Big changes mooted financial sector laws

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.

Illustration: Colin Daniel. Credit: PF

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:

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:

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

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.