The National Treasury and the Financial Services Board (FSB) have moved to block a concerted attempt by a number of financial services associations, particularly the powerful Life Offices' Association (LOA) and the Banking Association, to weaken far-reaching legislation aimed at giving consumers better protection.
The associations launched their attack on the Financial Services Laws General Amendment Bill at a hearing of Parliament's committee on finance earlier in this month.
The only major organisation not involved in the attack was the Association of Collective Investments.
The bill proposes amendments to a range of laws, from the Pension Funds Act to the National Payments System Act, which regulates the transfer of funds between banks.
This week, the FSB and the National Treasury told the portfolio committee on finance that they rejected most of the amendments proposed by the LOA, the South African Insurance Association, the Banking Association, the Investment Management Association and the Linked Investment Services Provider Association (Lispa).
The finance portfolio committee must make recommendations to Parliament on whether the views of the industry associations or those of the National Treasury and the FSB should be given precedence.
Baron Furstenburg, the director of financial markets at the National Treasury, strongly criticised the financial services industry for continually trying to find ways around the law instead of attempting to abide by the spirit of the law.
Referring to one of the proposed amendments to the Pension Funds Act that will force life assurers, in particular, to allow you to transfer a retirement annuity to another product provider, Furstenberg said the regulations on commissions have to be tightened, because product providers are finding ways around the existing legislation.
He said the situation could often be compared to a balloon, because, as legislative pressure was applied to one area, the balloon bulged in another area.
Furstenberg said many of the arguments the financial services providers (FSPs) presented to the committee were aimed at protecting their own interests.
Range of amendments
The amendments to the Financial Services Laws General Amendment Bill that were proposed by the financial services associations and which the National Treasury and the FSB rejected include:
- FSB decisions.
The LOA and Lispa proposed that any decision by the FSB aimed at stopping the exploitation of consumers be put on hold if the decision is taken on appeal to the FSB Appeal Board.
The National Treasury and the FSB argued that the FSB often needs to take immediate action to protect the public. An aggrieved party can apply to the Appeal Board to suspend whatever action the FSB has taken. The appellant will, however, have to convince the Appeal Board that suspending a decision "will not pose a risk to the public".
- Penalties.
The LOA proposed that a limit be placed on the penalties that proposed FSB enforcement committees can impose on offending companies and individuals.
The National Treasury argued that punitive amounts, such as R100 million, can be meaningless in the context of the financial services industry. The secret profits made by retirement fund administrators totalled more than R500 million.
It is intended that the penalties the enforcement committees can impose include those aimed at punishing offenders and at forcing them to compensate offended parties.
- Powers of inspection.
A raft of proposals were submitted to limit the FSB's powers to inspect financial institutions and FSPs.
The LOA proposed that FSB on-site inspections of FSPs should take place only if there are reasonable grounds to suspect that an FSP or the FSP's agent is not complying with the Financial Advisory and Intermediary Services (FAIS) Act.
Gerry Anderson, who is in charge of financial advice at the FSB, told the committee the inspections can actually help financial advisers, while the FSB could not be expected to act only where there is smoke - the fire has to be prevented.
The LOA also wanted FSB inspectors to give prior notice of their arrival. This was rejected on the grounds that the FSB may want to conduct unannounced visits to "ensure effective supervision".
Other LOA-proposed amendments that the National Treasury and the FSB rejected include limits on documents that can be seized by the FSB, as well as the right to remove documents from the premises of inspected parties.
Lispa attempted to block an amendment that will allow the FSB to name and shame offending parties, including providing details of FSB inspections. The National Treasury and the FSB argued that consumers have a right to know if a provider with which they are doing business is under investigation.
- Debarring agents.
The National Treasury and the FSB rejected a number of proposed amendments aimed at softening the actions that must be taken to debar agents of FSPs who "materially" contravene the FAIS Act, as well as to place obligations on compliance officers employed by FSPs to report material irregularities to the FSB.
- Auditors and actuaries.
Alexander Forbes proposed that the Registrar of Pension Funds at the FSB should only be permitted to take action against auditors and actuaries who, in the view of the registrar, have prejudiced the funds to which they provide services, by referring the matter to their respective professional bodies for action. (Note: The Actuarial Society of South Africa has yet to take any public action against a single actuary, even though actuaries have been involved in numerous scandals in which retirement fund members have been disadvantaged.)
- Banks and the FAIS Act.
The banks launched another attempt to effectively get themselves excluded from the FAIS Act. When the Act was introduced in 2002, the banks attempted to have themselves excluded from its ambit, despite the fact that they provide extensive advice and sell financial services products. The Banking Association argued the banks are subject to regulation by the South African Reserve Bank.
- National payment system.
The Banking Association proposed that there should be a general review of the National Payment Systems Act. The proposal was rejected on the grounds that the banks are attempting to delay the government's attempts to increase competition in the banking sector by forcing the banks to grant other players, including non-bankers, access the payment system, which facilitates the transfer of funds between banks, including via ATMs.