Big changes mooted financial sector laws

PF

Illustration: Colin Daniel

National Treasury published a giant omnibus bill yesterday that proposes major amendments to 11 financial sector laws, ranging from the Pension Funds Act to the Financial Advisory and Intermediary Services (FAIS) Act.

The bill is the first significant step in the reform of the financial services sector aimed at protecting you from a repeat of the 2008 global financial crisis. It also aims to align financial sector laws with legislation such as the Consumer Protection Act (CPA) and the new Companies Act.

However, National Treasury says the major piece of legislation that will redesign how the financial ser-vices industry is regulated – outlined in a policy statement known as the Red Book – is still to be finalised.

National Treasury published the Red Book with the 2011 Budget, and it hopes to publish the “more fundamental twin peaks reform legislation ... next year”.

In terms of the Red Book, the regulation of the financial services industry will be divided between:

* The Reserve Bank, which will look after prudential regulation (regulation that is concerned with preventing financial institutions from going bankrupt); and

* The Financial Services Board (FSB), which will regulate market conduct (the dealings the financial services industry has with you, as a consumer).

This new structure is known as the “twin peaks” approach.

In the meantime, the omnibus bill will deal with some urgent matters that cannot wait for the new twin peaks legislation.

Among other things, if enacted, the bill will significantly increase the FSB’s powers to take action against unscrupulous individuals and institutions, and it will impose far more onerous punishments on those who get their hands on your savings unlawfully.

The FSB’s enhanced powers will be given backbone by amendments to the Inspections of Financial Institutions Act and the Financial Institutions (Protection of Funds) Act. These amendments will also grant the FSB the power to tackle problems where it sees them emerging.

The bill proposes to increase the penalties for contravening financial laws, in many cases, from thousands to millions of rands.

In the wake of the ongoing plunder of retirement savings, the bill proposes toughening up the Pension Funds Act to place more onerous responsibilities on trustees and service providers.

If they are forced from office, trustees will have to report to the FSB on the circumstances surrounding their departure.

In a media statement, Treasury says the amendments to the 11 laws address legislative gaps highlighted after the 2008 financial crisis.

It says many of these gaps were also highlighted in the Red Book, which is properly entitled “A safer financial sector to serve South Africa better”.

The Red Book outlined 15 principles that will guide the reform of South Africa’s financial regulatory architecture.

But Treasury says the omnibus bill does not cover the more fundamental reforms envisaged in the shift towards the twin peaks model of regulation.

If enacted, the bill will be known as the Financial Services Laws General Amendment Act of 2012.

Treasury says: “The primary objective of the bill is to ensure that, even during the transition to the twin peaks system, we have a sounder and better regulated financial services industry, which promotes financial stability” by:

* Strengthening the financial sector’s regulatory framework;

* Enhancing the supervisory powers of the regulators; and

* Enhancing the powers of the finance minister and the Reserve Bank to address potential risks to the financial system.

Treasury says the bill also addresses several urgent issues. These include:

* Closing gaps identified by the financial sector assessment programme conducted by the International Monetary Fund and the World Bank into South Africa’s adherence to international standards of financial regulation;

* Aligning financial sector legislation with the new Companies Act;

* Eliminating overlaps caused by the CPA, Companies Act and Competition Commission Act;

* Making the FSB the lead regulator where there is concurrent jurisdiction;

* Giving the finance minister appropriate emergency powers to deal with risks to the financial system; and

* Strengthening the Reserve Bank’s powers to intervene in the event of a banking crisis.

The 280-page bill proposes to amend the following 11 financial sector Acts: the FSB Act, the Inspection of Financial Institutions Act, the Financial Institutions (Protection of Funds) Act, the Short Term and the Long Term Insurance Acts, the Pension Funds Act, the FAIS Act, the Collective Investment Schemes Control Act, the Co-operative Banks Act, the South African Reserve Bank Act and the Financial Services Laws General Amendment Act of 2008.

The bill and its accompanying documents are available on the websites of the National Treasury (www.treasury.gov.za) and the FSB (www.fsb.co.za). All interested stakeholders are invited to submit comments on the bill. Written comments should be sent to Reshma Sheoraj at omnibusbill@treasury.gov.za or faxed to 012 315 5206 by April 13.