In an informative assessment of the Financial Sector Regulation Bill, Alan Holton, an associate of Moonstone Compliance, wrote:
“The Bill makes provision for the Prudential Authority and Financial Sector Conduct Authority to create ‘legislative instruments’. This term is defined and means subordinate legislation made in terms of a financial sector law, and includes regulations, prudential standards, conduct standards or joint standards. These standards have the same effect as the actual legislation and the most important of these is, arguably, the authority to create Conduct Standards.”
“Conduct standards must be made in order to ensure the protection and fair treatment of financial customers and to enhance the efficiency and integrity of and confidence in the financial system. These standards may also be made to promote financial literacy and financial capability and to assist in maintaining financial stability.”
Holton feels quite strongly about criticism that this approach undermines parliament’s role in law making:
“The financial sector regulator who makes a legislative instrument must, prior to making a legislative instrument, publish a draft of the instrument that must be accompanied by a statement explaining the need for the instrument and the intended operation of the instrument, a statement of the expected impact of the regulatory instrument and a notice stating that any person may make a submission about the need for, and the content of, the instrument.”
“The notice must indicate where and how submissions may be made, and the period for making submissions, which must be at least 6 weeks.”
“In deciding whether to make a regulatory instrument, the maker must take into account all submissions received within the 6-week period and must also take into account any deliberations of Parliament.”
A revised version of the Bill, published in October 2016, provides updated information on extra measures to ensure clarity on financial sector regulations.
Guidance notices and Interpretation rulings
The responsible authority for a financial sector law may publish guidance notices on the application of the financial sector law. Such notices are for information, and not binding.
The responsible authority for a financial sector law may publish a statement (an “interpretation ruling”) regarding the interpretation or application of a specified provision of that law, in circumstances specified in the statement.
The purpose of an interpretation ruling is to promote clarity, consistency and certainty in the interpretation and application of financial sector laws.
The responsible authority must interpret and apply the provision of the financial sector law to which the interpretation ruling relates in accordance with the interpretation ruling.
An interpretation ruling ceases to be effective if:
- a provision of the financial sector law that was the subject of the interpretation ruling is repealed or amended in a manner that materially affects the interpretation ruling, in which case the interpretation ruling will cease to be effective from the date that the repeal or amendment is effective; or
- a court overturns or modifies an interpretation of the financial sector law on which the interpretation ruling is based, in which case the interpretation ruling will cease to be effective from the date of judgment unless:
- the decision is under appeal;
- the decision is fact-specific and the general interpretation upon which the interpretation ruling was based is unaffected; or
- the reference to the interpretation upon which the interpretation ruling was based did not form a part of the reasoning on which the judgment of the court was based.
The responsible authority that issues an interpretation ruling may amend or revoke the interpretation ruling if it is necessary to do so because of a judicial decision or a change in the law.
An interpretation ruling ceases to be effective upon the occurrence of any of the circumstances described above, whether or not the responsible authority publishes a notice of withdrawal or modification of the interpretation ruling.
As with legislative instruments, there are very specific steps to follow:
Before the responsible authority issues an interpretation ruling, it must publish—
- a draft of the proposed interpretation ruling; and
- a notice calling for written public comments within a period specified in the notice, which period must be at least one month from the date of publication of the notice.
The responsible authority is not obliged to comply with these requirements in relation to an amendment to, or a revocation of, an interpretation ruling.
The responsible authority that issues an interpretation ruling must publish it.