already rotated, mitigating the extent of possible auditor familiarity risk in the short term. However, IRBA identified many PIE audit firms with tenures exceeding 10 years, with a few exceeding 100 years, which is a concern. IRBA said that in the interim, it will emphasise the importance of independence considerations by auditors, audit committees and shareholders in terms of the IRBA Code of Conduct to mitigate any risk.
6.1The Committee noted that the FMAB proposes amendments in eight different pieces of legislation and that the Minister of Finance requested that the Committee rejects the amendments proposed in three Acts, namely, the FFC Act and the Auditing Profession and Auditing Profession Amendment Acts.
6.2The Committee further noted that the proposed amendments to the three Acts, namely, the Associated Institutions and Temporary Employees Pension Fund Acts and the Land Bank Act, are technical in nature and seek to align the provisions in these Acts with administration by the Minister of Finance and make consequential amendments.
6.3The Committee further noted that while the proposed amendments to the Land Bank Act are technical in nature, they might assist the Bank with its Liability Solution and enable it to better fulfil its mandate of supporting the agricultural sector.
6.4The Committee noted from the memorandum on the objectives of the FMAB that the National Treasury consulted the FFC, Government Pensions Administration Agency (GPAA), Land Bank and IRBA in finalising the draft FMAB.
6.5The Committee further noted that the National Treasury envisages no material financial implications to the state from the proposed amendments in the FMAB, except for the amendments to the Military Pensions Act, of 1976. And that the financial implications will only be known after affected members have submitted claims in respect of life partners.
6.6Regarding the Auditing Profession Amendment Act, the Committee noted that the sanctions imposed against people transgressing the law were far too mild. The Committee further noted that the Enforcement Committee may only introduce certain types of sanctions, and in instances where the transgression warrants a more serious sanction, it will be referred to the Disciplinary Committee.
6.7On the clean break principle, the Committee noted NT’s response that in the event of divorce, a member’s pensionable service will be reduced to take into account the amount paid to the ex-spouse and the member will remain entitled to a gratuity and an annuity based on actual service years.
6.8The Committee noted COSATU’s recommendation that the MRAF rule, which sets time limits for auditing contracts should be entrenched in law to ensure that IRBA adheres to it even in the face of massive resistance from compromised auditors and be reduced to five years. The Committee also noted NT and IRBA’s responses to the recommendation made.
6.9The Committee noted that National Treasury said that the Supreme Court’s ruling on the MRAF rule, requiring the amendment of the Auditing Profession Amendment Act, will not affect National Treasury’s decision to table the amended legislation in 2024. Neither the National Treasury nor IRBA has the intention to appeal the Court decision as it was a technical legal matter.
6.10The Committee requested the National Treasury to ensure that the clauses it wanted to be removed from the Bill (B20B-2022) are indeed removed and gave it a further 24 hours to check on this. However, National Treasury confirmed that the current version of the Bill excludes such clauses and so the Committee decided it will go ahead and vote on it.
7.1The Committee recommends that NT should table the amendments to the Auditing Profession Amendment Act by 2024. The Committee agrees with the aims of the amendments and recommends that they be submitted in an amendment Bill by the end of the third quarter of next year or at the very latest in the fourth quarter.
7.2The Committee supports the proposed amendments in the Land Bank Act and recommends that National Treasury monitors that they assist the Bank with its liability solution and enable the Bank to better support the agricultural sector.
The Select Committee on Finance, having considered and examined the Financial Matters Amendment Bill [B20B–2022] (National Assembly – section 75), referred to it, and classified by the JTM as a section 75 Bill, accepts the Bill.
The Democratic Alliance (DA), the Economic Freedom Fighters (EFF) and the Freedom Front Plus (FF+) reserved their positions on this Report.
Report to be considered.