Deputy Speaker, the Financial Services Laws General Amendment Bill being debated in this House today addresses urgent technical and regulatory issues in a number of our financial sector laws.
The proposed amendments are required in order to update existing legislation, to close regulatory gaps in existing statutes, and, importantly, to provide for increased enforcement capabilities for the Financial Services Board in terms of the laws that they administer.
Some high-profile cases of abuse, such as the protracted Fidentia matter, have highlighted the need for tighter financial sector laws, better enforcement capability and improved co-ordination between various regulators and statutory bodies in the financial sector. National Treasury has commenced a process whereby gaps in legislation are identified so that co-ordination between regulators can be improved.
While this work is ongoing, there are a number of important interventions that can and must be made now in order to provide consumers with increased peace of mind and protection.
In terms of the Bill before the House, it is an accepted principle of financial regulation that supervisors need the power to take action against those who are not compliant with the law. The Bill proposes the establishment of an enforcement committee, building on the model ratified by this House when passing the Securities Services Act in 2004.
The registrars at the FSB will be able to refer matters to the enforcement committee and that committee will have the ability to impose administrative sanctions and grant compensation orders to those identified who have suffered loss. In order to protect the fundamental rights of access to court enshrined in our Constitution, a party aggrieved with the decision of the enforcement committee retains the right to take the matter to court.
The establishment of this enforcement mechanism is a major step forward in the architecture of our regulatory system, but is not the only improvement proposed in the operation of the Financial Services Board. As members of this House are no doubt aware, the FSB has an independent appeal board which hears appeals against decisions made by the respective registrars at the FSB.
Since the establishment of the appeal board, the regulatory scope of the FSB has been significantly extended by the passing of legislation such as the Financial Advisory and Intermediary Services Act, which brought some 14 000 intermediaries into the net. This inevitably has meant that the number of appeals against decisions of the various registrars has increased.
This accordingly implies that the structure of the appeal board needs to be reviewed so that matters referred to it are heard timeously. The Bill therefore proposes a restructured appeal board which will be sufficiently resourced to deal expeditiously with matters placed before it, by being able to hear a number of appeals concurrently.
I would now like to turn to some of the other key proposals contained in the Bill, which seek to reinforce the principle of consumer protection embedded in our financial sector laws. Firstly, in terms of the Pension Funds Act, the Bill establishes beneficiary funds which will be entitled to receive benefits following the death of a member. In the past these moneys often went into trusts not under the supervision of the FSB where little oversight was possible. In future, widows and orphans entitled to such moneys will be afforded the protection of the Registrar of Pension Funds and the Pension Funds Adjudicator.
Secondly, with respect to the National Payment System Act, the Bill proposes the inclusion of nonbank clearing system participants who are currently outside the supervision of the SA Reserve Bank. This enabling provision in the Bill is a step towards improved competition in banking, and the regularisation of the affairs of the Post Bank under the watchful eye of the SA Reserve Bank.
Thirdly, with respect to the Financial Advisory and Intermediary Services Act, the Bill proposes the tightening of a number of provisions dealing with the suspension and withdrawal of a financial services provider's licence, the "naming and shaming" of wrongdoers, and stronger provisions regarding inspections and on-site compliance visits by the regulator.
I would like to convey my special thanks to the Portfolio Committee on Finance, under the steady hand of Mr Nhlanhla Nene. The committee consistently provides an insightful review of legislation placed before it for consideration.
Deputy Speaker, I hereby request that the House pass the Financial Services Laws General Amendment Bill, 2008. I thank you. [Applause.]
Madam Deputy Speaker and hon members, financial institutions play a critical role in the smooth functioning of any modern economy and assist with redirecting peoples' services into capital investment necessary for economic growth. The failure of any financial system due to the lack of consumer confidence, among others, will be the undoing of any economy. Policy-makers all over the world do everything to instil confidence in their financial system. Trust, integrity and proper regulation are the glue that holds the system together. We need to ensure that the system is stable and instils confidence in all stakeholders.
Therefore, it is crucial that we review all current financial legislation to assess its relevance to current challenges. The recent abuses in the financial services industry highlight the need to review the powers given to our financial regulators and close any regulatory loopholes. Consumers deserve to be protected. An individual cannot be expected to assess the risk of any financial institution and take the necessary protective measures; that is the role of the financial regulators. We need to support this Bill, which has, as its main objective, consumer protection.
The Financial Services Laws General Amendment Bill amends several pieces of financial sector legislation under the administration of the Financial Services Board and the SA Reserve Bank. The Fidentia matter clearly indicates that the protective measures applied to moneys paid into trust for the benefit of minors are inadequate.
Under the current law, moneys paid into trust under section 37(c), intended mainly for minors, are not subject to the Pension Funds Act once they are transferred out of a specific pension fund. These types of trusts are generally supervised by the Master of the High Court. The Association of Trust Companies of South Africa confirmed during the hearing that the regulatory capacity and framework in the office of the Master of the High Court are inadequate. The Fidentia matter has exposed the inadequacies in our regulatory framework.
This Bill provides for the establishment of beneficiary funds into which minors' moneys can be paid. The Financial Services Board will be required by this Bill to exercise oversight over these beneficiary funds. We need to protect orphans and widows. The Bill stipulates that all beneficiary funds established on or after the commencement date of the Pension Funds Amendment Act of 2008 must register with the FSB in terms of this Act. The registrar may exempt any fund where practical difficulties hinder the strict application of a specific provision of this Act.
There are certain stakeholders in the financial services sector who are unhappy with the powers conferred on the FSB in this Bill. The concern is around the power of the FSB to conduct on-site inspections. We have clarified this matter during the debate on the Financial Intelligence Centre Bill. One is once more compelled to restate the explanation given in that debate. The power to conduct on-site inspections by a regulator is a well-established international practice.
Inspection methodologies differ from country to country. In the United States of America, for example, large teams of inspectors spend a lot of time at the premises of a financial institution, conducting a thorough review of most areas of regulatory compliance. The British model of inspection is more risk-based, where small teams spend a short period at the premises of the financial institution conducting a review of specific issues identified by off-site analysis. We cannot water down this important regulatory principle.
The current Pension Funds Act has serious limitations. Under current law, the Registrar of Pension Funds cannot remove any pension officer if he or she is no longer fit and proper. The registrar is empowered by this Bill to act speedily to remove such an officer with the aim of protecting the interests of beneficiaries. Trust and integrity hold this system together. The registrar needs these powers to help in restoring consumer confidence once a principal officer, valuator or auditor has lost the fit and proper status.
This Bill also makes provision for whistle-blowing. The principal officer and/or the auditor must, on becoming aware of any matter relating to the affairs of a pension fund which, in the opinion of the auditor or the principal officer, may prejudice the fund or its members, inform the registrar thereof in writing.
The principal officer or the auditor must, within 21 days of his or her appointment being terminated by the Fund, submit a written report to the registrar detailing the principal officer's perceived reasons for the termination. Trustees have to be held accountable for their actions.
The current National Payment System Act does not make provision for certain nonbanking institutions taking part in the clearing and payment system. This poses major risks as the SA Reserve Bank does not have the oversight responsibility over third-party providers and system operators.
The Bill addresses these shortcomings by making provision for new participants in the national payment system and bringing them under the supervision of the SARB. The Banking Association was concerned that the entry and participation of nonbanks in the national payment system poses some risks. This Bill clearly stipulates that the new participants will have to meet the criteria set by the SARB.
The national payment system is the bedrock of the stability of any modern financial system. Failures can disrupt the financial system and bring the whole economy to a halt. Last year this House passed the Pension Funds Amendment Act which brought about the clean-break principle on divorce. There are those who wanted to interpret the matter incorrectly. We are restating the clean-break principle in this Bill. Divorce orders granted prior to 13 September 2007 must be paid or transferred in accordance with the wishes of the nonmember spouse, as it would normally apply with divorce orders granted after 13 September 2007.
In conclusion, let me remind the House that sound macroeconomic policy is the bedrock of comprehensive prudential and market conduct regulation. Price stability is essential to the overall efficiency and stability of any financial system. Inflation expectations have to be anchored. This is essential for the smooth functioning of the financial services industry. The ANC supports this Bill.
Madam Deputy Speaker, there is no doubt that the regulatory gaps in the financial sector have been exploited to the detriment of South African consumers. In 2001, Prof John Murphy, the first Pension Funds Adjudicator, speaking on the subject of pension fund conversions from defined benefit to defined contribution structures, stated:
Unfortunately, this has happened with inadequate supervision under legislation conceptualised and enacted in 1956 and updated minimally on a piece-meal basis. With the wisdom of hindsight, it is fair to say that the regulatory framework has not been up to the task.
South African pension fund conversion saw a significant deviation from international practice in determining the value of the surplus in the fund. This stripped members of investments risk protection without adequate compensation. The regulator did not act until legislation was required to redress the wrongs perpetrated against fund members, to the tune of billions of rand.
This expensive lesson suggests that the regulator needs to know what is happening in the industry and needs to be proactive in identifying practices that should not be tolerated. The regulator needs to be able to alert consumers to practices detrimental to their interests and needs to have sufficient sanction available to be taken seriously.
The Financial Services Laws General Amendment Bill forms part of the process to improve the regulatory framework and to further empower the Financial Services Board to protect the public. During the course of public hearings, it was clear that stakeholders had not engaged in meaningful dialogue from the outset. An ongoing conversation between the regulator and the regulated should be a feature of our financial services landscape.
This will permit those industry players who are actually committed to good governance in the industry to work with the regulator in sharpening the regulatory environment. It is far too easy for the industry not to co- operate with the regulator and to subsequently criticise legislation as flawed. This is not helpful or in the public interest. The Bill establishes an enforcement committee across the Financial Services Board with powers to impose administrative sanctions and grant compensatory orders. It permits the Financial Services Board to disclose information to the public and other regulators.
The Bill protects pension fund beneficiaries by bringing payments to them under the protection of the Pension Funds Act via beneficiary funds. Principle officers are now required to be fit and proper and must act when they become aware of undesirable practices.
The Bill enables the Financial Services Board to conduct on-site visits to providers and intermediaries. Names of those whose licences are suspended can be publicised and compliance officers can be removed if they are not fit and proper. When membership of a retirement annuity fund is transferred from an underwritten fund to a non-underwritten fund, ongoing trailer fees for advice must be agreed in writing, and on an ongoing basis.
Much remains to be done in terms of consumer education, which is the ultimate key to consumer protection and good governance. Asymmetrical information disempowers investors and works to their detriment. Despite the improvement to the regulatory environment as set out in this Bill, much work remains to be done. As at 31 March 2008, 10 602 complaints were outstanding for resolution at the Office of the Pension Fund Adjudicator.
The Board of Trustees of the Pension Fund, assisted by the principal officer, is responsible for governance of the fund. Too many examples exist where trustees have not acted in line with the principles of good governance, the rules of the fund or the law. Pension Fund circular 130 has set out guidance on good governance for trustees, but it is not formally enforceable. This needs to be written into law. The DA supports this Bill. Thank you. [Applause.]
Madam Deputy Speaker, the Financial Services Laws General Amendment Bill can accurately be described as an omnibus as it amends no fewer than 12 statutes. In general, the amendments will update existing laws, close regulatory gaps, and, most importantly, increase the enforcement of the Financial Services Board, especially in the light of recent high-profile abuses in the financial sector, like the Fidentia scandal and several others.
South Africa has a reputation for having a highly specialised and efficient financial services sector - a factor that definitely plays a role when investors make decisions about investing here in South Africa. It is therefore of the utmost importance that this reputation is maintained and even further enhanced.
The IFP therefore fully supports the provision to increase the enforcement ability of the Financial Services Board as the guardian in maintaining the highest standards of legal compliance in the sector. We also welcome the clarification that the Bill brings to the FSB, sharing information with other regulators and disclosing certain information to the public if it is in the interest of improving co-ordination and enforcement across the country's borders and with other regulatory bodies in South Africa.
The IFP supports this Bill as it should ensure a well-regulated financial services industry, protect consumers and provide certainty to the industry as well as to investors and specifically beneficiaries of pension funds. Thank you.
Madam Deputy Speaker, the MF acknowledges that this Bill serves to address a number of shortfalls and, in effect, amends a number of related Bills.
We are pleased at the greater clarity and assurance offered in terms of pensions of beneficiaries of the deceased. It is very important that we ensure that the families and loved ones are appropriately attended to and their rights preserved at the time of death.
I am further pleased that whistle-blowing has been addressed and the amendments made to the Financial Services Board Act will see the management of the sector and the board enhanced. It is certain that clarity has been given on a number of platforms that were previously challenged.
The MF sincerely hopes that the amendments made will service the sector and further contribute to stamping out corruption and induce effective financial mechanisms. The MF supports the Financial Services Laws General Amendment Bill. Thank you.
Thank you, Madam Deputy Speaker ...
... batlotlegi mo Ntlong, maloko a Komiti ya Matlotlo, ke a lo dumedisa. Go thata gore ke bue morago ga Tona gonne a setse a tlhagisitse dintlha tse dintsi tse ke neng ke rata go bua ka tsona, ke di tlhagisetsa Ntlo. Ke tla leka ka bojotlhe gore ke di beye ka Setswana mme mo ke palelwang teng, ke tla di bua ka Sejatlhapi.
Molaotlhomo o re o sekasekang gompieno fa, ke Molaotlhomo o o lekang go fetola tsamaiso ya melawana ya matlotlo, o o welang ka fa tlase ga Financial Services Board le SA Reserve Bank, mme molawana o, ke wa General Financial Services Laws Amendment Bill. O leka go fetola molao wa tsamaiso ka fa tlase ga melao e e lateng; Financial Services Board Act, Pension Funds Act, Protection of Funds Act, Friendly Societies Act, South African Banks Act, South African Reserve Bank Act, Securities Services Act, Long- term Insurance Act, Short-Term Insurance Act, Co-operative Banks Act le National Veld and Forest Fires Act.
Go botlhokwa go lo itsise gore ditlhabololo tsa melawana e, di simolotswe ka 2007 ke balaodi ka go farologana mo intasetering ya rona ya matlotlo go thiba diphatlhana tse di itshupileng tse di tlisang tiriso e e botlhaswa ya tsamaiso mo intasetering. Botlhokwa jwa diphetogo tse bo tla re thusa gore re itepatepanye le tlhokego e kgolo ya go podisa kgotsa go tlhamalatsa tsamaiso e e sokameng le go gakala ga ditiro tsa bobodu le tsietso mo intasetering ya rona ya matlotlo jaaka go diragetse ka Fidentia le Leaderguard. Gantsi ba ba amegang mo ditiragalong tse ke badirisi mme molao o leka go ba sireletsa le go netefatsa gore molao o, o diragadiwe ka gale.
Fa o lebelela molao wa Financial Services Board o tla fitlhela gore molao o ga o tle ka tsamaiso e e netefatsang gore go nne le kgatelelo ya go diragadiwa ga molao, ke gore "enforcement". Kgatelelo ya tiriso ya molao o e fitlhela fela mo tshireletsong ya matlotlo, e e lebelelang gore a go na le kgwebisano ya mmaraka kgotsa go na le bothata ba go sa direleng batho sentle. Molawana o re o lebelelang gompieno o leka gore re kgone go kitlana, re tswale diphatlhana tseo.
Jaaka go ntse jalo, Financial Services Board e tlile go natlafadiwa ka go tlisa komiti ya tirafatso e e tla netefatsang gore batho botlhe ba ba tlisang ditirelo tsa matlotlo jaaka diin?orense, diborokhara, jalo le jalo, ba tlile go bona tlhokomelo e e lolameng. Tlhokomelo eo e tla dira gore ba tlise ditirelo ka fa tlase ga tsamaiso e e tlhamaletseng ya molao.
Financial Services Board Enforcement Committee e tlile go bona maatla a go ka tlisa dikotlhao tse di tlhokegang, kgotsa go fa ditaelo tsa go tlhatswa diatla. Dikotlhao tseo di tla tlisiwa ka nako e khutshwane. Ga go kitla go tsaya sebaka jaaka re itse gore Financial Services Board jaanong jaaka e sena komiti ya tirafatso, bontsi ba melawana ya yona e ntse e ya kwa kgotlatshekelo fa batho ba paletswe ke go diragatsa molao. Jaanong Financial Services Board e tla kgona go diragatsa le go rarabolola mathata a a amang baagi. Fa komiti ya tiragatso e setse e le mo tirisong e tla kgona go tsaya tshweetso e batho ba ka kgonang go ikuela kgatlhanong le yona kwa High Court.
Selo seo se tlile go re thusa gore re nne le tsamaiso ya matlotlo e e nang le seriti mo Aforika Borwa, e bile e dira gore batho ba nne le tshepo mo tsamaisong ya rona ya matlotlo. E tlile go kganela bogodu kgotsa tsamaiso e e sa lolamang ya matlotlo. E tla feleletsa e sireletsa badirisi le go netefatsa gore balaodi ba rona ba nna le maatla kwa ba leng teng.
Go na le mo go buiwang ka Appeal Board, e leng kwa batho ba ka kgonang go ikuela teng kgatlhanong le ditshweetso tse di tserweng kwa komiting ya tiragatso. Appeal Board e tla nna komiti e e eteletsweng pele ke baatlhodi kgotsa babueledi ba ba rotseng tiro, fela ga e tsamaisane thata le komiti ya tirafatso. Go tlile go kgonega gore fa komiti ya tirafatso e tsaya tshweetso mme motho a bona go le botlhokwa gore a ikuele kgatlhanong le tshweetso e e tserweng, e bo e kgona go dira seo ka nako e khutshwane e bile e somarela ditshenyegelo.
Fa o sekaseka, Financial Services Board e na le tetla ya go tlhopa batsamaisi ba tirelo ya matlotlo ba ba tshwanetseng go nna le nonofo le tolamo, e nne batho ba ba se nang mokgwanyana o o bofitlha wa go ka tsietsa baagi.
Go ya ka fa Tona a setseng a buile ka teng re tlile go tlhoka gore Financial Services Board fa e tlhopha kgotsa fa e naya batho bao dilaesense e bo e itse gore ke eng se batho ba se tlhokang tota. Ka tsamaiso eo Financial Services Board e tlile go kgona go latedisisa batlamedi ba matlotlo ba ba bonweenwee. (Translation of Setswana paragraphs follows.)
[... hon members of this House, members of the Finance committee, I greet you. It is difficult to speak after the Minister has spoken because he has already pointed out most of the facts that I wanted to elaborate on before this House. I will try to present them in Setswana but where I find it difficult, I will resort to English.
The Bill we are analysing here today falls under the General Financial Services Laws Amendment Bill. It tries to change the procedures under the following Acts: Financial Services Board Act, Pension Fund Act, Protection of Funds Act, Friendly Societies Act, South African Banks Act, South African Reserve Bank Act, Securities Services Act, Long-Term Insurance Act, Co-operative Banks Act and the National Veld and Forest Fire Act.
It is also important to inform you that this Bill's Amendments were started in 2007 by various leaders in the Finance industry with the intention of plugging the obvious loopholes that might lead to the flouting of the procedures in the industry. The importance of these amendments is to deal efficiently with the irregularities in the financial industry, as happened with Fidentia and Leaderguard. In most cases, the consumers are the ones affected in these irregularities; hence the Act will ensure that amendments are implemented to protect them.
In principle, the Financial Services Board Act seems not to specify its enforcement. This is only found in securities finance where you find that there are business dealings with the market or there is a problem of consumers care. With this Bill we are trying to close those loopholes.
As it is, the Financial Services Board will have a committee that will ensure that all insurance and brokers are well taken care of. Furthermore, this will ensure that they deliver services under the correct procedures of the Act.
The Financial Services Board Enforcement Committee will have powers to implement penalties or to compensate the consumers. The expectation is that these penalties will be implemented soon. The Financial Services Board will be able to implement and explain the problems experienced by residents. People will be able to make an appeal to the High Court against the decisions taken by this committee.
These amendments will help us to have a respected Financial Authority in South Africa, which can help people to have confidence in our handling of finances. Furthermore, it will also protect the consumers and ensure that the authorities do have powers wherever they are.
The Appeal Board, which is mentioned somewhere in the Bill, will be a committee that consists of retired judges and lawyers, but its functions are not similar to that of the Portfolio Committee. It will make it possible and less expensive for a person who would like to make an appeal. The Financial Services Board has permission to elect a financial services authority that is effective and fair - people with no hidden agendas and intention of cheating residents.
According to what the Minister has said, the Financial Services Board must ensure that it really knows what the needs of the people are before it elects or gives licences. The Financial Services Board will be able to follow up on dishonest service providers.]
In that case, we'll be able to get people on time. It's just a radical shift which will help the Financial Services Board not to operate on complaints only.
E tlile go kgona go tlhatlhoba mafelo a a jaaka dibanka le diin?orense go tlhola gore go diragala eng, gore a batho ba rona ga ba tsiediwe mme e bo e tsiboga ka nako. Go na le ntlha e nngwe e molawana o o e tshitshinyang gore re tshwanetse re tlhagise botlhe ba ba nang le boferefere kgotsa botsukunape ba dirisa Financial Services Board jaaka leotwana la go dira madi. Batho ba ba fitlhelwang ba dira jalo ba tshwanetse go tlhagisiwa mo dikuranteng le mo thelebi?eneng re bone gore ke bomang, re ba itse re kgone go ba tshaba. Seo se bidiwa ... (Translation of Setswana paragraph follows.)
It will be able to oversee institutions like banks and insurance companies, go and check what is really happening, and if it is discovered that people have been cheated, it will act efficiently and effectively. The Bill suggests that those who use the Financial Services Board as a wheel to make money must be exposed through newspapers and television so that we can avoid them. That is referred to as the ...]
... naming and shaming of financial services providers.
Ke a leboga. ANC e dumalana le Molaotlhomo o. [Legofi.] [Nako e fedile.] [Thank you. The ANC supports the Bill. [Applause.] [Time expired.]]
Madam Deputy Speaker, I was just fascinated by the new lexicon of Setswana words, such as "unscrupulous" and so on. I think that the point about closing this debate here is actually to say thank you to the committee that functions very well, because on this and on a number of other pieces of legislation the conduct of the committee is exemplary. It meets and its members persuade each other on the best possible advice, and I think that is a consistent theme with the Portfolio Committee on Finance.
I would just like to reinforce some of the points, such as the one hon Moloto referred to regarding some financial service providers who are unhappy with this Bill. I want to say to them that the licence to operate a financial service is not a prison sentence. They may hand back the licence if they are unhappy, but for as long as we have a responsibility towards consumers, users and depositors, rest assured that financial service providers will be properly regulated. That is what the Bill tries to do and I think that's the message.
The second issue is the national payment system. Clearly there are elements of risk. I know that this is a matter that the Competition Commission is looking at, at the moment, under the chairmanship of Justice Jali and there will be a report tomorrow about the national payment system. So let's wait for that and then comment on those issues.
The hon Dr George raised a valid point about the regulator needing to know. Of course, it's very difficult in an environment where you have as many licence providers as the nonbanking financial services have in this country. So it is the responsibility of the industry associations to play part of the role not just as a lobbying but also as a reporting kind of an institution. Shortly a new body will be formed - an overarching body called the Savings and Investment Association - and we must, from its establishment, encourage that organisation to play that role so that we can have symmetry of responsibility in protecting the value of licences.
All the parties and all the members who spoke here support the Bill. We express appreciation for this and ask that you take the Bill forward to the next stage. Thank you very much, Deputy Speaker.
Debate concluded.
Bill read a second time.