Hon Chairperson, hon members, colleagues and comrades, let me say that the Minister must not expect anything from shadow ministers because they see things in smokescreens, and that is in their nature. The current economic global crisis demonstrates what can go wrong should there be a regulatory failure that allows exploitation of the financial system by people within the system itself in order to manipulate information for greed and selfishness. This conduct is at the centre of the critical weaknesses of the financial system as a whole globally. These kinds of weaknesses create economic instability and have a negative impact on financial markets. The Securities Services Act 36 of 2004 has governed the regulation of securities services in South Africa since 2005. The Act primarily focuses on the regulation of securities exchanges, central securities depositories, clearing houses and their respective members. The Act consolidated the South African regulatory framework relating to capital markets and aligned the regulation and supervision of South African financial markets with the then prevailing international developments and regulatory standards.
The developments in the local and international financial markets necessitated a rigorous assessment of the Act to determine the appropriateness and effectiveness of the regulatory approach and framework provided for in the same Act. The Financial Markets Bill was and still is introduced under circumstances that warrant maximum attention by all of us. The Act is introduced at a time when instability of financial markets remains a serious concern and continues to pose economic threats globally. The Bill equally addresses the global financial crisis as recommended by the G20 and is designed to enhance the regulatory framework.
The Financial Markets Bill is intended to align the South African legislation and regulatory framework with developments and standards in other jurisdictions to enable integration and open the markets to local and foreign market players. Co-operation between various local and foreign regulators will strengthen the ability to detect and act on regulatory contraventions and systemic risk aspects.
The Bill aims to provide for the licensing and regulation of exchanges, central securities depositories and clearing houses; to regulate and control securities trading and the custody and administration of securities. The Bill further seeks to do the following: strengthen the self- regulatory organisation model of supervision; align financial markets regulation with international best practice; give effect to World Bank and International Monetary Fund financial sector assessment programme recommendations; improve investor protection in cross-border transactions; and align financial market legislation with the wider legislative framework. An important objective of this Bill is to ensure that there are measures in place to mitigate any future financial crisis that may arise. The so-called regulatory regime that applied internationally and to a lesser extent in South Africa prior to the global financial meltdown in 2007 and 2008, has caused regulatory reviews worldwide as well as within our own borders.
In February 2011, government released its policy document titled A safer financial sector to serve South Africa better, announcing a new approach to regulation that would place systemic stability high on the agenda. This policy document informs some of the new measures contained in the Financial Markets Bill.
As far as market abuse is concerned, new defences and offences have been introduced and removed to deal with insider trading. The defence that a person may deal with inside information because it was in pursuit of an affected transaction, has been removed because the defence is unfair to uninformed sellers before a mandatory offer is made. The defence available to a public sector body in pursuit of monetary policy has also been removed.
The Financial Markets Bill will open the regulation of securities services in South Africa including securities exchanges, central securities depositories, clearing houses and their respective members. It neatly consolidates the South African regulatory framework for capital markets and aligns the regulation and supervision of South African financial markets with prevailing international developments and regulatory standards.
Through public hearings that the standing committee conducted on 29 May 2012 in particular, we were mindful of the working group of the National Treasury and the Financial Services Board, as well as the Johannesburg Stock Exchange, JSE, and Strate Limited, whose initials on the Bill have certainly assisted the process of understanding some of the complex and technical issues attached to the Bill.
We have effected changes to the original Bill that was tabled in Parliament. The amendments effected have given better clarity on the principles and interpretation of the Bill. However, financial stability is not the only objective. The financial sector needs to do more to support the real economy as the sector has a vital role to play in the ongoing transformation of our society. Our desire to bring a better life to all is a responsibility of not only certain sectors of the economy, but the financial sector remains central to everything that we do in order to create a better life for all.
In the interests of simplicity and legal certainty, it is deemed appropriate to replace the Securities Services Act with the Financial Markets Bill rather than proposing a complex Amendment Bill.
Hon Chairperson and hon members, the ANC supports the Financial Markets Bill. Thank you. [Applause.]
Thank you, House Chairperson. The DA supports the replacement of the Securities Services Act 36 of 2004 to better regulate securities exchanges and clearing houses and other related entities, to align South Africa's regulation with global standards, and to introduce some regulation of derivative trading.
It is generally accepted that, while the existence of over-the-counter derivatives such as credit default swaps, CDS, did not necessarily cause the global financial crisis, they definitely worsened the crisis by gearing up the losses at institutions like Lehman Brothers and American International Group, AIG.
It must also be noted that South Africa currently ranks number one in the world for the regulation of securities exchanges according to the World Economic Forum, and this law builds on the base of that regulation. Most industry role-players, including the banks, have broadly welcomed the review of the legislation.
We do, however, have several concerns with the final draft before us today. The first is around the sequencing of this law with the forthcoming overhaul of South Africa's financial regulation to a twin-peaks model. It was felt by some stakeholders that amending this law now would put the cart before the horse since it would pre-empt some of the decisions that would need to be made in the establishment of the twin-peaks model. We believe there are grounds for their concern.
Secondly, one such decision would be around the relative roles of the Financial Services Board, FSB and the Reserve Bank in the Bill. Under twin- peaks the FSB is intended to handle issues of market conduct, but much of the content of this law does not deal with market conduct. So, in a way, it is expanding the FSB's mandate before the twin-peaks reforms are fully designed.
Thirdly, the objects of the Bill seem to underplay the role of competition in financial regulation. There should always be a balance between the promotion of competition and the preservation of stability in financial regulation. This Bill stops short of highlighting the promotion of competition in the objects of the Bill.
Fourthly, we think the Bill could go further in specifying how conflicts of interest can and should be resolved. In particular the functions of the Registrar should have been amended to highlight this, and section 62 should have been amended to provide for independent assessments of potential conflicts of interest within market infrastructure.
Lastly, Parliament's role in overseeing the regulations should have been enhanced. Our Standing Committee on Finance heard various opinions on the powers of parliamentary committees when it comes to regulations that are tabled in terms of this legislation. The most convincing of them called for an enhanced role for the committee in signing off or approving certain regulations. These amendments were, however, not supported. Nevertheless, despite these reservations we do support the legislation.
If I may respond to the Finance Minister's accusation that I was scoring cheap political points, on the contrary, I believe that my speech on the Fiscal Framework was simply revolving around some analysis of the numbers. I'm sorry that the Minister got so sensitive about it. I referred to smoke and mirrors because there is, indeed, an illusion in the so-called spending freeze.
In order to achieve the spending freeze, the government had to call in the contingency reserve, and bank on underspending by departments. Spending is actually up by R11,5 billion. That R11,5 billion is driven mainly by the additional R5,5 billion that is being spent on Public Service salaries because the wage settlement came in considerably higher than the 5% limit that the Finance Minister imposed in his February budget.
In fact, I hope that the House will see that there are some smoke and mirrors inherent in that illusion, simply because in order to balance out the additional spending, and to achieve a spending freeze, which the DA supports, we had to jig some numbers around to pay for the additional amounts that Cosatu and Cosatu-aligned unions managed to negotiate up, in spite of the Finance Minister's commitment to constraining those increases in salaries to 5%. [Time expired.] [Applause.]
Thank you, House Chair. This Bill seeks to replace the Securities Services Act and it is of a very technical nature. This is also a direct consequence of the global financial crisis which demanded a review of effectiveness of the regulatory approach and framework that has so far been provided from all countries.
Against this background, a review was undertaken and culminated in this legislation. South Africa was saved by timeous and proper legislation in the financial sector. One can never be too complimentary towards the Treasury's proactive support, which saved us from disasters similar to those which occurred in Europe and the United States. Increasing and maintaining the confidence in the South African financial markets remains a key role to be played by the Treasury.
By introducing this Bill, the South African financial sector is steaming ahead on the right path. This Bill is all about the protection of regulated persons and clients. The problem arises when such persons are doing business in the financial sector but are not regulated. Hon Minister, the inability of the Financial Services Board to effectively deal with an unregulated industry is a problem and cannot be ignored any more. How many Ponzi schemes do we want in South Africa before we shall see proper legislation to give all the powers to the FSB to stop these schemes in their tracks?
The Treasury cannot ignore this any longer. South Africa deserves a far more vigilant, effective and fast-moving Financial Services Board to crack down on illegal activities that are undermining the financial sector and the confidence of the public. Cope shall support the legislation. [Applause.]
Hon Chair, this is another of those Bills that we must pass to bring ourselves in line, and by all accounts, from what we understand, it is supposed to be a good Bill. Our concern is that our understanding of this Bill and how it will, in fact, be implemented, is limited.
Some of my colleagues on the right may raise their voices and say: Your understanding is limited because you haven't studied it well, you haven't listened well, and you haven't done sufficient work. This is a Bill that runs to over 75 pages of extremely technical material, most of which empowers several organs of state to adopt several layers of additional technical materials and forms, regulations, directives and ... [Interjections]. Yes, Mr Jeffery, I've read it, and if you want to come with me on TV, we can have an exchange on our respective understanding of the legislation - between you and I or any of your colleagues. I dare you to do it and see who really understands what we are adopting, Mr Jeffery.
This Bill has been passed by Parliament at extreme speed, and it has happened when there was a sense that the banks, the financial markets and the Reserve Bank were satisfied with it.
I tried to follow the public's submissions and have a clear sense that the balance of representation was not complete before the committee. There is more - I would have liked to know more and would have liked to have more attentive understanding and deliberation of this Bill, but that has not happened. So, with the benefit of such limited understanding and with the ignorance of which the Minister will undoubtedly accuse me, we are in the position of supporting this Bill.
House Chair, the Financial Markets Bill replaces the Securities Services Act of 2004. Now just to sketch the picture, the previous Act consolidated the South African regulatory framework related to capital markets and aligned the regulation and supervision of South African financial markets with the then prevailing international developments and regulatory standards.
As we know, local and international developments and the recent global financial crisis and implementation challenges required a review of the regulatory approach and the framework, and that is provided for in this Bill. This, clearly, the ACDP supports. This Bill aims to increase confidence in the South African financial markets by requiring that securities services be provided in a fair, efficient and transparent manner. Hopefully, we will not have these Ponzi schemes when this Bill is further implemented and the capacity of the FSB is improved.
This will contribute to the maintenance of a stable financial market environment, which we clearly support, and it is a great achievement that we are rated number one in the regulatory area internationally. The ACDP particularly welcomes the stringent measures to prevent market abuse by closing loopholes that currently exist. Now, the provisions against insider trading have been strengthened to include an offence of dealing for an insider, where the person dealing is not necessarily that insider trading.
We also welcome the substantial increase in the maximum penalties that can be imposed, both administratively and by the courts, following our intervention in this regard, as well as the provisions for compensation where that should be paid to victims. We trust that these provisions will deal decisively with the various forms of market abuse that do occur. The ACDP will support this Bill. Thank you. [Applause.]
Hon House Chair, the Financial Markets Bill, which aims to update the regulation and supervision of securities services, will replace the existing Securities Services Act, which came into effect in 2005. Instead of introducing a raft of complex amendments, the Treasury decided to draft an entirely new Bill in the interests of simplicity and legal certainty, and we do support that, as the chairperson of the committee indicated.
A review of existing regulations highlighted a number of critical provisions that must be given effect to in legislation, to ensure that the integrity of the regulatory framework of South African financial markets is maintained. This is an effort to provide greater transparency in respect of prices, information and other elements of over-the-counter derivatives markets. This is indeed much-needed regulation.
As a member of the G20, South Africa is also committed to the recommendations, to ensure that there are measures in place to mitigate any future financial crises that may arise. The Bill promotes the protection of regulated persons and clients; reduces systemic risks; and promotes competition in securities services and international competitiveness.
On market abuse, new defences and offences have been introduced to deal with insider trading, and that is also very important. As the hon Harris has indicated previously, in the process going forward in 2013 the twin- peaks architecture Bill will establish a new market conduct regulator, shifting prudential regulation to the Reserve Bank. We have concerns that the tabling of the Financial Markets Bill may be putting the cart before the horse, as there is a strong case to be made that the twin-peaks Bill should have been the first in the sequence.
The DA proposed several additional amendments to the Bill, including adding a commitment to the promotion of competition to the objects of the Act, which underplay the role of competition in financial regulation. We have to realise that there is an inherent balance between the promotion of competition and the preservation of stability in financial regulation. But the current Bill stopped short of highlighting the promotion of competition in the objects.
Despite these concerns, the Bill will add significant value to the financial sector. We also recognise that the issues listed above are relatively marginal and that the Bill is an improvement on our existing legislation. Thank you.
Hon Chairperson, hon Minister of Finance, hon Deputy Minister of Finance in absentia, hon Members of Parliament, and distinguished guests, firstly, let me start by congratulating the Reserve Bank on the said achievements of producing the notes with the former President, Tata Nelson Rolihlahla Mandela, together with five animals. [Applause.] They are set to be issued next Tuesday. Really, this type of gesture, as and when it happens, makes one realise that South Africa is indeed moving forward and the future could not be brighter.
From a policy perspective, it is important to have the authority to regulate the market infrastructure in a way that is relevant to the way it brings risks to the markets. The ANC has done more than most political parties when it comes to combating unethical behaviour through ideological debates and direction, regulation, legislation and public watchdog bodies. The domestic capital markets play a fundamental role in allocating domestic and foreign savings towards South African investment requirements.
One of the key objectives of the Bill is to ensure that there are measures in place to mitigate any future financial crisis that may arise. The Bill seeks to rationalise South Africa's securities regulatory framework and to bring it in line with the international best practices as set out by the International Organisation of Securities Commission.
It is also pursued to provide an enabling framework for regulations that should give effect to South Africa's G20 commitments on financial sectors regulatory reform following the global financial crisis. As a result of the 2008 international financial crisis, South Africa's economy lost nearly 1 million jobs, although it had microeconomic policy fundamentals that made for a robust financial regulatory framework before the crisis itself.
The ANC's approach to the question of the role of business is informed, first and foremost, by the character of transformation projects we are undertaking. Indeed, in the context of its call for the people to share in the country's wealth, and for the land to be shared among those who work it, the Freedom Charter also asserts:
All people shall have equal rights to trade where they choose, to manufacture and to enter all trades, crafts and professions.
This, it can be argued, applies to all societies, leaders and members of the ANC. The issue, therefore, is not whether members and leaders of the ANC have the right to or not; the question is how they exercise the right, and what implications that has for the movement and for society as a whole.
The Financial Markets Bill is intended to align South Africa's legislation and regulatory framework with developments and standards in other jurisdictions to enable integration and to open the market to local and foreign market players. President Jacob Gedleyihlekisa Zuma has committed this country to a global regulatory reform programme which includes a stronger regulatory framework with more effective supervision, improved crisis resolution and enhanced accountability through international assessments and peer reviews. These commitments are translated into four policy priorities, being financial stability; consumer protection; sound market conduct and expanding access through financial inclusion; and combating financial crime such as money laundering, etcetera.
The co-operation between several local and foreign regulators should strengthen the ability to detect and act on regulatory contraventions and systemic risk aspects. There is a need for an all-inclusive approach to regulate the financial sector in South Africa. Given the global nature of financial markets, it is imperative that the Bill strikes an appropriate balance between domestic regulators and sufficient powers to oversight and supervision to manage risks within the domestic market. In finding this balance, it is important to recognise the relative size of South African financial markets in comparison to other markets, as well as the need for global harmonisation of regulation in line with the commitments made by the