Presented by: Nicky Lala-Mohan

Financial Services Laws General Amendment Bill (B29 – 12)

Presentation to the Standing Committeeon Finance

24 April 2013

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Table of Contents

3Table of Contents

■ Alignment of Financial Services Laws General Amendment Bill and Twin Peaks

■ Removal of Advisory Committees

■ On-Site Inspections

■ Substitution of publication of notices in the Government Gazette by an official website set up by the Financial Services Board

■ Exemption from Consumer Protection Act 68 of 2008

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Alignment of Financial Services Laws General Amendment Bill and Twin Peaks

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■ Alignment of Financial Services Laws General Amendment Bill and Twin Peaks

■ Whilst this is an omnibus bill amending various pieces of legislation in the financial services sector, it is imperative these amendments fit into the boarder Twin Peaks legislation which is in the offing.

■ The treatment of the concept of ‘negligence’ should be consistent across all financial sector legislation, e.g. the bill proposes ‘gross negligence’ in the amendment to the Financial Services Board Act, 1990, whereas the Financial Markets Act, 2012 has a lesser test for ‘negligence’.

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Removal of Advisory Committees

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■ Removal of Advisory Committees■ Bill proposes removal of the Industry Advisory Committee in

Collective Investment Schemes Control Act, 45 of 2002, the Long Term Insurance Act; Financial Advisory and Intermediary Services Act, 2002; the Short Term Insurance Act, 1998 and the Pensions Fund Act 24 of 1956.

■ Proposes replacement of Advisory Committee with a Code of Conduct for Consultation.

■ Advisory Committee at present serves as an important forum for industry engagement with the Regulator and provides a level of oversight.

■ Removal of Advisory Committees will give the Financial Services Board extensive autonomous powers.

■ Unaware of the provisions of the Code of Conduct as no draft code made available for perusal and comment.

■ Recommendation■ A draft Code of Conduct be released for comment so that industry

can have an indication of its effects.

■ Code of Conduct should provide industry with similar opportunities for engagement with the Regulator.

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On-site Inspections

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■ On-Site Inspections

■ The Bill provides as an addition to the Long Term Insurance Act, 52 of 1998, Short Term Insurance Act 53 of 1998 and Collective Investment Schemes Control Act 45 of 2002, paragraph 69 for on-site visits to be conducted by ‘suitable persons’ in all of the above-captioned Acts.

■ The Bill also expands on the Inspection of Financial Institutions Act 45, of 2002 which already provides for on-site visits or inspections.

■ The term ‘suitable persons’ is too broad and gives the Registrar a broad discretion without balancing the relevant inspected persons’ and entities'’ constitutional right to privacy.

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■ Recommendations

■ Bill should require qualified inspectors as per The Inspection of Financial Institutions Act 1998.

■ Clauses in the Bill that deal with on-site visits and inspections should be redrafted to provide clarity and limitations as to when and how on-site inspections should take place.

■ Further recommend that publication of an investigation ought to occur only after investigation finalised thus limiting reputational damage.

■ Recommend alignment of these provisions with that of section 95 – Powers of Registrar to conduct on-site visit or inspection in the Financial Markets Act, 2012 as per Annexure “A”.

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Substitution of publication of notices in the Government Gazette by an official website set up

by the Financial Services Board

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■ Substitution of publication of notices in the Government Gazette by an official website set up by the Financial Services Board

■ The Bill in sections 13, 15, 51 and 60 of the Long-Term Insurance Act 52 of 1998; sections 4, 8, 13 and 15 of the short-Term Insurance Act 53 of 1998; sections 4, 9, 14, 11, 17 of the Financial Advisory and Intermediary Services Act 37 of 2002; sections 5 and 114 of the Collective Investment Schemes Control Act 45 of 2002, amends current requirement of the Registrar to publish notices on the Official website instead of the Government Gazette

■ Media

■ Bill further extents power of Registrar to publish in ‘such other media’ or ‘any other appropriate media’;

■ no definition of ‘media’ and forms of media.

■ We note the intention to reduce costs of publication in the Government Gazette, however commencement of laws can only come into effect after publication in the Government Gazette in terms of the Interpretation Act, 33 of 1957.

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■ Substitution of publication of notices in the Government Gazette by an official website set up by the Financial Services Board (Continued)

■ Section 15 of the Interpretation Act only provides for the notification of an Act, whereas Section 13 of the Interpretation Act refers to the commencement of laws;

■ Section 13 states specially that “commencement of laws” means the day on which the law comes into effect, and that day is the day when the law was first published in the gazette as law;

■ Thus by replacing publication in the Gazette by a official website only takes into consideration Section 15 (notification) and not Section 13 (commencement of laws) in terms of which publication must be in the Gazette

■ Clause 38 is also not aligned to the explanatory memorandum (page 28 of 36 of the Clause by Clause Motivation).

■ Recommendation

■ We recommend retention of the use of the Government Gazette whether in print or electronic e-gazette and ‘official website’ to be used as a subordinate tool for publication.

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Exemption from Consumer Protection Act 68of 2008

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■ Exemption from Consumer Protection Act 68 of 2008

■ Clause 68 amends Section 28 of the Financial Services Board Act 1990 by conferring upon the FSB absolute regulatory power over financial institutions which they regulate, which we fully support.

■ Section 28(2)(b) of the FSB Act excludes the application of the Consumer Protection Act 68 of 2008 to financial institutions under its legislative control which are:

■ Pensions Funds Act, 1956; Friendly Societies Act, 1956; Collective Investment Schemes Control Act, 2002; Securities Services Act, 2004; Long-term Insurance Act, 1998; Short-term Insurance Act, 1998; Financial Advisory and Intermediary Services Act; Banks Act, 1990; Mutual Banks Act, 1993; Co-operative Banks Act, 2007; Companies Act, 2008; Close Corporations Act, 1984; and Trust Property Control Act, 1988.

■ The Acts specified in the definition of “financial institution” do not regulate certain activities at all.  However, these activities are regulated by the CPA.  Examples of this would be “auctions”, promotional competitions”, and “pre-paid certificates, credits and vouchers and pre-payment for services”.  There may well be other examples; this list not intended to be exhaustive.  As there is no consumer protection provided by the Acts in the definition of “financial institution”, it must be assumed that the Consumer Commission would continue to have jurisdiction over these activities.

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■ Exemption from Consumer Protection Act 68 of 2008 (continued)■ In consequence, our view is that the proposed amendment would provide

extreme confusion and, additionally, for the more savvy, fertile ground for regulatory arbitrage and forum shopping by complainants and financial service suppliers alike.  The resultant uncertainty would not be in anyone’s best interest.

■ It is imperative that the uncertainties, created by this proposed exclusion of the CPA from financial institutions, are dealt with so that there is no legislative disjoint or confusion for the banking sector and its clients. 

■ The proposed substitution of subsection 28(2)(a) fails to appropriately address inconsistencies in prevailing FSB legislation, e.g. the definition of “intermediary services” in the Short Term Insurance Act is misaligned to the FAIS Act.

■ Recommendation■ Clause 68 should be drafted in such a way that where there is a

lacunae in Consumer Protection Legislation, the principle of the application of best legislation that promotes consumer protection should be invoked.

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Annexure “A”

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Annexure “A”Powers of registrar to conduct on-site visit or inspection

■ 95.(1) The registrar maya) authorise any suitable person to conduct an on-site visit of the business and

affairs of a regulated person to determine compliance with this Act; orb) instruct an inspector under section 3 of the Inspection of Financial Institutions

Act, 1998 (Act No. 80 of 1998).

■ (2) A person conducting an on-site visit in terms of paragraph (a) may –a) at any time during business hours -

i. enter the premises of the regulated person and the regulated person must upon request provide any document;

ii. search the premises of the regulated person for any document;iii. examine, make extracts from and copy any document or, against the issue of a

receipt, temporarily remove the document;iv. seize any document against the issue of a receipt, which may furnish proof of any

failure to comply with the provisions of this Act;

b) require the regulated person to produce at a specified time and place any specified documents or documents of a specified description in the possession or under the control of the regulated person;

c) require any person that is holding or is accountable for any document, to provide information and an explanation of that information.

19Powers of registrar to conduct on-site visit or inspection

■ 96. After an on-site visit or inspection has been conducted under section 95, the registrar may, in order to achieve the objects of this Act referred to in section 2 -a) if the respondent is a company -

i. apply to the court under section 81 of the Companies Act for the winding-up of the respondent as if the registrar were a creditor of the respondent;

ii. Apply to the court under section 131 of the Companies Act to begin business rescue proceedings in respect of the respondent as if the registrar were a creditor of the respondent;

b) subject to section 5 of the Financial Institutions (Protection of Funds) Act, apply to the court for the appointment of a curator for the business of the respondent;

c) direct the respondent to take any steps, or to refrain from performing or continuing to perform any act, in order to terminate or remedy any irregularity or state of affairs disclosed by the on-site visit or inspection: Provided that the registrar may not make an order contemplated in section 6D(2)(b) of the Financial Institutions (Protection of Funds) Act.

d) direct the respondent to prohibit or restrict specified activates, performed in terms of this Act, or a director, managing executive, officer or employee of the respondent, if the registrar believes that the director, managing executive, officer or employee is not fit and proper to perform such activities;

e) hand the matter over to the National Director of Public Prosecutions, provided that the contravention or failure constitutes an offence in terms of this Act; or

f) by notice on the official website or by means of any other appropriate public media, make known-

i. the status and outcome of an inspection;ii. the details of an inspection if disclosure is in the public interest;iii. the outcome and details of an on-site visit if disclosure is in the public interest

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Thank You