Financial Sector Regulation Bill: Chapter 13 Administrative Penalties & Chapter 14 Ombuds

Meeting report

Financial Sector Regulation Bill [B34 -2015]: deliberations
The Chairperson said that the Committee would be looking at the Financial Services Tribunal (Chapter 15) in the Bill that day but that the Committee could not do this without looking at the earlier paragraphs and so the Committee would start with Chapter 13 on Administrative Penalties. He said that the Committee is at quite a sensitive stage of the processing of the Bill and if all goes well it would be tabled in Parliament over the next 48 hours. He said that the Committee would start with Chapter 13, Administrative Penalties.

Part 1 – Administrative Penalties
Clause 168
Ms Kathy Gibson, Chief Director: Market Conduct, National Treasury, said that in concluding the previous section of the Bill, which had been done in the last meeting, that there were two clauses which needed to go back to the Chairperson as he had not been at that meeting.

The Chairperson said that these clauses did not need to come back to him because in his absence things would still continue and the chairperson for the previous meeting, Ms Tobias would deal with these clauses when she finishes them in the meeting with the Committee the next day.

He asked why Treasury had made the changes that it had to clause 168(1).

Mr Gerhard van Deventer, Head of the Directorate of Market Abuse: Financial Services Board replied that the changes in clause 168(1) are not important as they are just improved wording changes. Clause 168(1) is about the administrative penalty that used to be imposed by the FSB Enforcement Committee that will now be imposed by the regulator but it is restricted to contraventions of the laws that Treasury will supervise and regulate or to enforceable undertakings about those laws. Sub-clause (2)(a) states the factors that Treasury must take into account when deciding on a penalty and sub-clause (b) deals with the factors that Treasury may take into account. This is similar to the previous draft of the Bill, the only thing that has changed in the latest draft is the position of those claims.

The Chairperson asked members if they had any questions on clause 168.

Mr D Maynier (DA) asked if the wording of clause 168(1), which reads “by order served on a person”, means that it is by order of a court, because in the case of this Bill it is not by order of a court.

Mr van Deventer replied that it is not by order of a court and that this is just a practical issue of how one will inform the person of the penalty that was imposed after the whole process.

Ms T Tobias (ANC) asked what point the Financial Services Board (FSB) was making here.

The Chairperson said that he did not understand what point either.

Mr Maynier asked who is ordering the person, because the wording of “by order served on the person” could imply that it is by order of the court, which in this Bill it is not.

The Chairperson noted that the numbering in this clause in the latest draft of the Bill is incorrect.

Sub-clause (2)(b) reads “without limiting paragraph (a) the matters that the responsible authority may have regard include”. He asked if it should read “may have regard to include”.

Ms Gibson replied that this is correct.

The Chairperson said that the clause then goes on to consider the effect of the penalty on financial stability and noted that the Committee keeps coming back to this issue of who has got to ultimately pay for the penalty. How much is borne by the industry and how much by the financial customer? Sub-clause 3 reads “for reasonable cost incurred by the responsible authority in connection with the contravention”. He asked why the word “investigation” had been deleted.

Ms Gibson replied that “investigating” is a very specific word that means relating to the investigation as opposed to the contravention itself, which is a wider term than “investigation”.

The Chairperson asked if the prosecution referred to in clause 168(4) means criminal prosecution.

Mr van Deventer replied that this is correct and that 168(4) is basically just Treasury’s version of the ‘double jeopardy’ rule and that if a prosecution has actually commenced then Treasury will not take any action. He said that this clause has to be read with clause 173 which states the reverse of this clause. If Treasury imposes the penalty and there is a prosecution, that court must take into account whatever penalty was imposed.

The Chairperson said that this change is fine as it makes the Bill consistent with other legislation. He asked what is meant by sub-clause 5, which reads “an administrative penalty order is not a previous conviction as contemplated in Chapter 27 of the Criminal Procedure Act”.

Mr van Deventer said that this was to make it very clear that this is not a criminal process.

The Chairperson noted that this issue had been addressed.

Clause 169 - Payment
The Chairperson asked the FSB if it was focusing on this area primarily.

Mr van Deventer replied that this is correct.

Clause 170 - Interest
There was no discussion of this clause.

Clause 171 - Enforcement
The Chairperson asked why Treasury had made the changes that it had to clause 171.

Mr van Deventer replied that clause 171 was simply about enforcement and that this was the case in previous versions of the Bill too. When an entity imposes a penalty it needs to actually enforce it. The route taken by regulators in the past was to equal it to a civil judgement which follows a normal civil execution process.

The Chairperson asked why Treasury had made this change.

Mr van Deventer replied that it was to ensure that the promotion of administrative justice is included in the clause and provides a brief review of the considerations for enforcement.

The Chairperson asked if this was the issue raised by industry.

Mr van Deventer said that changes had been made based on the review of the previous draft of the Bill.

Clause 172 – Application of amounts paid as administrative penalties
Mr A Lees (DA) mentioned the audi alteram partem rule in terms of this context. He asked van Deventer to explain how this rule applies in clause 171(2), because one would in effect be making a civil judgement, and what opportunity would there be for the rule to be in place and for the person against whom the order has been made to defend themselves.

Mr van Deventer said that Treasury needed to distinguish between enforcement of the penalty already imposed and the process of imposing a penalty. What Treasury has often found is that whatever other justice and fairness is necessary before you impose a penalty, happens in the process of the imposition of the penalty. Once that has been completed and the order has been issued, it is simply a matter of execution. Clause 171 only deals with execution after the penalty; the rest is dealt with in the process of imposing the penalty.

Mr Lees said that he was trying to digest that information as he is not a lawyer, and he was not sure under normal civil action, after the order has been made, what legal proceedings are required.

Mr van Deventer said that the real process of deciding on the outcome happens long before execution. Once the outcome is reality, there is not a major process to do execution. In this case it is exactly the same with the difference between execution and the actual imposition. In a civil case, there would have been a civil case where both parties are heard, and only after there is a ruling in favor of one party, will execution take place. But one should also note that execution is suspended if there is an appeal or a repeal or a reconsideration.

Mr Maynier asked on what basis the order would have the effect of a civil judgement, given that the order has not been made an order of court.

Mr van Deventer replied that this is really just a practical way of executing the order and it was stated in this way in the previous versions of the Bill as well as in the latest version. This clause creates the possibility of practically taking the order and submitting it to the registrar of the high court, who will keep it on file, and at that stage one would have everything needed for execution of a civil order. He said that what is notably missing in the Bill is a clause that states that one cannot be exposed to incarceration at all as a result of an order being served against them because this is not a criminal process.

Ms Jeannine Bednar-Giyose, Director: Financial Sector Regulation and Legislation, Treasury, added that clause 171(2) expresses that once an order has been filed with the court, it has the effect of a civil judgement and can be enforced as a civil judgement.

Ms Tobias wanted to know why an administrative penalty is being applied if a contravention had already happened. Treasury needed to understand that the execution does not happen before an order is applied for, an execution happens on the basis of an order.

Adv Frank Jenkins, Senior Parliamentary Law Advisor, said that all that this provision does is to allow the order of the administrative body to be executed against the property of the penalised person to get the money that is due in terms of the penalty given. He said that he did not see a problem here.

The Chairperson asked why the original sub-clause 2 had been removed.

Mr van Deventer replied that what was written in sub-clause 2 appears elsewhere in the Bill, in clause 168(1) in the new sub-section 3, “an administrative penalty may include an amount to reimburse the responsible authority for reasonable costs incurred by the responsible authority in connection with the contravention”.

Ms Bednar-Giyose said that clause 172(3) was therefore removed because it was covered in clause 168(3).

The Chairperson noted that 172(2) had been removed to eliminate the repetition.

The Association for Savings and Investment South Africa (ASISA) had made a comment on this clause as it had a concern related to the administrative penalties and an opportunity for the person to make representations about the amount. This concern had been dealt with in the latest revision of the Bill.

The Chairperson said he had asked the committee researcher to look at all the submissions and then look at the matrix and see if any submissions had been unintentionally left out of the responses.

Ms Antonia Manamela, Committee researcher, replied that everything was captured with only one omission from the JSE which dealt with inadequate consultation.  

The Chairperson noted that although the JSE concern did not appear in the matrix, it had been covered in discussions. Treasury had given sufficient consultation on this matter.

The Chairperson noted that the members did not have any questions about clause 172 but he asked why Treasury had made the changes that it had to this clause. He did not know on whose authority this change had been made. He said that this is a policy issue for the ANC. Clause 172(b) had stated that money generated through administrative penalties was meant to be “applied for the purposes of financial education or the protection of the public”. Now Treasury wants this money to be paid into the National Revenue Fund, which means that it will be for general purposes. Who had made this decision and why had it been made?

Ms Gibson replied that it was a Treasury decision.

The Chairperson asked if any industry stakeholders had approached the National Treasury to change it.

Ms Gibson said that this was not the case as far as she was informed.

The Chairperson asked why Treasury had made the changes that it had to this clause.

Ms Gibson replied that the first reason is that the Financial Services Board (FSB) did not have revenue raising powers in respect of consumer education so consumer education was funded in multiple ways and still is. This is something that Treasury is looking to streamline going forward as part of the good governance practices. Ms Gibson said that what was communicated to the regulators is that it was seen as inappropriate to be fining on the one hand and taking those fines for exercising functions on the other hand as this constitutes a conflict of interest. The change in this clause therefore represents an improvement in terms of governance. It is not about taking funds away from consumer education because consumer education is now an explicit mandate and responsibility of the Conduct Authority who will be levying the industry in order to perform that function.

The Chairperson asked why this clause had been in the Bill in the first place and why Treasury had come to this conclusion now when this clause had been in earlier drafts of the Bill. He asked why it was suddenly changing its mind on this clause.

Ms Gibson said that this had been an ongoing debate and the clause that is here is one that had been inherited. Over time Treasury has made sure to improve the provisions made to consumer education and strengthened those provisions, not only in this Bill but in terms of the developing framework. Those provisions are part of the funding arrangements that are happening in the reform process which has to ensure that consumer education gets the right funding. Currently there is a very cumbersome process that needs to be followed in order for the funds obtained for consumer education to actually be allocated to projects and this in itself needs to be reviewed to ensure that the Conduct Authority can better deliver on its mandate.

Mr Maynier said that he did not have the Public Finance Management Act (PFMA) with him and that he would have to check the provisions of the PFMA, but he was uncomfortable with the provisions circumventing the National Revenue Fund and with fines being used to fund investigations, because this is similar, as he understands it, to some kind of extortion. Surely all proceeds of fines should go to the National Revenue Fund and then should be drawn down by the relevant authority.

Ms Tobias said that she thinks that the decision made by Treasury is a smart decision because no institution or person will say a penalty had been administered upon them because the FSB is trying to generate revenue. Mr Maynier’s argument does not hold water because when the funds are generated they will go to a central fund. This will also remove the conflict of interest. She related the example of a small municipality that is trying to make ends meet that implements traffic fines to generate income. When the municipality hides the speed cameras where people will not see them, that municipality can face litigation as people will say that the camera was hidden so the municipality could catch them speeding many times to make as much money as possible; because this is a survival technique for the municipality. People could make such an argument in this instance in a court of law. The municipality would then probably have to prove beyond reasonable doubt that there was not a conflict of interest in how the cameras were installed when they could not be seen by motorists. The municipality would have to prove that it was not trying to generate income. She said that speed cameras should be used to get people to self-correct their behaviour and stop speeding, not to generate income for a municipality. In the same way, within the context of this Bill, it is important for the activities of Treasury, which are funded by penalties, to be dissociated from the penalties that it collects.

The Chairperson noted that this was the majority’s view and asked if any other members had any comments. He did not agree with Mr Maynier’s view and did not know if such revenue generating activities were ruled out by the PFMA but he doubted that this is the case. He did not agree with Ms Tobias at all as he sees nothing wrong with a small municipality securing funds from people who are exceeding the speed limit and giving it to the poor. However, the question is whether this money is actually given to the poor. He thought that it is great if the money is being given to the poor. He did not want to enter into a long discussion on this but the basic thrust of what Ms Tobias had said was correct even if her example was not a good one. He asked why a traffic authority should not place cameras in places where the cameras are not likely to seen, given that motorists should not be exceeding the speed limit in the first place.

Clause 173 – Administrative penalties taken into account in sentencing
The Chairperson said that there is nothing wrong with this clause but he did not understand what the point is or what the FSB was trying to say with this clause.

Mr van Deventer said that this is the other side of the ‘double jeopardy’ rule.

Clause 174 – Remission of administrative penalties
The Chairperson said he could see why Treasury had made the changes that it had to clause 174.

Clause 175 – Prohibition of indemnity for administrative penalties
The Chairperson said that a comment had been made about accommodating a submission on this clause.

Ms Gibson replied that this is correct and that there had been an accommodation of ASISA.

Mr Topham asked if this clause prevents, theoretically, a person from being insured.

Mr van Deventer said that the idea behind this clause, and when it was first drafted it was much more basic and practical, is to deal with actual instances in which the company stood in for the improper exposure of information by the CEO. There was a lot of unhappiness about that in the press. For that reason Treasury started off by saying that a financial institution should not have an agreement that somebody else will pay the penalty for the transgressor, but of course, as ASISA pointed out, there might be special circumstances.

The Chairperson said that Mr Topham had made a good point and a good case.

The Chairperson then moved on to consider Chapter 14 of the Bill, on ombuds.

Ms Gibson asked the Chairperson if he wanted to go through Chapter 14 first or through Chapter 15 on the Tribunal first, to keep the initiative on the discussion of legal matters going.

A discussion ensued about whether the Committee should next look at Chapter 14 or first look at Chapter 15. The Chairperson asked members for guidance. Mr Topham suggested that the Committee be led by National Treasury on which chapter to look at next. The Chairperson replied that this is not the way the Committee operates, and that Treasury should be led by the Committee as the Bill had been in Parliament since October 2015. He said that Mr Topham was entitled to this opinion but that it is unacceptable that the Committee be led by Treasury in making this decision.

The Chairperson asked if the Tribunal reviews the decisions of the ombuds.

Ms Gibson replied that it does.

The Chairperson asked how the Committee could look at the Tribunal before looking at the Ombuds. Treasury is focusing on one aspect of the Tribunal. When Ms Gibson had initially proposed that the Committee look at Chapter 15 before looking at Chapter 14 he had agreed with her but when he looked at the Bill more closely he realised that it would be problematic to jump to the Tribunal chapter as he knew that the Committee could not look at the Tribunal without looking at Ombuds. He said to Ms Gibson that he would speak to her team about the issue.

Ms Gibson replied that the powers related to the ombud council are consistent with the powers of the other regulators. Treasury had suggested that the Committee go through the Tribunal chapter before the Ombuds because there are a lot of other issues that are specific to the ombuds system. Treasury thought that Chapter 15 might be easier given the technical legal issues of the Administrative Penalties chapter and the Tribunal chapter and then the Committee return to the Ombuds chapter.

The Chairperson asked members for guidance on which chapter the Committee should go through first. He said that he did not really have a strong view towards the Committee looking at Chapter 14 first and asked members to help him decide. He was leaning towards going through Chapter 14 first but that the members could disagree with this and defeat his opinion.

Ms Tobias said that technically the discussion on this matter is concluded if the Chairperson said that the Committee should not go through the Tribunal chapter before going through the Ombuds chapter.

The Chairperson said that the Committee would go through the Ombuds chapter first. When he had read the latest draft of the Bill he saw that there were a lot of references to the ombuds in Chapter 15 so the Committee has to go through the Ombuds chapter first. It is not fair to the Committee to be led in this decision by Treasury as Treasury was more familiar with this Bill because it had been dealing with it for much longer than the Committee had. The balance of power is therefore in Treasury’s favour.

Chapter 14 Ombuds
The Chairperson asked Treasury to tell the Committee what changes it had made in Chapter 14 as Treasury had made many changes in this chapter. He said that it would probably be a good idea to deal with the chapter as a whole first as many questions occurred to one when reading the various changes that had been made, especially from clause 211 onwards. Industry had had a policy issue related to this chapter.

Ms Gibson provided an introduction as to the context of this chapter, noting that her colleague, Ms Kershia Singh, would then take over on the discussion. Among other issues, the main policy issues that the industry has raised include the role of the ombud council, including the role of a chief ombud. The issue raised is what the Chief Ombud does, and what is it perceived to do. Treasury had created, in terms of this Bill, a council which is in effect another regulator but it is a regulator of ombuds. This means that the Chief Ombud, which Treasury had named the head of the ombud council, does not make decisions about complaints. The decisions that the chief ombud makes relates to setting standards for the ombuds to work towards harmonisation; to improve the system; to lead to best practice; and to ensure that there is compliance within the ombuds of those rules and requirements set by the chief ombud. There was a concern that there would be a perception that the Chief Ombud would be hearing cases and making decisions on specific cases. The Committee knows that there are different models of the ombud system and Treasury is currently exploring where it is taking the ombud system. The drafting in Chapter 14 is the stepping stone/ The stepping stone is at the moment a fragmented ombud system as there are statutory ombuds and voluntary ombuds and the way in which those ombuds each operate is very different and they have very different standards. Sometimes this is justified because of the nature of the complaints that they are hearing and sometimes it is not. There is also an incredibly low level of awareness of ombuds and how to navigate the system for consumers. Treasury is therefore taking steps to move towards addressing that concern. The Bill is a stepping stone or bridge for what Treasury wants to introduce. The Ombud Council is being set up to harmonise and standardise the ombuds and introduce best practice across each of the ombuds, without taking steps to say that there is going to be a single statutory ombud, like the model in the United Kingdom, or that there will only be voluntary ombuds, what we term industry ombuds,  in the system.

The intention behind setting up an Ombud Council is that the Council will be setting standards and requirements to harmonise and develop best practice for the ombuds, in addition to which its function is to build awareness. In a sense Treasury sees the setting up of the Ombud Council as developing a common brand and a common access point so that a consumer knows that if he or she is not happy with any of their financial service providers, whoever the financial service provider is; that they know where to complain and there is one front-end access point. That does not mean that there is only a single ombud, there could be multiple ombuds but the customers’ contact with and entrance into the ombud process needs to be simplified and this is why Treasury wants to introduce a Chief Ombud. This is despite the issue industry had raised, that by naming a Chief Ombud, Treasury is confusing customers because it makes consumers think that this is the person that they need to complain to when in fact they actually have ombuds to complain to.

The other major concern that was raised concerning policy relates to the rule making powers of the Ombud Council. In principle, each of the ombuds is in agreement with the increased standardisation and harmonisation but there is a view that the rules will be misplaced and overly prescriptive in a way which compromises the efficiency of the ombuds and the way they perform their functions. That is seen, for example, in the way that currently the statutory ombuds have to comply with the PFMA requirements, which is a very long list of cumbersome requirements. The industry ombuds do not have to comply with the PFMA requirements. There are also different complaints-handling processes. Even though some of the ombuds agree in principle, they feel threatened that the way in which they do things might be compromised. Treasury can go through the details of the ombuds’ concerns with the Committee. Treasury has engaged considerably with the various ombuds and has in fact visited a number of the ombuds to see how they are operating; the changes they have made; and to ask them how they see the future and the proposals that Treasury has made. Treasury is going to make further proposals which will seek to address specifically the concerns that have been raised.

In reply to the Chairperson asking if Treasury is in agreement with the ombuds, Ms Gibson said that Treasury is in agreement.

The Chairperson asked if members wanted to raise any issues. He asked Ms Gibson if the proposals are in the new version of the Bill.

Ms Gibson replied that those were the proposals in the new version of the Bill.

The Chairperson said that the latest draft of the Bill should be circulated to members.

He said that an issue that members need to be very alert to, and which had been raised before, is the issue that there is not only a Chief Ombud, but also a CEO, who does not have a role. This needed to be put in the Committee’s report. This issue has been raised before. ASISA was concerned about the fact that this is misleading because the CEO is not the Chief Ombud and does not actually have a role in the Ombud Council. Treasury’s reply was that it is thinking of a role for the CEO in Phase Two of the process. Relating to the example that Ms Tobias had given earlier on pension reforms, he had not experienced a situation before where a Committee was asked to approve a Bill before it knew where subsequent legislation would be leading. When the then Department of Provincial Local Government wanted to overhaul the local government system it brought the Municipal Demarcation Bill to the Committee, and the Committee was also supplied with a draft of the Municipal Structures Bill so the Committee knew what was coming in terms of subsequent legislation. The Chairperson was not blaming Treasury and recognised that Treasury works very hard and has a very good team. However, asking the Committee to approve this Bill when it does not know what is going to happen in Phase Two is asking too much of the Committee.

The Chairperson repeated that the National Treasury team is a fantastic team that works very hard. He said that he is the chairperson that has chaired the most parliamentary committees in this Parliament since 1997 and as such he is the most experienced person in the Committee in terms of legislation. He had also chaired the Justice Committee, which is the Committee with the heaviest load. He said that what was happening with this Bill, with the Committee being asked to approve the Bill before knowing where the subsequent legislation is leading, is new territory for Parliament. He understands that Treasury is working very hard and that it still has to negotiate further on the Phase Two process, and that Treasury has suggested that the Insurance Bill is examined before the Financial Sector Regulation Bill is completed. The Insurance Bill is before the Committee and Treasury and they will look at the Insurance Bill. He does not know how much more Treasury can do but Parliament cannot fob off its oversight responsibility. Until some of the Committee’s questions with regard to Phase Two have been answered, the Committee is not going to approve the Bill, because the Committee Report does not carry the legislative weight that the Bill does. This is broadly the Committee’s approach to the Bill. He asked if members objected to what he had said. The issue seemed straightforward to him but he asked members to please comment if they found anything that he had just said unacceptable.

Mr S Buthelezi (ANC) agreed with the Chairperson.

The Chairperson asked if members had any issues.

Mr Maynier in jest said that he hated to admit it but that what the Chairperson had said was very sensible.

The Chairperson jokingly replied that even Mr Maynier agreed, and that if Mr Maynier agreed then there must be something wrong.

Ms Tobias said that there were many people behind her in the meeting that were laughing.

The Chairperson jokingly said that members are allowed to laugh at the Chairperson and even derive and jeer the chairperson, and in fact they often do, especially ANC members, and Ms Tobias in particular, but he could evict members of the public if they laugh at the chairperson.

The Chairperson asked Mr Momoniat if he wanted to make any comments at this point.

Mr Momoniat said that Treasury had heard the Committee’s concerns and that Treasury thinks that the ombuds system is actually a very critical component of the whole approach to treating customers fairly. The ombuds are dealing with powerful financial institutions and a poor customer that feels that he or she has not been dealt with fairly. Broadly, for the ombuds system, Treasury wants, in the first instance, every institution to be able to have an objective complaints practice. It is not effective to complain to the people that one has an issue with as people simply go on the defense when someone complains about them. Therefore, a different entity needs to deal with the complaints. Someone also needs to analyse the complaints. This is similar to the issues raised with regard to service delivery. Treasury wants financial institutions to record all complaints that go to the ombuds and to do trend analysis. Even really good financial institutions should do this because the complaints made to the ombuds provide the financial institutions with a good feedback mechanism that can be used to identify weaknesses and problems that need to be dealt with.

Mr Momoniat said Treasury needs to ensure that customers are being treated fairly and this is an essential part of the ombud system in the first instance. When a financial customer has a complaint they should approach the related financial institution. The institution should then have an objective process to deal with that complaint quickly. But of course, many times, the complaints cannot actually be resolved. The next step of going to court is a very onerous one for individuals, and therefore it benefits the customer to create this alternative dispute mechanism, where there is industry buy-in and industry is reasonable and does not come to the dispute resolution process with, for example, six senior counsel lawyers. Creating an alternative dispute resolution process will mean that complaints will be dealt with in a much easier and quicker way.

The Chairperson said that Mr Momoniat had covered a lot of ground.

Mr Momoniat said that to answer the question of where Phase Two is going, the obvious thing to ask is can the ombuds system be consolidated more. Treasury does not want to take this big step because it is already making very big changes and that there are elements in the current system that are quite good with many of the voluntary ombuds. However, there are also many problems. Creating the Ombud Council is a step towards bringing the ombuds together and harmonising them. If one looks at procedures they currently have for things such as how to handle complaints, this lays the basis to go quite far towards any ultimate Phase Two and will make the transition to Phase Two more ‘natural’ because Treasury does not currently have the answers to questions about Phase Two. What Treasury achieves with this Bill may actually be more than is needed and there may be no need for a Phase Two. The challenge will be to determine if the system of ombuds is working de facto in helping customers. As the Committee goes through the clauses of the Bill, it would see that Treasury is pushing for these structures to work much better in a more harmonised way. The ultimate step would be to unify them all. The boards of some ombuds are not independent enough and perhaps are too industry friendly because of the way they are funded. If the sector starts changing some of those things, even now in the interim, the system will be more objective, more harmonised and will work better for customers. Treasury is not too worried that it does not yet know where it is going with Phase Two and cannot be explicit about what will happen in Phase Two because it has to get the system working to see how things work and then to fix aspects in Phase Two if there are aspects that need fixing.
In fact we do not know what Phase 2 will be so we should perhaps not be this explicit.

The Chairperson said that he is very empathetic to the Treasury team but that he is also bound by the role of the Chairperson in Parliament to do what Parliament is supposed to do and that if Treasury were in his seat, it would do the same thing. If he were in Treasury’s seat, he would say what they are saying. He repeated that he has enormous respect for Treasury team; however, Treasury needs to understand the Committee’s role as Parliament. He had been serving in Parliament for many years and it is unprecedented for a Committee to be asked to approve a Bill before it knows where subsequent legislation is leading. Treasury says that the Bill provides a considerable advance on harmonising the ombuds and protecting financial customers. He could not speak for all members but he spoke for the majority, and possibly the whole Committee, when he said that the Committee is on the same page as Treasury in terms of Treasury’s values and goals. If the ombuds work well it will defend the financial customers and disproportionately defend the poor. The system as a whole will defend financial customers against things like the 2008 global financial crash. Disasters like this crash will still happen but the ombuds will at least mitigate the worst effects on financial customers. Treasury and the Committee agree on the importance of ombuds. However, the Committee knows that ombuds do not always operate independently. If one reads the consumer columns in newspapers one can see how customers feel. What surprised the Chairperson though is that Treasury is now saying something new and that, if he understood correctly, Treasury cannot be explicit about Phase Two because it has to see how the dispensation will come into effect when this Bill is implemented.

Ms Tobias said that the issue of process can catch up with the Committee. She wanted to take a few steps back and give an example so that everyone could see where she is going with her argument. When the Committee was dealing with pension reform, it was told that it would have to go through the Social Security Reform Paper before it could deal with pension reforms. A similar process should happen in this instance and the Committee should go through other relevant legislation before making a decision on the Bill.

Ms Tobias said that the Committee had also raised affordability, the definition of the laws and so on. She knows that Treasury is saying that the Bill needs to be put to the test but the Committee cannot move forward on approving the Bill until all its questions had been answered. Contemplation of relevant legislation should have occurred concurrently with consideration of this Bill to make it easier for members to understand what the possible outcomes of the Bill would be.

The Chairperson said that Ms Tobias was saying the same as what he had been saying, he may just have been more opposed to the actual wording that was used in the Bill. Ms Tobias was not saying anything that was inconsistent with what he had been saying. Treasury was asking for more time to see how the Bill will work in practice, but broadly, the trajectory of what Treasury wants is similar to what the Committee wants.

The Chairperson reminded the Committee that the following week Treasury would appear before the Committee with unions and the Department of Social Development to report on how far it has gone on pension reform and social security reform.

Mr Maynier said that this Bill seems to show creeping colonisation of the ombuds.

The Chairperson said that Mr Maynier could refer to creeping colonisation but that was not what the Chairperson had been implying and if anything, the majority view would be to rationalise the ombuds in the interests of the poor. Perhaps when Mr Momoniat explained more, the DA would ‘come around’. The Chairperson could not see anything in what Mr Maynier was proposing and it seemed to be inconsistent with the way the DA thinks. However, he did not know what the DA’s position would be on the Bill. He said that unless the Committee hears something to make it change its mind on the Bill,that it would do what he and Ms Tobias had suggested and it would proceed with the Bill, despite the severe reservations that it has. The Committee had made its feelings on the process known to Treasury and as it went through the chapters it would alert Treasury to specific items that it is not happy about or is not clear on. There are some provisions in the Bill that the Committee is not clear on or might want removed. Perhaps the real test will be in the processing of the clauses and in trying to manage both the concerns of Committee and Treasury.

Mr Momoniat said that one point to keep in mind is that industry really does not want to sort things out and it will force the matter to go to the courts. Considering the number of ombuds, it is important to get industry buy-in, in spirit and in deed. Industry ultimately needs to accept that this alternative dispute resolution mechanism is something that will be in effect and that once it is; there will be no going back to the courts. Industry feels that because the statutory ombuds, in a sense, are established by the state, that they might be too biased towards the customer. Therefore, when statutory ombuds make decisions they are often not accepted by industry and industry often battles these decisions in court to ensure that they are not being treated unfairly by the statutory ombuds; who industry thinks favour the customer. When these matters go to court the process of the complaint has to start from the beginning again, and this does not help the customer. This is why it is important to get buy-in from all players.

Clause 176
He said that clause 176 had not changed at all in the latest draft of the Bill. He asked members if they had any questions. Members did not have any questions.

Clause 177 - Objective
The Chairperson asked why Treasury had made changes to clause 177.

Ms Gibson said replied Treasury would be speaking to both versions of the Bill, and that the version that had just been handed out to members in the meeting only had the most recent changes in it.

Ms Kershia Singh, Senior Economist: Market Conduct for National Treasury, said that the latest draft of the Bill is the correct one to look at when considering clause 177 as it made further changes to the July draft. The changes to this clause were made to ensure that Treasury does capture complaints about market infrastructure because the way the definitions are structured, market structure is not captured in terms of the definition of an institution that provides a product, it is captured as its own category. This change was therefore made to ensure that complaints about market infrastructure will be covered by the ombud council.
 
Clause 178 – Functions of Ombud Council
The Chairperson said that he likes clause 178. This clause is fine in what it prescribes but the Committee needs to consider whether these prescriptions actually happen in practice. It warms one’s heart to read this clause but when one thinks about what is in this clause, one will realise that there is already legislation around this matter but it is never implemented. The Ministry is not intruding on the independence of the ombuds, it actually monitors that they are doing what they are supposed to be doing.

Mr Momoniat reminded the Chairperson that the issues related to performance within the PFMA are also important in this context.

The Chairperson said that Mr Momoniat is right to remind the Committee of this point and that the Committee agrees with him but the Committee wanted more from Treasury in this regard. He asked if members had any issues that they wanted to raise. Members did not have any comments.

He asked how Treasury would “take steps to facilitate access by financial customers to appropriate ombuds” as stated in 178(1)(e). He was not saying that this should be a legal requirement but simply wanted to know how this will be achieved.

Ms Singh reminded the Committee that this referred to the Ombud Council which is the body that oversees the ombuds. There are two ways that the Ombud Council can do this. The Ombud Council can do this directly such as what the voluntary ombuds had done. They had already set up a synchronised call line, which could be well marketed as a way to promote access by financial customers. The Ombud Council can also set rules for the ombuds to follow on items such as awareness campaigns and how the ombuds accept complaints. The credit ombud for example is the only ombud that accepts sms complaints from customers, who it will phone after receiving the sms. The Ombud Council can therefore set rules for the ombuds to make access to the system easier.

The Chairperson asked how Treasury is going to promote financial inclusion through the Council, as is stated in sub-clause (i).

Ms Singh replied that this was actually one of the comments that came up on the published version of the Bill. Treasury had changed the wording in the latest draft of the Bill and the sub-clause now reads “support financial inclusion”, rather than “promote financial inclusion”. This is a similar obligation that has been placed on the regulators. It was felt that to ask the ombuds themselves to promote financial inclusion is too much to ask but that it is appropriate to ask them to support financial inclusion by being mindful of the intentions of actions taken and not excluding anybody from the financial system.

Mr Momoniat said that there needs to be proportionality. Often there are products, for example, that really are unfair to the customer. There needs to be access to the ombuds for the mass market. Regulators should also be keeping abreast of complaints made to the ombuds, just as any company should be listening to its complaints division. Treasury wants all the regulators to be checking on the complaints made with the ombuds because ultimately, once an issue is taken to the ombuds stage, it means that there is a failure in the system in the first instance that could not be solved, so it therefore progresses to the second point in the system, which is the ombuds. The regulators, especially the market conduct regulators should be looking at the ombud cases. The pensions fund adjudicator has done this and has compiled a list of problems based on ombud cases. While an ombud can only deal with a specific complaint it can also look at the broader issues as this also becomes a feedback mechanism to the regulator who might compile a list of these problems and try to solve them for the system as the regulator can deal with issues of general application. This is just one way that he sees the system working. Inclusion is obviously an important part of this system in terms of access by financial customers. One of the questions that will be hard to answer is what are appropriate products for certain markets? Treasury wants to be able to make a strong case in this regard.

The Chairperson asked if members had any comments here. He said that Treasury had softened this clause by changing “promote” to “support”. He heard what Treasury is saying and that what it is doing is correct, but that what is important is what happens in practice and that this is a difficult thing to do in practice. This was a theme in the meeting and that it should be noted in the Committee Report to Parliament. He said that he believed the Committee’s majority view is that financial inclusion is also a key aspect underpinning what Treasury seeks to achieve with this Bill.

Clause 179 – Overall governance objective
The Chairperson said that clause 179 is a straightforward clause. He asked members if they had any questions on this clause. Members did not comment.

Clause 180 – Board of Ombud Council
The Chairperson asked if Treasury distinguishes between the role of the Commissioner and the role of the Chief Ombud in a later clause.

Ms Gibson replied that it does.

The Chairperson asked if this is clear because the first thing that strikes him when reading this clause is what the difference is between the Commissioner and the Chief Ombud. He asked Treasury to remind him who the Commissioner is.

Ms Gibson replied that the commissioner is the head of the Financial Sector Conduct Authority.

The Chairperson confirmed with Ms Gibson that the definition of Commissioner appears in the definitions section at the beginning of the Bill. He said that keeping track of definitions in such a long Bill is difficult and that one needs to be very familiar with the Bill in order to keep track of things like definitions. It would therefore be difficult for the average person reading the Bill to keep up with things like definitions by the time they get to clause 179.

Mr Momoniat said that it would help to sometimes use the full definition of the Commissioner in the chapter to aid with this problem.

The Chairperson said that this cannot be done because as people like Mr van Deventer would say, it is not elegant to do this in legislation.

Ms Singh clarified that in the latest version of the Bill there is no longer a reference to the Ombud Council Director. Referring to what Ms Gibson had said earlier, Treasury had received a comment that the Chief Ombud was misleading because it does not actually have any ombud powers and it could create confusion among customers.

The Chairperson said that this is quite a shift for Treasury as a month ago it had been fighting this issue and now it is conceded. He said that Treasury was not being fair to the Committee because the Committee had only read the Bill recently but Treasury had been reading the Bill for months.

Mr Momoniat said that the Ombud Council Director had been used to symbolise a central ombuds, in a sense, because as Ms Singh had said, power lies with the actual ombuds.

The Chairperson said that what Mr Momoniat had just said sounded a bit sketchy because if Treasury is moving towards some notion of rationalisation then surely the idea of a Chief Ombud is something that Treasury could easily conceive of. He said that in the last six weeks Treasury had somehow swung from holding to the view that the Chief Ombud is very important to now saying that it is not that important.

Ms Tobias said that the role of the Chief Ombud had not been defined.

The Chairperson said that industry had also raised this concern and he asked Treasury to address this.

Ms Gibson said that the first thing is that Treasury has definitely not shifted from the view that there needs to be rationalisation.

The Chairperson said that was good.

Ms Gibson said that the issue is: does that rationalisation happen in terms of a statutory body or does it happen in terms of an industry body? The industry ombuds are already having the same exact discussion about how to rationalise and if there are opportunities to combine the different industry ombuds. The challenge, even for Treasury, is that the experience of ombuds has been mixed. There are good statutory ombuds and there are statutory ombuds that historically have not been effective. Mr Momoniat had mentioned that matters referred to statutory ombuds are always ending up in court. Industry ombuds do not have that problem. On the industry side there are industry ombuds that are very progressive and effective and there are those that are not. One would therefore be hard pressed to say uniformly that a statutory ombuds is a better option than industry ombuds because there are weaknesses and strengths to both. Treasury agrees that it wants the system to be rationalised but the issue is what this rationalisation would look like or how it would best be achieved. Treasury needs to do more work in order to be able to answer that question. To say that Treasury wants only statutory ombuds would be the cleanest and easiest way to introduce the new system. However, Treasury does not want to come down on the system and enforce such an approach because the potential disruption to the sector if Treasury does not get that enforcement exactly right, could further damage consumer access and rights. Treasury therefore wants to ensure that it knows exactly what the problems are before it tries to fix them. To make structural interventions, one needs to knows exactly what needs to be fixed and how best to fix it. So Treasury is not just creating a new body, which as the Chairperson had stated, has all these wonderful powers and functions but actually does not serve consumers any better.

Ms Tobias related an anecdote about her daughter who, when she drives, indicates that she is going to change lanes before she has actually decided whether she wants to change lanes. And she might then decide not to change lanes after she has had her indicator on. Ms Tobias gets very irritated when her daughter does this because this confuses the drivers behind her daughter. She thinks that the situation may be the same with this Bill and she suspects that Mr Momoniat is being a coward because he is backtracking on things that Treasury had indicated in previous drafts of the Bill were important. Although this is a harsh thing to say, Mr Momoniat knows what she is trying to say and gets her point.

Ms Tobias said that there is no industry that should be regulating itself as this will cause a conflict of interest. And it is not a matter of which ombuds are being regulated because they all need to be regulated, even the ones that are currently behaving well. So they should all be ‘placed in one basket’ and regulated equally. The Committee needs to say that this is the decision it is taking because, looking forward, it wants a harmonised transition into one regulated sector and this is what it is trying to accomplish with regulation. However, this issue seemed to her to be moving backwards rather than progressing. Treasury says that it wants to put the system to the test and this is acceptable but it must then be able to come back to the Committee and show whether the system will work and if it does, what processes should be used. Treasury is currently going backwards and forwards on what the system should be. The Committee needs to be very clear on what needs to happen after the Bill has been implemented and therefore it needs to have a thorough engagement with Treasury after implementation of the Bill. It will be very helpful for the Committee to have details about the implementation on the Bill after it is brought into operation.

The Chairperson said the problem Treasury was raising is that it cannot come up with something concrete because it goes through the experience first, and it might take a while after the Bill has been in effect for Treasury to understand the full outcomes of the Bill. He asked Treasury how much of what Treasury is proposing is about weighing up the evidence and how much is about Treasury dithering because the evidence for and against the proposal is not very clear. He asked members if he would be right in saying that the majority view of the Committee, unless there are overwhelming practical reasons to the contrary, is that the system should have a statutory Chief Ombud. To be fair to the Committee and industry, Treasury should set out in detail what the role of the Chief Ombud might and then implement the Chief Ombud.

Mr Momoniat said that he heard what the Chair was saying and Treasury and the Chair seem to share the sentiment that there needs to be harmonisation of the system. He said that it is not that Treasury is acting in a cowardly way and that the last thing that he wanted to be called is a coward, but that it is important to get the balance right. As Ms Gibson had said, in South Africa there are currently statutory and voluntary ombuds. Some voluntary ombuds really do not work well.

The Chairperson said that the Committee had already covered that.

Mr Momoniat said that some work stunningly well. The situation is similar with statutory ombuds, sometimes they work well and sometimes they do not. So it is not that the one is better than the other necessarily. With regard to the power of the Chief Ombud, symbolically, Treasury wants to signal that it does want a harmonised system and a person to have some powers to push towards this.

Taking into account the difficulties, Treasury wants to communicate where it wants to ultimately go with the ombud system. Internationally, ombud systems have standards. These standards are less developed on the softer side of market conduct ombuds but financial education is a bit more developed. Different countries have different approaches to the issue of treating financial customers fairly, and that is why some have standards and some do not and why standards differ. Some countries care more about treating customers fairly and have started to set standards. The UK has been very strong on setting standards. The US is even starting to set precedents for treating financial customers fairly. The new consumer senator for the US, Elizabeth Warren, had recently championed the cause of treating consumers fairly when the US issued its first fine against one of its major banks; which is revolutionary for this sector in the US. So the sector is an evolving area and it is therefore not always easy to settle on how things work in the sector. The Committee has to bear in mind that a problem with the current system, even with regard to industry ombuds, is that not all financial institutions are required to be members of ombuds. Some financial institutions choose not to be members of ombuds and the ombuds cannot enforce rules on those financial institutions outside of the ombud system. Treasury therefore wants to enforce rules that all financial institutions need to be linked to an ombud.

The Chairperson said that perhaps the Committee should hear from industry. He asked who in industry wanted to speak. He asked if the Banking Association of South Africa (BASA) and ASISA and anyone else from industry that was in the meeting to comment.

Ms Marguerite Jacobs, General Manager: Legislation and Regulatory Oversight of the Banking Association of South Africa (BASA), said that BASA did not have any comments at this point in time.

The Chairperson said that he was worried about BASA having no comments “at this point in time” because there is not much time left for discussing this Bill and the Committee had given BASA enough time to make comments on the Bill BASA must not come to the Committee at the last minute with a long argument about how it is unconstitutional, and that there is no country in the world that has implemented such a system or that “the sky is going to fall down” - because this is BASA’s opportunity to comment.

He said that apart from the legal issue, this is the direction the Committee wants to go in. There may be issues that the Committee or Treasury cannot see and asked BASA if it can see anything overly problematic in what the Committee is suggesting.

Ms Yvette Singh, BASA representative, said that it could not see anything overly problematic. However, its one concern is the matter Treasury had raised that the system could end up in a situation where more litigation is used to resolve matters, rather than ombuds being used to resolve matters.

The Chairperson said that the Committee is going to ask Treasury to consider how to reduce the prospects of that happening and that this may be something to consider in the future when formulating the role of the ombuds council. He asked if ASISA had any comments.

Ms Rosemary Lightbody, ASISA Senior Policy Advisor, said it does not have concerns. ASISA’s understanding was that the voluntary ombuds schemes put in a lot of comments and ASISA had a lot of discussions with Treasury and the Financial Services Board on this. The ASISA members were comfortable with what the Committee decides.

Clause 180 – Board of Ombud Council
The Chairperson asked if members had any questions on clause 180.

Ms Gibson commented that the discussion in the meeting was exactly the discussion that Treasury had been having a lot. Treasury definitely does not like to be seen as backing down on very important issues but Treasury had decided that what is most important is not what the ombud schemes actually look like but what the customer interface is and what the customer’s experience of the ombud schemes are. it does not actually matter how the ombud schemes themselves are arranged, what matters to the customer is that there is a single front-end for the system; that consumers know how to access it; and that the procedures and processes that consumers are directed to are consistent and fair. Therefore, this is what Treasury is putting its energy into creating and that is why the role of the Ombud Council is so critical. A question was raised about what the Ombud Council actually means in facilitating access because even the voluntary ombuds currently have their central call line but that central call line is not actually the number that customers are advised of, customers are advised of the individual ombud line or the individual ombud number. So there are multiple access points, even for different ombuds there are different access points; and this is simply confusing for financial customers. It is not about how many ombuds there are, but rather about how the customer is experiencing those ombuds and Treasury is very sensitive to this.

Clause 180 – Board of Ombud Council
The Chairperson asked if the members had any comments on clause 181.

Ms Tobias jokingly said that the Chairperson should not take what she was saying too seriously as she was saying these things to facilitate discussion.

The Chairperson in jest replied that this was yet again another veiled insult to the Chair. The Chairperson said that this is something new that he has never come across in Parliament, where the Chair gets heckled and harassed, not by the opposition, but by the very comrades from his party. He said that there is now a new position in Parliament as the parties now have not only a whip but also a chief heckler and the whip is very young so the chief heckler dominates.

Clause 182 – Terms of office of Board members
The Chairperson noted the terms of office of Board members is straightforward and it is a standard clause.

Clause 183 – Service conditions of Board members
The Chairperson said that clause 183 is straightforward.

Clause 184 – Removal of Board members
The Chairperson said that he could not see any changes to this clause in the latest draft of the Bill.
Members could comment if there were.

Clause 185 – Role of Board
The Chairperson said that someone had an issue with 185(b)(iii) and making determinations of fees in terms of a financial sector law. He asked if ASISA had made this comment.

Ms Lightbody said that it was not ASISA that made that comment.

The Chairperson asked the committee researcher who had made that comment as he had seen it in the matrix the night before. Was it BASA that had made the comment?

Ms Singh replied that it was BASA that made that comment. What BASA had been seeking was clarity at that time on whether the fees referenced were payable by the members of the ombuds committee to the ombud scheme, or whether it is fees payable by the ombud scheme to the ombud regulatory council. National Treasury had responded and provided clarification on the matter.

The Chairperson confirmed that this had been dealt with. He asked why 185(a) and (b) are formulated as two separate sub-clauses as the Board must generally act for the Council. However this is not a major issue.

Clause 186 – Meetings of Board
The Chairperson said that he could not see any changes to clause 186 in the latest draft of the Bill. This clause is straightforward.

He alerted ANC members to the fact that there would be a 15 minute study group meeting immediately after the meeting.

Clause 187 – Decisions of Board
Ms Gibson said that there was a change in clause 185 in the latest revision of the Bill. This was a change around the role of the Board in terms of its rule making powers. Initially the Bill stated that the rules would be made by the Board but because it is not an executive Board the rule making powers have been shifted and now actually reside with the head of the ombud. Executive decisions will therefore be made by the Chief Ombud.

The Chairperson asked why Treasury had suddenly seen the need to change this, because this seemed to be very late in the process for Treasury to be picking up on issues like this. This was a bit worrying. He was not saying that Treasury had done anything wrong but he was concerned about how prepared the Committee and Treasury are to finalise the Bill.

Ms Gibson said that this change had been introduced as a form of good governance and to provide for additional oversight. The concern that had been raised was that it would be an operational element and we took that concern on board.

The Chairperson asked who raised the concern.

Ms Gibson replied that industry had raised the concern.

The Chairperson noted that ASISA had raised the concern.

He said that the Committee is taking quite a lot of time and spending many hours on deliberating on new versions of the Bill. However, he thinks a good draft of the Bill can be created. He thinks that everyone involved is fed up with having deliberations on this Bill and that everyone wanted to conclude the Bill. He was aware that the Committee had not considered the schedules yet but pleaded with Members that he would like to finish this Bill in the next quarter, if possible, so that it is not carried over to next year.

Mr Momoniat said that on the Fees Bill, Treasury will look at the ombuds schemes because it is the ombuds schemes that are the members; to provide clarification on that.

The Chairperson asked if clause 187(3) was really necessary and why it had been included. It reads that “a decision of the Board is not invalid merely because (a) there was a vacancy in the office of a member when a decision was taken or (b) a person who was not a member participated in the decision, but did not vote”.

Mr Momoniat said that generally, when the Council makes decisions it does not want them to be questioned just because certain people were not present in the meeting or because there are vacancies on the Board, as the Board still needs to make decisions under these circumstances. This caveat was therefore included because Treasury needed certainty that these small technical issues would not be raised when someone does not like a decision and wants to try and change it.

The Chairperson said that he understands why Treasury had included this caveat because even if the Board is made up of six members, one is absent, and four vote in the same way; somebody can go to court and say that they are challenging the decision because the sixth person was absent.

Mr S Buthelezi (ANC) said that this is covered by defining a quorum, and a quorum takes decisions.

The Chairperson said that it is fine to include this caveat if Treasury thinks it is necessary. As Adv Jenkins said it had been included because it was needed for particular problems that may arise and that it also appears elsewhere in the Bill. However it struck the Chairperson as silly to need to include this caveat.

Mr Momoniat said that some of Treasury’s lawyers had said that they could not vouch for that.

Adv Jenkins said that there is an Oude Kraal court case that states that if a decision is taken as an administrative body, that decision stands until a successful challenge. From that angle he agreed that it is not necessary to put that clause into the Bill but that this is a question that comes up time and time again. If there are only one or two people missing from a meeting when a decision is taken, it should not affect the decision but it might be necessary to have this clause in the Bill if there were enough people missing from the meeting to affect the majority. It might also be necessary if there was someone in the meeting and subsequently it became known that that person was ineligible to be there or was disqualified from being there as someone might then suddenly challenge all the decisions that were made in that meeting. It is necessary to include this caveat in the Bill for instances such as these.

The Chairperson withdrew his question on the caveat to save time.

Mr Lees wondered if, referring to 187(3)(b), if there were a conflict of interest where someone was in a meeting who was not supposed to be in the meeting. He assumed that a decision taking under such circumstances could not be disputed.

The Chairperson said that this was covered elsewhere and refers to, for example, having a specialist or an academic at a meeting who was invited to the meeting to provide expert advice on an item on the agenda but they did not have the right to vote in the meeting. Subsequently someone asked what this person had been doing in the meeting. This caveat specifies that a decision cannot be invalidated just because there were people at the meeting that do not have voting rights. Mr Lees was right to raise this issue but that it is covered, if not in the Bill, then in normal law. But Mr Lees was right that this person being in the meeting constitutes a conflict of interest but this clause is referring to a different issue. He asked Mr Momoniat if he was right in thinking this.

Mr Momoniat replied that the Chairperson was correct.

Clause 188 – Governance and other Committees of Ombud Council
Ms Tobias asked if sub-clauses 1 and 2 did not cover the same specification.

The Chairperson asked Ms Bednar-Giyose if she had anything to add.

Ms Bednar-Giyose said that sub-clause 1 refers to committees that the Board is required to establish and sub-clause 2 refers to the option to establish other additional committees. It is a separate type of committee that is referred to in sub-clause 2, and that is why the word ‘may’ is used. Sub-clause 2 refers to additional committees that may be established to handle other types of matters that the council or Board might decide need to be addressed. It provides the Board with the flexibility to establish such committees. Sub-clause 1 states that the Board has to establish these two committees and sub-clause 2 allows the Board to establish other committees that it would like to have.

Ms Tobias asked at what point that distinction is made because they are all committees.

The Chairperson said that the roles of the committees are very different as one is like a supervisory/overview role, and the other is more like an operational role. Clause 188(1)(a) states that the “Board must establish a committee to review, monitor and advise the Board on the remunerations policy of the Ombud Council”. It is necessary for the Ombud Council to have these committees and these committees are consistent with other structures in the Bill. In addition to that the Ombud Council can also establish one or two other committees, and these may be a variety of different sorts of committees, depending on the need and the contingency. As far as he understood, this is what the clause was specifying and he thinks that Treasury is correct in making provisions for these two different kinds of committees. He said to Ms Tobias that the committee could however come back to this issue.

Ms Tobias said that this is not a big issue.

The Chairperson said that this clause seems to be fine unless members picked up on anything odd in this clause.

Sub-clause 4 refers to terms and conditions of a person who is not in the service of an organ of the State. He asked if these terms and conditions referred specifically to remuneration.

Ms Gibson replied that this is correct.

The Chairperson said that someone had raised an issue about sub-clause 5b, which reads that “the majority of the members of the Committee may not be staff members of the Ombud Council”. Someone had suggested that this should read “may not be employed staff members” because people employed by the Ombud Council may not necessarily be staff members. He asked if members and stakeholders really wanted to include the word “employed” in this clause as it seemed unnecessary and is not consistent with other clauses. If the clause states that the majority of the Committee may not be staff members of the ombuds council this is clear enough and “employed” does not need to be added.

Clause 189 – Chief Ombud
The Chairperson asked Treasury to get back to the Committee on this clause and take into account the discussions that had been had earlier in the meeting relating to the Chief Ombud. He asked if Treasury had any new proposals related to this clause in the latest draft of the Bill. He wanted Antonio to note that the Committee did not adopt this clause because of the issues mentioned.

Clause 190 – Duties of Board Members
The Chairperson asked members if they had any issues with clause 190.

Ms Singh said that the word ‘improper’ was inserted because of the comment that suggested that ‘detriment’ alone may be too open-ended. If you are a member of the Board and you cause detriment to another person, it could be as a result of you carrying out your function. So this specifies that the detriment must be improper detriment.

The Chairperson said that he understood this with regard to causing improper detriment to the Council’s ability to perform its function but wanted to know how one could cause proper detriment to their council.

Ms Gibson said that Treasury heard the Chairperson’s concern on this matter and that this is a real issue.

Ms Bednar-Giyose proposed that instead of saying “causing improper detriment” it might say “impede the Ombud Council from performing its proper functions”.

The Chairperson replied that ‘impede’ would not be appropriate in this context and another word would have to be found. He had wanted to ask Ms Verwoerd a question but she was not in the venue at that time. He asked if members had any questions on this clause but said that it is a standard clause. Members did not have any questions or comments on this clause.

Clause 191 – Delegations
There was no discussion of this clause.

Clause 192 – Staff and resources
He asked members if they had any comments on this clause. There was no discussion of this clause.

Clause 193 – Duties of staff members
The Chairperson said that he had the same issue with the use of the word “improper” when referring to detriment that he had raised earlier in the meeting.

Clause 194 – Disclosure of interests
The Chairperson said that clause 194 is a straightforward clause. He said that he could not see any changes in this clause in the latest draft of the Bill and asked members if they could see any changes.
Hello Olivia, you staring so intently at me

Part 2, Recognition of industry ombud schemes
Clause 195 - Recognition of industry ombud schemes
The Chairperson asked if members had any comments on clause 195. He did not have any.

Ms Singh said that there was a change to clause 195(2)(b)(ii) but that this was just a wording change to ‘clean up’. The previous wording had been very clumsy.

The Chairperson said that this wording change is fine.

Clause 196 – Requirement for further information or documents by Ombud Council
The Chairperson said that he could not see any changes made to this clause in the latest draft of the Bill and asked members if they could see any changes. Members did not respond and this clause was not discussed.

Clause 197 – Determination of applications
The Chairperson asked if members had any comments on clause 197.

Ms Singh said that there is a change in clause 197(1)(a) in the latest version that was circulated. The words “and notify the applicant accordingly” had been included.

The Chairperson asked if members had any comments on this.

Ms Tobias asked what the legal status of the word “accordingly” is.

The Chairperson asked her to engage with Adv Jenkins and Mr van Deventer and Mr Lees and whoever else may be interested.

Regarding 197(3)(a) which reads that the Ombud Council “must be satisfied a significant number of relevant financial institutions are, or shall, on the industry ombud scheme’s being recognised, be members of the industry ombud scheme”, he asked how the Ombud Council could ensure that the ombud scheme delivered on this obligation if it had already been recognised.

Ms Singh said that the wording had changed because it was ambiguous, and it was exchanged for “significant numbers of relevant financial institutions shall be members, on the industry ombud scheme’s being recognised”.

The Chairperson asked if Treasury can de-recognise the ombud if it does not get the number of members that it said it would get when applying for recognition. If, for example, an ombud had said that it would have five financial institutions as members and is recognised by the Ombud Council, but six months later the ombud only has one member.

Ms Singh replied that when an ombud comes to the Council for recognition as an official ombud, the ombud has to prove that if it receives recognition that at least five financial institutions will belong to the ombud scheme.

The Chairperson asked what will happen if the Ombud Council recognises the scheme but then the ombud does not deliver the five institutions, is the ombud then de-recognised.

Ms Singh replied that the Chairperson was correct.

The Chairperson asked Treasury to confirm that it has the power to do that.

Ms Singh confirmed that Treasury does have that power.

The Chairperson asked members if they had any comments on this matter.

He said that sub-clause 2 reads “the ombud council may grant an application for recognition subject to conditions specified by the ombud council”. He asked if it would not be better to specify that the Ombud Council would not recognise an ombud application unless certain conditions are met as this puts the obligation on the ombud that is applying for recognition to comply with these conditions. Since recognising an ombud and saying that it then has to comply with certain conditions makes it easier for the ombud to get away with not complying with these conditions. He asked if there is an industry or Treasury concern about this. If the wording that he suggested complicates the issue, then he would withdraw his comment.

Mr Momoniat said that the Chairperson had made a good point and that Treasury should do what he suggested. In doing so, Treasury should also note the objectives of harmonisation because it does not want a more fragmented system.

The Chairperson said that he did not feel strongly about this and he mentioned it because sometimes one does not know the value of what they thought until they mention the idea to someone else.

The Chairperson asked Ms Singh if she could remember where it was covered if it was covered somewhere else.

Ms Singh replied that she could try and find where it was covered. She thought that it may actually have been covered in the changes towards the end.

The Chairperson asked if this was in the new table.

Ms Singh replied that it is in the new table and that it is imposing an obligation on the members to comply with the governing rules of the scheme.

The Chairperson asked Ms Singh if she could find where it was covered in the Bill.

Ms Bednar-Giyose said that it is clause 216(1).

The Chairperson said that this is a much milder form of the clause, it is not just different wording.

Ms Gibson asked that the Committee keeps in mind that these clauses are actually shaping the move away from fragmentation. What Treasury is trying to communicate with these clauses is, if a company is providing a financial product or service and there is an industry ombud scheme available, that the company must be a member of that scheme. Treasury is also stipulating that the Ombud Council cannot authorise or recognise a scheme unless the majority of members are a party to it. When these types of clauses are read together it implies a natural relation towards streamlining. It will be interesting to see what happens when there are interactions with banks and credit entities. There was confusion about what sub-clause 5 means. What Treasury requires of the ombud scheme that is expressed in sub-clause 5 is that the members of the ombud scheme should advise their customers on how to complain. Connecting this requirement to inform customers of how to complain to the obligation to comply with the governing laws of the scheme, was what was confusing people.

The Chairperson said that he thought that there was an objection raised about the operational details that the Committee is asking for here. He thought that the clause is fine, unless members had picked up on any issues that he had not.

He asked what is meant by the new 197(3)(vi) which reads “require the ombud to apply, where appropriate, principles of equity when dealing with a complaint”.

Ms Singh said that some of the ombuds will consider equity and what would be fair to the customer but others can only consider what the actual contractual agreement between the customer and the financial institution was. Treasury would like all ombuds to apply principles of equity when dealing with a complaint and consider if the customer was treated fairly and not just deal with whether it was a contractual dispute.

The Chairperson asked Adv Jenkins what the word ‘equity’ means in this context.

Adv Jenkins asked the Chairperson to point him to the section that was being referred to.

The Chairperson replied that he was referring to clause 197(3)(vi) which reads, “require the ombud to apply, where appropriate, principles of equity when dealing with a complaint” and wanted to know what equity means in this context.

Adv Jenkins replied that as he understands equity in this context it refers to substantive equality, which means that one takes differences in applicants into consideration and that applicants are not all treated the same as the specific circumstances that relate to their case are taken into consideration.

The Chairperson asked if, in practice, it will mean that the customer will be favoured against the big powers of industry. When one talks of equity, you have to look at the balance of forces, so to speak.

Adv Jenkins said that was his understanding of ‘equity’.

The Chairperson said that it is therefore not an abstract fairness, it is something more than fairness. He asked Ms Bednar-Giyose if he was correct in thinking this.

Ms Bednar-Giyose replied that equity involves looking at the particular situation and what the impacts are, so if the way a contract is worded is having a very prejudicial outcome for the consumer then that can be taken into account in how the order will be made and how it should be applied in the circumstances. It is not a requirement to not just apply the strict letter of the law but to consider what would be a fair outcome more generally in the circumstances.

The Chairperson asked if he would be right in saying that equity is more than just fairness.

Adv Jenkins replied that it is fairness but people may say “well you have to treat me the same in order to be fair” but that is not what equity means. It means you treat people differently to ensure that you get fairness.

The Chairperson noted Adv Jenkins definition of equity and asked members if they had any comments.

Clause 198 – Varying conditions
Ms Gibson said that an issue in this clause is along the lines of the overlap on the credit side.

The Chairperson said that the representative from the Credit Regulator was free to speak at any time in the meeting because its submissions count for more in the meeting than industry’s do because it is a part of the State, so to speak. A meeting had been held two weeks previously between the Committee, the Credit Regulator and other entities such as the DTI.

Ms Gibson wanted to flag that an alternative dispute resolution agent is being provided for in terms of the credit law. This had only been brought to Treasury’s attention recently as it is not really formulated in terms of this Bill. With the Committee’s agreement, Treasury would approach the Credit Regulator in this regard. There seems to be some overlap between what that dispute resolution agent is contemplating and what Treasury is contemplating in terms of industry ombud schemes. Treasury therefore needs to ensure that there is clear delineation between the two and will engage the credit regulator and the DTI on this matter to ensure that Treasury could provide clarity on this matter the next time it met with the Committee.

The Chairperson asked about sub-clause 5 which states that a recognised industry ombud scheme is not an alternative but that the Committee can provide Treasury with more time to answer this question if it needs more time.

Ms Gibson asked for more time to answer this question.

The Chairperson asked members if they had any comments on clause 198 but said that this is surely a straightforward clause.

Clause 199 – Suspension of recognition
The Chairperson asked if members or industry had any comments on this clause.

Ms Singh wanted to flag some changes to this clause but said that they are merely wording changes.

The Chairperson replied that the wording changes are fine. He asked what clause 199(4) means. He also asked about the explanatory note that appears in brackets which reads “such as an obligation to report a matter to the Ombud Council”. This was new to him; he had not seen an explanatory note being placed in brackets in clauses in Bills before.

Ms Bednar-Giyose proposed that the brackets be removed and that a comma be placed before the explanatory note.

Clause 200
There was no discussion of this clause.

Clause 201 – Procedure for varying, suspending and revoking recognition
The Chairperson asked if members had any comments on clause 201.

Part 3, Powers of Ombud Council
Clause 202 – Ombud Council
The Chairperson asked members if they had any issues with this clause.

Ms Singh said that in the latest version of the Bill that there was a change in clause 202(1) as it was requested that a change be made with regard to objective support.

The Chairperson said that Treasury seemed to have made some more changes to clause 202 and asked Ms Singh to take the Committee through those changes because they are not in the notes.

Ms Singh said that 202(5) had been expanded from “promote co-ordination and co-operation”, to say that when the council is developing the rules it must “seek to provide for a consistent approach and consistent requirements for all ombud schemes, and promote co-ordination and co-operation between ombud schemes and promote the efficiency and cost-effectiveness of the ombud schemes”.

The Chairperson said that he had heard this before. He asked members if they had any comments. He would have to read the changes made to this clause but that the changes seemed to be fine.

Ms Singh said that there was a proposed expansion of 202(7) in response to a request from the schemes that Treasury engages with. The schemes were concerned that the rules may prevent them from trying new ways of doing things in making their complaint processes more efficient. Treasury has therefore said to ombud schemes that they may apply for exemption from a specific rule and that if they can prove that the outcome of the rule will still be met even though they do not comply with the letter of the law, that the Ombud Council can consider giving them an exemption for a period of time. This exemption may be subject to conditions that the Council sets.

The Chairperson said that he could not see any issues with this.

Clause 203 – Directives of Ombud Council
The Chairperson asked members if they had any issues with clause 203.

Ms Tobias said that she did not understand why the particular wording that was used in 203(7) which reads "the Ombud Council may issue the directive without having complied, or complied fully, with those subsections” was used. She asked if it was supposed to read “the Ombud Council may issue the directive without having to comply, or complied fully” because the word “complied” was used twice.

The Chairperson said that these are two slightly different things, “without having complied or complied fully”.

Ms Gibson said that Treasury thinks that this reads correctly.

The Chairperson said that the wording seems correct to him.

Mr Lees said that he did not want to put words in Treasury’s mouth but that perhaps the clause should read “without complying or complying fully”.

The Chairperson said that the wording is correct but asked Adv Jenkins for advice.

Adv Jenkins agreed with the Chairperson that the clause’s wording makes sense the way it is.

The Chairperson said that both the wording in the Bill and Ms Tobias’ suggestion for wording are correct but that the wording in the Bill is more correct than Ms Tobias’ suggestion.

Ms Tobias said that she did not agree.

The Chairperson replied that Ms Tobias and he would disagree on this matter but that it is a minor matter. He thanked Ms Tobias for alerting the Committee’s attention to the matter, however he thinks that the wording that appears in the Bill is a better formulation of that clause than what she or Mr Lees had suggested.

He asked if there is a very clear distinction between 203(3) and 203(5) because sub-clause 3 refers to role while sub-clause 5 refers to function. Sub-clause 3 reads “may not issue a directive that requires a specified person to be removed from a position or role” and sub-clause 5 reads “if the directive requires the person to be removed from a person’s position or function.

The Chairperson said that that is understandable and asked about 203(5).

Ms Gibson said that sub-clause 5 states that one has to give an opportunity to the person that has been removed from their position or function to make submissions and respond.

The Chairperson asked why 203(3) referred to “position or role” and 203(5) refers to “position or function” and if there is a specific reason for this.

Ms Bednar-Giyose said that Treasury can make the references consistent by changing “position or function” to “position or role” in 203(5).

The Chairperson noted that Treasury would make that change. Members were asked if they had any comments.

Ms Singh said that there are changes in the latest draft of the Bill to clause 203(3)(a). Treasury had deleted the words “standards relating to ombuds schemes” from this clause because the Conduct Authority will not be dealing with the standards of schemes, that is the responsibility of the Ombud Council. The wording in 203(4)(a) and 203(5)(a) had been ‘cleaned up’.

Clause 204 – Enforceable undertakings
There was no discussion of this clause.

Clause 205 – Compliance with financial sector laws
The Chairperson said that he could not see any changes to clause 205 in the latest draft of the Bill. He asked members if they could see any changes to this clause. Members did not make any comments.

Ms Singh said that there are words missing from this clause in the latest draft of the Bill and that the word “must” in 205(1)(a) is a typo.

The Chairperson said that he could not see a problem with the wording of 205(1)(a) as it is.

Clause 206 - Debarment
The Chairperson said that industry had had a concern with this clause. He asked if industry still has any issues with this clause. Industry did not comment. He asked members if they had any questions on this clause.

Ms Gibson wanted to let the Committee know that this was an issue that came up with the voluntary ombud schemes as well and there was a question about whether it was necessary. In meetings with ombuds, the ombuds had provided cases where this was in fact necessary. For example, the long term insurance ombud had cited cases where this was in fact necessary. The long term insurer had needed to debar so they agreed with the clause.

The Chairperson said that someone had suggested that “a” was missing in sub-clause 5 and that it should be inserted so that it reads “in deciding whether or not to make a debarment order”.

The Chairperson asked if the members had any comments.

Ms Gibson noted that Treasury had tried to ensure to line up the same equivalent clauses across the different chapters and also ensure that the context is correct.

Mr Topham asked who could potentially be debarred as the debarment stipulated in this clause only relates to people in an ombuds scheme, which is different to what is stipulated in clause 153 of the Bill which refers to debarment which the Conduct Authorities do.

Ms Singh replied that ombud schemes have positions for various people when putting cases together. People who are not suitable for those positions can be debarred.

The Chairperson asked members if they had any comments. He wanted to know what happens after debarment and if a person that has been debarred can be criminally prosecuted. He knows that when people are debarred they are removed but asked if there are there no other consequences, depending on how serious a violation their transgressions are.

Ms Caroline da Silva, Deputy Executive Officer: Financial Services Board, said that the debarment practice does not preclude anyone from being criminally prosecuted or even civilly prosecuted outside the debarment. The debarment simply removes them from the sector in order to create a safe space again.

The Chairperson said that it is possible to get debarred for a serious offence but then nothing happens subsequently because nobody bothers to pursue the matter further. He asked if the obligation is on the individual to refer the matter to the prosecuting authority or the police service or any other relevant authority to take the matter further.

Ms da Silva replied that that is correct.

The Chairperson asked if the individual is obliged to take the matter further.

Ms da Silva said that the head of the ombuds council scheme would be obliged to approach the criminal prosecution if it is a criminal act, as that is the nature of the law.

The Chairperson asked if this obligation appears anywhere in the Bill or if it is assumed that people will approach the criminal prosecution in such instances. He was aware that there may be minor transgressions in which case one may not have to pursue the matter through a criminal prosecution. But there may be major transgressions which would demand criminal justice prosecution. If all that is happening is that the transgressor is being debarred then that is a very small ‘slap on the wrist’ type of penalty.

Mr van Deventer replied that Treasury had historically debated many times the issue of whether it should be included as a law that one must report criminal contraventions. The problem with including this caveat however is that there is already an inflation of statutory criminal provisions in many different pieces of legislation and it is flooding the prosecution services with matters that it should not really be dealing with. It is therefore left to the management to decide what should be referred to the criminal justice system and what should not and that the Chairperson has to have some faith in that.

The Chairperson said that he understood what Mr van Deventer was saying, however, not every transgression should be dealt with by the criminal justice system, only the major ones. He suggested that something be included in the Bill to say what type of transgressions, or that major transgressions; must be referred to the police services or the criminal justice system or some such authority. He asked Ms Bednar-Giyose what her thinking was on this matter.

Ms Bednar-Giyose replied that clause 261(4) states that it is an offence for a person subject to a debarment order to contravene that order. This clause stipulates that instances in which someone contravenes an order are an offence.

The Chairperson asked the members to look at clause 261.

Ms Gibson said that when the action that causes the debarment is criminal in nature, the fact that someone has been debarred should not prevent the criminal prosecution of that person and the Bill should in fact encourage or compel the criminal prosecution.

The Chairperson said that such a caveat does not necessarily need to be included in the Bill but he stressed the point that debarment is a small ‘slap on the wrist’ for major transgressions if there is no further consequence and that the criminal justice system must deal with such matters. He said that perhaps such a caveat is covered in ordinary law and that if it is included in this Bill, that it will result in a flood of cases to the criminal justice system. He thought that not every minor or routine transgression should be dealt with by the criminal justice system and perhaps staff of financial institutions do not commit serious offences. He said that the question that surely occurs to MPs in this regard is “so what?” because the transgressor is debarred but gets away with having committed a serious offence and the consequences of these offences are serious. He said that no one was interested in inserting such a caveat into the Bill so he withdrew his comment.

Mr Topham said he could not find where it appeared in the Bill but he was sure that there is a provision that any contravention of the Bill is a criminal offence, so provided the debarment relates to a contravention of the Bill, it automatically means that it should be reported to the police.

The Chairperson said that nobody wants to include his suggestion on this matter so he withdrew his point.

Clause 207 - Administrative penalties
Ms Singh said that in the latest draft there was an addition to clause 207 which states that the administrative penalty may be applied on the scheme, a member of the governing body or the ombud itself.

The Chairperson said that this makes sense as it is despite 207(1), so 207(2) takes into account what is specified in how sub-clause 1 should be used. He asked why 207(9) had been removed from the latest draft.

Ms Singh said that this had been removed because it was felt that it is inappropriate for the Council to request a staff member of the council to pay a fine.

The Chairperson asked if members had any comments on this. He he did not have any comments here.

Clause 208 – Requests for information
The Chairperson said that he could not see that anything had changed here in the latest draft.

Clause 209 – Supervising on-site inspections and investigations
The Chairperson said that he could not see any changes to this clause. He asked members if they had any questions on this clause.

He noted that the Committee would be meeting all day the next day. He was not any happier than members were to be sitting in meetings the whole of the next day but the Committee was being flooded with legislation to consider.

Money Bills Amendment Procedure and Related Matters Act review
The Committee was asked to respond to the Interim Committee Report on the Money Bills Amendment Procedure and Related Matters Act review drawn up by Adv Jenkins so it could be taken to the Standing Committee on Appropriations.

The meeting was adjourned.