Financial Sector Laws Amendment Bill: National Treasury & SARB response to submissions

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Finance Standing Committee

26 May 2021
Chairperson: Mr J Maswanganyi (ANC)
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Meeting Summary

Video: Standing Committee on Finance, 26 May 2021

In this virtual meeting, the Committee was briefed by National Treasury (NT) and the South African Reserve Bank (SARB) on their response to the Financial Sector Laws Amendment (FSLA) Bill submissions.

Treasury agreed to the amendments to clauses 6, 8, 32, 34 and 51 of the FSLA Bill. It did not find the amendments to clauses 19, 27-31, 33 and 35 as necessary, particularly proposals regarding the articulation of amendments in clauses 19 and the insertion of definitions under the Companies Act. NT explained that these amendments were made in consultation with the Department of Trade, Industry and Competition (DTIC), the Department of Justice (DOJ) and the Competition Commission. The amendments also required approval from Cabinet. Treasury stated that it was reluctant to begin this process again, when the currently drafted versions of the amendments are sufficiently clear and legally correct. Regarding the proposed amendments to definitions that are not directly related to the content of the legislation, Treasury stated that it would appropriately address the comments in the forthcoming amendment legislation. With the proposals for full-referencing of relevant legislation, Treasury reassured Members and stakeholders that it would insert the Act number and year once provided. Treasury responded to COSATU’s concerns with the creditor hierarchy. Treasury reassured the Committee and COSATU that the Amendment Bill does not change the current creditor’s hierarchy set out in the Insolvency Act. In order to ensure vulnerable depositors can access savings in the case of a bank collapse, the Corporation for Deposit Insurance will use the Deposit Insurance Fund to pay the bank’s covered depositors, within 20 working days. Therefore, depositors will not have to wait for the bank liquidation proceeds to access their funds.  

SARB presented three additional amendments to the bill. The recommendations were minor technical refinements in clause 35 and subsections 166BA and 166BH.

The Chairperson appealed to Treasury to be more through when drafting bills, to ensure afterthought refinements do not occur. The Chairperson welcomed the additional amendments.
 

Meeting report

The Chairperson welcomed everyone in attendance

Briefing by National Treasury and South African Reserve Bank
Ms Jeannine Bednar-Giyose, Director: Fiscal and Intergovernmental Legislation, National Legislation, said that four documents were circulated to the Committee namely, the response matrix, a list of proposed amendments, a list of NT’s proposed amendments to rectify technical errors, and a draft of the Bill with the inclusion of the proposed amendments. She acknowledged a submission from the South African Institute of Stockbrokers (SAIS) that was received just before the meeting. The submission did not raise any substantive issues and has not been included in the response document. Treasury can send the Committee an updated version of the response matrix, including its feedback on SAIS’s submission, after the meeting.

The Banking Association of South Africa (BASA) raised concerns around the impact of the FSLA Bill on the Insolvency Act provision. BASA recommended that the provision be protected.

Mr Jacques Botes, Lead Resolution Specialist, SARB, explained that BASA would like the provision for protection of collateral for certain transactions, to remain under the new framework. He reassured Members and stakeholders that the resolution under section 83(10) of the Insolvency Act will still apply under the new framework. Therefore, no further amendments are required for the resolution in the current draft Bill.

Ms Bednar said BASA pointed out that in the Insurance Act and the Financial Markets (FM) Act, the definition of the Financial Sector Regulation Act (FSRA) does not include the full reference to the act number and year, as is normally the case. Ms Bednar explained that the Act number could not be included because it had not been assigned at that stage. An Act number is only provided once the President has assented to the legislation. Treasury will include an amendment in the Financial Services Laws General Amendment (FSLGA) Bill, to amend all the definitions in the financial sector laws and relevant legislation. This will ensure the definitions are clear and efficient. BASA also recommended that a new definition that refers to the FSRA, be inserted in clause 1 of the Insolvency Act. This recommendation amends a piece of legislation that falls under the responsibilities of the Department of Justice (DOJ). Previously, Treasury had to get permission from the DOJ to include the amendments to the insolvency act to the Bill, and this approach also had to be approved by Cabinet. Treasury is reluctant to add an amendment to the Insolvency Act that is not necessary. NT recommends leaving clause 1 as is, because the current version is clear and legally correct. Similarly, BASA proposed including definitions of the FSRA and FM Act in clause 3 of the Insolvency Act. NT does not think this is legally necessary for the same reasons as the proposal to clause 1.

It has been recommended that section 51(1)(c) of the Banks Act, which refers to the curatorship process in banks, be removed. Treasury agreed with the proposal and the amendments will include the removal of section 51(1)(c) and section 51(1)(d). BASA proposed that wording be added in clause 8, as the term ‘financial sector regulator’ is not defined in the Banks Act. Treasury proposes the addition of the wording ‘as defined in section 1(1) of the FSRA, to indicate where the term is defined in legislation.

Mr Botes said Betweenity proposed a review of the amendment in clause 19, to avoid removing the oversight function of the Competition Commission when dealing with mergers. NT and the SARB have consulted the Department of Trade, Industry and Competition (DTIC) and the Competition Commission on the clauses regarding mergers. It was agreed that the SARB will communicate with the Commission, if it implements a merger resolution. The resolution framework in the Bill aims to ensure that systemically important financial institutions (SIFI) do not cause a systemic failure when they are in distress. Treasury has not included the amendments proposed by Betweenity because the amendments would make it difficult for the objectives of the Act to be achieved. The Resolution Authority’s (RA) powers are applicable whilst an institution is placed in resolution. However, after resolution, the Competition Commission will not be stopped from performing its duties against an institution that acts abusively towards customers.

Ms Bednar said BASA had recommended that FSRA be defined in the Companies Act, since all the amended sections make reference to the FSRA. NT would not propose making amendments to the Companies Act because the clauses provided are legally correct and sufficiently clear. Treasury would have to engage the DTI again and obtain approval from cabinet regarding additional amendments to the Companies Act, which it has not gotten a chance to do. Treasury agreed with the proposal to insert the wording “as defined in the FSRA” in clause 32. BASA also proposed that the new Subsection 60(5) in clause 33 be deleted, as it is unnecessary. NT believes it is absolutely necessary because it addresses a case where an institution in resolution must report matters on its license to the RA.

Mr Botes added that the provision is a necessary inclusion because it relates specifically to designated institutions. Sections 60(1) and 166D speak to the actions taken regarding license matters, but not when a designated institution is in resolution. BASA also proposed cross-referencing the FSRA in clause 34, which NT agreed to.

Ms Bednar said BASA proposed that the definition of ‘agreement’ in clause 35 be defined as ‘a written agreement’ to ensure certainty of terms. She explained that Treasury wanted to avoid unintentionally excluding agreements concluded electronically or other forms that are not necessarily done in writing. Several proposals were made regarding clause 51. BASA recommended that both subsections 166D(1)(i) and (j) refer to the Companies Act since. Treasury agrees with this and has proposed appropriate amendments. They also proposed that section 166(2)(b) make reference to a “scheme of arrangement” instead of “arrangement”, which NT agreed to. Lastly, BASA recommended that the term “or merger” be added after “amalgamation in subsection 166S (4)(c). Treasury agreed to the amendment and inserted the appropriate references.

COSATU raised concerns about the proposed ranking of creditors in subsection 166W, as it seemingly suggests that in the event of a bank collapsing, secured lenders will be paid first whilst unsecured creditors, such as pensioners and ordinary workers, will be ranked fourth. Unsecured creditors cannot afford delayed access to savings because this group lacks other sources of income.

Mr Botes said NT agreed that certain vulnerable groups need protection when dealing with banks. When the bank goes into resolution, it will follow an open bank resolution, where the vulnerable depositors would not be affected, or a closed bank resolution, where depositors will be covered by deposit insurance framework that will ensure depositors have access to their money. This is to avoid a situation in which depositors have to wait for the bank’s liquidation to be finalised before receiving money. Instead, the framework aims to ensure money is received within 20 days and aims for the practical waiting period to be within 7 days. The Bill does not introduce a new creditor hierarchy; it adheres to the existing creditor ranking set out in the Insolvency Act.

Ms Sabihah Mohamed, Policy Manager: Deposit Insurance, SARB, elaborated on three additional amendments proposed by NT. In clause 35, Treasury proposed the addition of “a branch as defined in the Banks Act” in addition to the 3 definitions of a bank in the current wording of the legislation. The refinement of the definition is to ensure local branches of foreign banks are included as members of the Corporation for Deposit Insurance (CoDI). Treasury also proposed the amendment of subsection 166BA. The wording will be changed to allow CoDI to be able to request financial sector regulators to issue standards for data collection, coverage rules, pay-outs and other funding considerations. Lastly, treasury proposed an amendment to the wording in subsection 166BH. The amendment speaks to corporations paying interest to members on the invested portion of the amount referred to in subsection (1). Previously, the term ‘invest portion’ was excluded. 

Discussion
The Chairperson asked if the drafters of the Bill were not aware of the issues raised with the 3 additional proposed amendments prior to publishing the Bill for public comments.

Ms Mohamed replied that with the amendment to expand the definition of banks, Treasury was under the impression that banks had included the local branches of foreign banks; however this was not the case. The other two amendments are refinements that were discovered later during implementation.

The Chairperson appealed for Treasury to be thorough when drafting Bills in the future, and ensure that by the time a Bill is published for public hearings, there are no afterthoughts and definitions are settled. He welcomed the additional amendments proposed by Treasury.  

Dr D George, DA, asked for clarity whether the solution to the hierarchy of depositors issue is to speed-up pay-outs. If this is not the case, then how would the vulnerable depositors be identified?

Mr Botes replied that the CoDI has started with considerable work to ensure depositors can access funds.  This includes collection of data and information to ensure depositors are identified.

Response by the Congress of South African Trade Unions (COSATU)

Mr Matthew Parks, Parliamentary Coordinator, COSATU, welcomed the depositor’s insurance framework and the efforts to ensure pensioners and workers will be paid within 20 days. It is a pragmatic solution and the insolvency act places pensioners and workers third in the cue, which helps address some of COSATU’s concerns.

The meeting was adjourned.

 

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