FINANCIAL SERVICES OMBUD SCHEMES BILL, 2004 ("FSOS BILL") RELATIONSHIP BETWEEN COUNCIL, MINISTER, FINANCIAL SERVICES BOARD AND REGISTRAR

1. In the regulatory architecture of the Financial Services Board, external bodies such as the Council envisaged by the FSOS Bill are a common feature. Reference may be made to Advisory Committees appointed by statute (of which there are six), FSB Board Committees (of which there r:, are ten), and the Market Abuse Directorate (formerly known as the Insider Trading Directorate). Three of the Board Committees have external members, being committees to oversee the actions of the Registrars. The most active of these three committees is the Licensing Committee.

2. The powers of the aforementioned Committees vary. Their respective powers are mostly spelled out in the underlying legislation. Members of FSB Board Committees are appointed by the FSB Board. Members of the other committees are appointed by the Minister. All these committees are funded through the FSB which in turn is funded by levies raised on regulated entities. The FSOS Council fits into this overall pattern.

3. The FSB prides itself in the quality of person which it attracts externally to serve as members on the committees. Whether the FSB appoints committee members (as in the case of Board Committees) or whether the Minister does so, great care is exercised to appoint the best available people having regard to the objectives of the Committee. Without exception due consideration is given to representative from the point of race and gender. Reference to the composition of these committees as reflected in the FSB Annual Report 2004 will confirm these facts.

4. Thanks to the professionalism and integrity of Committee members, and their devotion to the task, the FSB has never considered the need to impose governance rules on its committees or to prescribe codes of conduct for committee members.

5. While these external bodies add good value to the operations of the FSB, bringing in external expertise and experience, they do not add excessively to the FSB's costs. In the 2003 financial year, fees and allowances paid to the FSB's advisory and other committees accounted for only 1,2% of the FSB's operating expenses.

6. The FSOS Council may be compared with, but is not identical to, the many Advisory Committees that exist under almost all the acts of Parliament administered by the FSB.

7. Where the Advisory Committees mainly advise the Minister or Registrar, the FSOS Council has specific functions which are set out in the Bill. It cannot exercise authority beyond these functions.

8. The members of both Advisory Committees and the Council are appointed by the Minister. Both are part-time bodies financed through the funds of the FSB. The approval of the FSB is required for their expenditure (FSOS, clause 9(1)). The Registrar's office ( the FSB) performs the administrative work of the Council (clause 8(3)). It will not engage staff of its own; nor will it be necessary for the FSB to appoint additional staff
The Council reports to the Minister and to the FSB (clause (4)); also in relation to reports received from an ombud (clause 16(2)).

10. Various provisions of the Bill require the Minister to consult with the Council before performing a function e.g. clause 17 (declaring any person as a financial institution), clause 18(4); (granting exemptions); and clause 19 (making regulations).

11. Having regard o its composition and functions, the Council is independent. To facilitate liaison with the FSB, the Registrar ex officio serves on the Council with no voting power (if the proposed amendment to clause 3(3) is adopted). The mere presence of the Registrar on the Council does not impair the independence of the Council, nor has it got adverse constitutional consequences. The Registrar also serves on Advisory Committees as well as on the Market Abuse Directorate.

12. Possibly the main function of the FSOS Council is to consider applications for recognition by a scheme (clause 11) against the criteria set out by the Bill (clause 10). The Council does not itself set those criteria. Its ancillary functions are to be found in clause 8. None of these will interfere with the independence or work of a scheme that adheres to the requirements of the Bill. The whole intention of the Bill in setting criteria for schemes and to have them monitored by an external body, is to ensure that recognised schemes operate at a certain level of standards. This does not differ from examples in other jurisdictions.

13. It is important to note that the Council has no authority to appoint any ombud. It must, however, ensure that the ombud is appointed by a body not controlled by industry participants; and that the scheme's rules will ensure that the appointee will be fit and proper for the office (clause 10(1)(b) and (c)). Nothing the Council does, may affect the independence of an ombud (clause 8(1)(e)).

14. Though not of immense importance, the promoters consider that it is preferable that the FSOS Council should not be regarded as a committee of the board. Committees of the Board (i.e. the FSB) are provided for in section 10 of the Financial Services Board Act, No 97 of 1990. Such committees are appointed (and discharged) by the Board; they perform functions assigned to them by the Board; the Board is ultimately responsible for the actions of its committees. This is not the intention with the Council. 15. To sum up : The provisions of the Bill are sufficient to ensure a good working relationship and interaction between the Council and the FSB; that the Council will be sufficiently funded but that its costs will be contained; that it will be able to perform its functions independently; that those functions are circumscribed and not unlimited or unreasonable: that standard setting for schemes is the objective and not undue interference with their work or independence. 16. The addendum to this submission should give an indication of the business plan and the financial requirements of the FSOS Council in its first year of operation.

NATIONAL TREASURY FINANCIAL SERVICES BOARD
21 October 2004

ADDENDUM FSOS COUNCIL : BUSINESS PLAN AND FINANCIAL IMPLICATIONS

1. First meeting as soon as possible after promulgation of FSOS Act and appointment of Council members by Minister: Purpose general briefing.

2. Two meetings to consider applications for recognition (clause 11) (three applications expected)

3. Two meetings to discuss matters set out in clause 8 (monitor compliance, promote education, promote best practices, issue guidelines rejurisdiction, etc). One meeting to consider ombud's reports and actions thereunder.

NOTES

(a) The FSB collates meeting papers and forwards them with agenda to members some time before meeting.

(b) FSB attends to administrative follow-up matters after meetings.

(c) Two bases are employed to remunerate Committee members : an inclusive fee per meeting attended (R1796.00). This basis applies to Advisory Committees. An hourly rate where preparatory or follow-up work has to be done by committee members. It is assumed that FSOS Council members fall into the latter category review by Audit and Risk Management Committee (Board members) and the Board itself; annual audit by Auditor General.

(f) Audited annual financial statements are published in the FSB's annual report copies of which are forwarded to Parliament.

(g) Annexure "A" is an illustrative budget for the FSOS Council for its first year. If it will assemble more than six times, R70 000,00 should be added for each additional meeting above six ANNEXURE "A'



ILLUSTRATIVE BUDGET FOR FSOS Council from Apr05-March06

R

Attendance Fees @ R1,015 per hour 219,240
Mileage @ R2.90per km 22,968
Airtickets 117,870
Accommodation 5 members @ R900 27,000
Car Hire 2 days @ R1.153 for 5 members. 34,590
Fedics refreshments for meeting @ R1,200 per meeting 7,200
Total 428, 868

ASSUMPTIONS:
1. Attendance fees are based on Licensing Committee Rates.
2. Based on a 2 Hour meeting plus 2 hours preparation time.
3. Mileage claim is based on 1 person from Pietersburg @ 700km, 1 person from Nelspruit @ 500km and 2 persons from Johannesburg area @ 60km per meeting for 6 meetings
4. Airtickets are based on 3 Members from Cape Town @ R4, 565 and 2 members from Durban @ R2,975 per return airticket
5. Accommodation and car hire are based on 5 members travelling by air.
6. Budget was based on 6 meetings for the year.