Treasury Response to Comments

A document containing National Treasury’s responses to comments on the Financial Services Laws General Amendment Bill was published recently. The 110 page document makes for heavy reading if you are not a legal beagle, and there is a lot of repetition as many of the responses related to all six laws commented on.

I publish below two items commented on in our publications recently, and a third one which addresses the issue of effective communication between the regulator and the industry.

1. Comment: By compelling all rules and directives to be published on the FSB website, rather than the Government Gazette, would limit public accessibility to these documents.

Regulatory Response: Comments noted: As has always been the case, Regulations prescribed by the Minister would continue to be published in the Government Gazette. The approach has been retained as was contained in the original Bill as published, to allow for FSB directives and exemptions to be published on the FSB website rather than the Government Gazette. This is to avoid the high costs of publication in the Government Gazette. However, where a directive has been issued in the interest of public protection, then the Registrar may still consider publishing such rules, directives and exemptions in the Government Gazette, in order to ensure reliable public access to the directives. A clause has been inserted into the FSB Act which provides for a list of directives and exemptions which are intended to have a general application to be published annually as a schedule to the FSB’s annual report that is tabled in Parliament.

People in the legal profession may regard the Government Gazette as easier access, but the rest of us rely on information on the regulator’s website to keep up to date with requirements.

2. Comment: By deleting the words “bona fide, but not grossly negligent” from the FSB Act, would have the effect of indemnifying FSB officials from losses caused in the exercise of their powers in terms of financial services legislation, even if the exercise of those powers was grossly negligent.

Regulatory Response: Comments are supported. The clause was revised to include the words “bona fide”, and the words “but not grossly negligent”, removed. Officials’ of a Regulator require protection against claims for losses sustained by third parties as a consequence of their exercise of powers conferred upon them in terms of statute provided those powers were exercised in good faith (‘bona fide’). This is line with international standards and experiences.

You may recall that we also commented on this last year. An article by Professor Robert Vivian, published on the InsuranceGateway website, calls into question the constitutionality of some of the powers about to be bestowed on the Regulator. While the above proposal was repealed, there are others, according to the Prof, which effectively gives the Regulator the right to make laws which is actually the domain of parliament.

3. Comment: Repealing the existing advisory committees may impede effective consultation.

Regulatory Response:
An amendment to the FSB Act has been provided for which empowers the Minister to prescribe a code of consultation for the FSB, which will set out requirements as to how the FSB must communicate, consult and engage with the industry or key stakeholders.

While the above may paint a positive picture, the response to other areas was less positive. We are extremely concerned about the powers given to the Regulator in terms of investigations and seizure of documents. Another area of concern lies with the apparent status of compliance officers during on-site visits. A superficial review of the proposals and comments on the status of the compliance officer in such matters, and apparent conflicting responses from treasury, did raise questions. We will study this in more detail and report back soon.

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