Secondary

Criticism

Is Criticism of FSR Bill Justified? By Alan Holton

Does the proposed Financial Sector Regulation Bill really “…violate the Constitution, the doctrine of the separation of powers and the rule of law…”?

Mr Martin van Staden is a law student at the University of Pretoria and the Southern African regional director of African Students for Liberty. He recently authored an article published in BusinessDay Live, in which he makes a number of sweeping statements about the proposed Financial Sector Regulation Bill.

According to Van Staden, the Bill allows the two new authorities to be independent of Parliament’s oversight, and makes the newly-divided regulators effectively independent of any legislature, the courts and the Treasury.

He goes further and actually protests that the Prudential Authority (PA) and the Market Conduct Authority (MCA) will be empowered not only to make their own laws, but to adjudicate on their own laws, to negotiate their own fines, and then to keep the millions to spend in their own way. The Bill, he says, will give practically untrammelled powers to these two Authorities and makes its generous grant of powers and authority to unaccountable bureaucrats all the more questionable.

I respectfully disagree quite strongly with these views.

“Untrammelled powers to unaccountable bureaucrats”

The Bill allows the Regulators (the Prudential Authority and the Market Conduct Authority) to make certain legislative instruments. The PA may make prudential standards with respect to the safety and soundness of financial institutions and the FCA may make conduct standards in respect of the conduct of regulated persons in relation to providing financial products or financial services.

This is nothing new. The Deputy Registrars have, in terms of current legislation, always been able to issue Board Notices such as, for example, Fit and Proper Requirements (Board Notice 106 of 2008), Codes of Conduct (Board Notices 79 and 80 of 2003). In terms of the proposed amendments to the FAIS Act 2002, particularly the insertion of S 1A, these documents will in future be referred to as standards. Standards will be issued by the relevant Authority in order to achieve the objectives of the Act, these being primarily the safety and security of the financial sector and the fair treatment of customers.

The difference that will be introduced by the Bill is that the Regulator in question will now be required to first publish a draft of the instrument. This must be accompanied by a statement explaining the need for and the intended operation of the instrument. There will also have to be a statement of the expected impact of the regulatory instrument and a notice inviting submissions in relation to the regulatory instrument and stating where, how and by when submissions are to be made. The period for making submissions may not be less than 60 days. In deciding whether to make the regulatory instrument, the Regulator concerned must take into account all submissions received by the expiry of the 60-day period.

These requirements do not exist currently and are to be welcomed as a very real opportunity for interested parties to become involved in the process.

It should also be borne in mind that, in terms of S 91, The Promotion of Administrative Justice Act applies to any administrative action taken by a financial sector regulator in terms of the Act or any other financial sector law. S 6 of the PAJA (Judicial review of administrative action) provides that any person may institute proceedings in a court or a tribunal for the judicial review of an administrative action.

Again, such specific provisions do not appear in any current legislation.

This does not appear to be “giving untrammelled powers to unaccountable bureaucrats” nor is there any exclusion of access to the courts.

“. . . to adjudicate on their own laws. . .”

The article appears to have overlooked the establishment of a Financial Services Tribunal as provided for in S 214 et seq. In terms of these provisions, the function of the Tribunal is to hear and decide appeals by persons aggrieved by a decision of a decision-maker in terms of a financial sector law.

The Tribunal members must include at least two persons who are retired judges, or are persons with suitable expertise and experience in law and at least two other persons with experience or expert knowledge of financial products, financial services, financial instruments, market infrastructures or the financial system.

“. . . to negotiate their own fines . . .”

The article does not take into account the provisions of the Financial Institutions (Protection of Funds) Act No. 28 Of 2001 – particularly ss 6A – 6I. For example, S 6D provides that, if the enforcement committee is satisfied on a balance of probabilities that there has been a contravention in the matter before the enforcement committee, then the committee may impose any one of a number of administrative sanctions including the imposition of a penalty by ordering the respondent to pay a sum of money to the board.

The FSRB repeals these sections of that statute and incorporates the provisions in the new statute.

Hardly any change here. Apart from which, several conditions have been legislated that govern the imposition of such penalties. In determining an appropriate administrative penalty for particular conduct, the responsible authority must have regard to the need to deter such conduct, the degree to which the person has co-operated with a financial sector regulator in relation to the investigation of the contravention and any submissions by, or on behalf of, the person that is relevant to the matter, including any mitigating factors.

“. . . and then to keep the millions to spend in their own way!”

In terms of S 169 all amounts recovered as administrative penalties must be applied first to reimburse the responsible authority its costs and expenses reasonably and properly incurred in investigating the relevant contravention, making the order and enforcing it. Any balance after payment of the authorised expenses of the Regulator concerned must be applied for the purposes of financial education or the protection of the public, as determined by the responsible authority.

From the above it is evident that the FSR Bill contains more than enough checks and balances to prevent abuse by any authority.

Alan Holton is an independent compliance officer who consults to Moonstone Compliance on a regular basis.

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