Financial Advisory and Intermediary Services Bill: deliberations; Stock Exchanges Control Amendment Bill: adoption

Meeting report

FINANCE PORTFOLIO COMMITTEE
10 October 2001
FINANCIAL ADVISORY AND INTERMEDIARY SERVICES BILL: DELIBERATIONS; STOCK EXCHANGES CONTROL AMENDMENT BILL: ADOPTION

Chairperson: Ms Hogan (ANC)

Documents handed out:
Stock Exchanges Control Amendment Bill [B75 – 2001]
Financial Advisory and Intermediary Services Bill [B52 – 2001]
Revised FAIS Bill
Matrix of Amendments

SUMMARY
The Committee passed the Stock Exchanges Control Amendment Bill.

Deliberations on the FAIS Bill continued. The FSB went through all the amendments that have been effected thus far. The Chair indicated that the Bill will only be considered by the Committee in January because of time constraints. The issues that were unresolved were the position of health benefit advisors, the Policy Protection Rules, the independence of the Ombud, the outstanding opinion on the constitutionality concerns by the Parliamentary Law Adviser and the presentation of the cost benefit analysis.

MINUTES
Stock Exchanges Control Amendment Bill
The Chair asked if there were any further questions or comments on the Bill, but there were none.
The Motion of desirability was read out. All the members agreed that the Bill was desirable and it was passed.

Financial Advisory And Intermediary Services Bill
The Chair advised that the Bill will not be completed today and that it will only be looked at in January. She asked Mr Wessels (FSB) to go through the matrix as opposed to each clause so that the committee can consider the proposed amendments.

Mr Wessels, addressing the concerns raised by members in the previous meeting, said that overnight the FSB had reworked some definitions.

‘person’ – instead of ‘municipality,’ ‘organ of state’ will be referred to and this addresses the issues raised about provincial and national spheres of government.

Mr Wessels indicated that he had spoke to Adv. Blackbeard around the pyramid scheme issue. If a scheme involves the taking of legal or illegal deposits, the Reserve Bank will step in. As far as FAIS is concerned the schemes will be covered advice is given. It was the advocates’ opinion that pyramid schemes are well under control under the present regime.

The definition of complaint and complainant has been revised in line with the discussion at the previous meeting.

Clarifying the position of Banks Mr Wessels that clause 1(4) is the new proposal that deals with Banks. If the deposit is for less than 12 months it is excluded from the operation of FAIS except that short term deposits will be regulated by rules of conduct. The new clause 15(2)(b) states that the a new code of conduct must be drafted for the rendering of a financial service for deposits shorter than 12 months.

Ms Hogan asked if this is fully supported.

Mr Wessels replied that it is fully supported. The proposal had been circulated to the LOA, Banking Council and other stakeholders. Mr Tucker (Banking Council) confirmed his approval in writing. Mr Wessels added that the Banking Code of Conduct would not be accepted in its entirety and that consultation will still have to take place.

Clause 4 – Powers of Registrar
This clause and the amendments thereto had been discussed when the constitutional issues and the concerns raised by Adv. Marcus were canvassed at the previous meeting.

Clause 6 – Delegation
In response to clause 6(4)(a) that deals with an aspect of the Registrars power to delegate the LOA proposes that the clause be amended so that the registrar can delegate to any individual bodies. At the moment the registrar can delegate to umbrella bodies. The FSB is uncomfortable with the proposal because the registrar should not be able to delegate to any interested group because the power that is delegated is important. It mainly deals with the licensing and registration. For this task a sound f financial and organisational infrastructure is needed.

Other amendments in clause 6 have been dealt with in the constitutionality discussion.

Clause 8 – Fit and proper requirements
The LOA proposed that when the license is granted the following factors have to be taken into account:
- the honesty and integrity
- the competence and operational requirements
- and the financial soundness.

The fit and proper requirement is therefore given content.

Mr Wessels said that there is principle change. The Committee was happy with this amendment.

Clause 8 also deals with the registrars’ right to impose restrictions on a license. The amendment to this provision is in response to the concern of Adv. Marcus and has been discussed.

Clause 9 – Suspension of Authorisation
When the registrar must act quickly to suspend a license the current Bill does not provide a time frame in which the registrar must consider any representation made by the Respondent. The LOA wants the registrar to consider the representation within a reasonable time from the date of the suspension. This principle is accepted by the FSB but the amendment will read from the date that the representation was received.

Clause 10 – Withdrawal of Authorisation
The LOA submitted that the registrar should only withdraw the authorisation if the material contravention is a prejudice to clients or members of the public. At the moment the Bill confers the power if there has been a material contravention of the Bill with no link to prejudice. The FSB does not agree with this proposal because if we were to make this link would be an additional burden on the proof on the registrar. Sometimes there can be glaring evidence of a material contravention.

Clause 13 – Qualifications of Representatives
In clause 13(2)(a) the Bill says an FSP must ensure that reps are competent and the fit and proper requirements must be taken into account. The LOA submitted that the word ‘ensure’ be deleted and replaced with ‘satisfied’ and that all the fit and proper principles were not relevant because reps did not have to meet the requirement of being financially sound. The FSB agrees with both these submission and the word ‘ensure’ will be replaced. In respect of the second leg of the submission the clause will sate that the FSP must have regard to provisions similar to the fir and proper requirements so that the financial soundness requirement can be excluded.

Clause 15 had already been dealt with when Mr Wessels clarified the position of Banks.

Clause 17 – Compliance Officers.
The LOA had made a submission on this clause because they felt that as it reads a one-person operation would be obliged to appoint a compliance officer which is unreasonable. The FSB says this is not the intention and the clause will only apply if there two persons in the business.

Clause 18 – Maintenance of Records
The only change is that records must be kept for 3 years and no longer for 5. The records referred to are only those contained in 18(1)(a)-(f). It is not the normal accounting records but relate to information regarding the premature cancellation of a contract for example.

Clause 19 – Accounting and Audit Reports
The LOA is concerned that all intermediaries and small business and especially those operating in the unsophisticated markets cannot comply with the onerous obligations of this clause. Mr Wessels said that this was not the intention of the FSB and the clause does allow for exemptions.

Clause 20 - Ombuds
In a new sub clause 4 the concerns of Adv. Marcus are addressed in that it is stated that the Ombud is independent and impartial. This must be read with clause 23 that now makes the Ombud accountable to the Board only in relation to the administration of the office.

The Chair asked that all the clauses in relation to the Ombud be skipped because it needs more attention, especially since the Council for Medical Schemes have also raised additional issues.

Clause 34 – Undesirable Practices
This clause has also been dealt with to take care of the concerns of Adv. Marcus.

Clause 35 – Regulations
Clause 35 allows the Minster to make regulations. The LOA wants 35(1)(c) that gives the Minster the power to make regulations regarding the compliance arrangements and compliance monitoring to be deleted. The rationale is that it will be contained in the code. The FSB disagrees the regulations envisaged may go further than just market conduct.

Clause 38 – Closure of Business by provider or Representative
Clause 38(d) says that a FSP or rep cannot voluntarily close the business unless the registrar has received notice. The LOA wants this clause deleted. Mr Wessels said that the LOA is confusing the complete closure of business with a FSP or rep deciding to stop selling a product for a product provider. All the FSB is trying to achieve is to be able to know exactly who is operating in the market.

Clause 40 – Savings Clause
This clause states that no provision in this act prevents a person from exercising any common law or other statutory rights. The LOA submits that clause 33 allows class actions so there could be double jeopardy in that one person will receive compensation in both actions. The FSB disagrees because the Defendant would raise the defence of lis pendens or res judicata. (the matter is already before a court of law or has already been decided by a court of law.)

Clause 41 – Fees and Penalties
The FSB has amended this clause so that the Minister has the prerogative of controlling fees and penalties after he has consulted with the registrar. This amendment is at the request of National Treasury. The LOA submits that the minister must consult with the advisory committee in addition to the registrar. The FSB disagrees because it would be inappropriate to fetter the Ministers power.

Clause 44 – The relationship between FAIS and the PPR
Previously the FSB wanted the PPR repealed to the extent that PPR is covered in FAIS. The PPR has an emphasis on disclosure but FAIS has a second leg that deals with responsibilities of the advisor. Mr Wessels said that the PPR will be in the codes that we will only have some time in the future so it would be premature to say now what will be in the code. The new 44(5) is the position that the FSB proposes and is supported by the Finance Ministry. The Minister after consultation with the registrar may exempt FSP’s. Reps or categories of FSP’s from certain provisions of the PPR. This approach is flexible and allows time for the transitional problems to be addressed.

Ms Hogan asked how long before the codes are completed.

Mr Wessels replied that the Draft General Code was done by Ms Dewrey (LOA) and that it was the same as the PPR but it went further to cover the second leg that is dealt with in FAIS.

Ms Hogan asked that discussion be held over. There are now three issues that were unresolved:
1) Health benefit Advisors
2) The independence of the OMB’s
3) PPR

The Chair wanted members to focus on these issues and familiarize themselves with it.

[The amendments not dealt with by Mr Wessels were linguistic changes or related to the unresolved issues.]

Mr Wessels asked the Chair what the FSB had to do in respect of the health issue.

The Chair replied that it needs to be resolved politically. It needs to be referred to the political heads to revisit this issue. In the meantime the committee must familiarize themselves with the issues of the stakeholders. The Chair suggested that a small working group be set up to liaise with the ministries and to get to grips with the issues at stake during the recess. Another approach would be to resolve the issue of the Ombud and the PPR and leave health benefit advisors out until this issue is resolved. The Chair did not favour this approach. She continued that the Bill cannot be passed before January so, in the meantime, perhaps agreements can be reached.

The Chair further asked that the FSB respond to the Council for Medical Schemes submission. The Chair noted that that the constitutional issues still needed to be considered by the Parliamentary Law Advisers and that the FSB still had to arrange that the Cost Benefit Analysis be presented.

The working group will consist of:
Ms Hogan
Mr Nene
Ms Joemat
Mr Moloto
Mr Mguni
Dr Rabie (NNP).

The meeting was closed.