In its report on the Twin Peaks legislation to parliament, dated 30 November 2016, the Standing Committee on Finance (SCoF) raised a number of interesting issues.
Whilst commentators expressed criticism about certain matters where it appears that South Africa failed to adhere to international standards, the committee said the following:
“In processing the Bill, the Committee considered the Financial Stability Board Peer Review, the IMF Financial Stability Assessment Program Report and other relevant Reports of other multi-lateral institutions, including the Basel Committee on Banking Supervision, the International Organisation of Securities Commissioners and the international Association of Insurance Supervisors. While the Committee recognized the importance and value of this, it believes that these reports should (be) applied in a way that is consistent with the economic and developmental objectives of South Africa.”
Financial Intelligence Centre Act
Under the heading, Need for Banks to Account to Customers whose Accounts are Closed, the Committee remarks as follows:
“While the Committee recognizes that the major banks in South Africa are part of the globalized financial system and have to abide by international standards and those set by regulators of other countries in which they do business, the Committee believes that it is not acceptable that banks can close customers’ accounts and not give them any reasons for this. The banks, especially given the high level of concentration in the financial sector, can abuse their power, and, for example, close accounts for marginalized groups deemed to be high risk. The Committee considered inserting a provision in the Bill requiring the regulators to set standards for banks to explain to customers why they have closed their accounts, but finally decided that this matter should be addressed holistically in the pending Conduct of Financial Institutions Bill. The Committee strongly recommends that NT ensures that this matter is addressed in that Bill.”
Concerning FICA itself, the Committee notes:
“The day before the Committee voted on the Bill, the President returned the Financial Intelligence Centre Amendment (FICA) Bill to Parliament basically on the grounds that its power to search premises without a warrant is far too broad and therefore unconstitutional. While the Committee was not in a position to decide on this constitutional interpretation of the Presidency and its full implications, it decided to review Clause 137 of the Twin Peaks Bill, which deals with the powers of investigators to enter and search premises. The Committee decided to tread cautiously and therefore amended the clause to narrow the scope of investigations without warrant and clarify the purpose of searches. The Committee believes that by the time the NCOP Select Committee on Finance finalizes the Twin Peaks Bill, Parliament will have received the necessary legal advice on the constitutionality of the FICA Bill, and that the NCOP Committee could consider whether the amendments made to Clause 137 of Twin Peaks Bill were necessary at all.”
Constitutionality of Provisions
The constitutionality of the following provisions was questioned in public hearings on the Bill:
- A Regulator making “regulatory instruments” regarding, inter alia, “financial products and financial services”, which, although not subject to parliamentary approval, will override financial sector laws passed by Parliament in the event of any inconsistency.
- The Bill provided for a “reverse onus” liability for directors of a board in that they were assumed guilty unless proven otherwise for offenses committed by financial entities.”
“Following further legal advice, it was decided to strengthen the provisions regarding consultation and the process around the making of regulatory instruments. In addition, the statutory requirement for Parliamentary consultation in terms of clause 103 was strengthened, providing for a process of consulting Parliament.”
“…the ‘reverse onus’ clause was recast to remove any possible Constitutional challenge. This was through an additional subclause 276(1)(b), which provides for a “reasonably practical steps” defence, which imposes a requirement for directors to constantly ensure that there are internal mechanisms to check for possible offences, and ensure that these are mitigated.”
A report in Legalbrief Today states that, during a debate in the National Assembly on the Financial Sector Regulation Bill, Yunus Carrim, chairperson of the Standing Committee on Finance, commenting on the Financial Intelligence Amendment Centre (FICA) Bill, said: ‘Parliament is not going to tremble and buckle just because the President’s lawyers said it’s unconstitutional. If the Presidency’s lawyers are wrong, they’re wrong.”
The article also quotes the DA’s David Maynier as saying in his speech during the debate that Parliament’s Finance Committee had applied its mind to similar provisions to those contained in this FICA Bill, and at the last minute agreed to amend a clause in the Twin Peaks Bill to narrow the scope and clarify the purpose of warrantless searches – which Zuma claimed might be constitutionally defective in the FICA Bill. ‘The committee received assurance from Advocate Frank Jenkins, a senior parliamentary legal adviser, that following the amendment of Clause 137, the Bill was constitutional,’ Maynier said. ‘However, in the absence of a formal legal opinion, and in the absence of a legal opinion on a similar clause in the FICA Bill, an element of doubt has (now) arisen as to whether the (Twin Peaks) Bill is constitutional,’ he added.
We have since learnt that the Bill was passed by parliament. Click here to download the so-called “B” version of the Financial Sector Regulation Bill.