THE LIFE OFFICES' ASSOCIATION OF SOUTH AFRICA
ASSOCIATION INCORPORATED UNDER SECTION 21
15 September 2004
Our ref: LAB
The Secretary to Parliament
C/o Mr. A Hermans
Parliament of the RSA
P. 0. Box 15
By fax: (021) 403-3776
E-mail: [email protected]
Dear Mr Hermans
LOA Submission: SECURITIES SERVICES BILL. 2004
Please find attached the LOA submission on the above Bill. We apologise for the delay in submitting this and hope that it can still be considered by the committee.
Please acknowledge receipt and advise if this will be possible.
SECURITIES SERVICES BILL, 2004
We would like to make the following comments on the Securities Services Bill (hereinafter referred to as "the Bill"), which largely relate to suggestions on aligning the Bill with the Companies amendment Bill, 2004.
- An important component of the Bill is the extension of the FSB's authority to securities matters that until now have been the sole domain of the Registrar of Companies. These relate mainly to the public offering and sale of securities, the concomitant prospectus provisions and to a certain extent, the inspection provisions. Of note, in this regard, is the provision requiring die. Minister of Trade and Industry to consult with the Minister of Finance before it exercises its powers and the provision that Schedule 3 of the Companies Act (prospectus requirements) may only be amended after consultation with the Minister of Finance.
As the Minister of Finance and the FSB are already responsible for Stocks Exchanges, Financial Markets, Insider Trading, Financial Institutions and inspections of Financial Institutions this will ensure more effective and consistent regulation and supervision of the financial markets and is to be welcomed.
In particular every prospectus has to be approved by the FSB before publication thereof although it must soil be registered in the Companies Registration Office. Any issues relating to the exercise of concurrent jurisdiction between the FSB and the Registrar of Companies would have to be ironed out as soon as possible to avoid disruption of the market and hopefully would not add further costs and delays in bringing new issues to the market.
- The 2004 Companies Amendment Bill, which is currently before parliament, provides for additional disqualification grounds in respect of directors and in particular those who are removed from offices of trusts on grounds that they are no longer fit and proper to hold office and requires that a register of disqualified directors and officers be kept. The Bill likewise provides for the removal of members of the controlling body of Self-Regulating Organisations ('SRO's"). It is submitted that provision should be made that such removals are reported to and incorporated in the national register of disqualified directors and officers. The same should apply to sec 96 of the Bill, which empowers the court to declare persons who are guilty of contraventions of the Bill or an offence involving dishonesty, to be disqualified from carrying on business" or being employed in a capacity of trust. In this regard it should be noted that "business" is an undefined term and could conceivably include any business. This brings the constitutionality of this provision into question and it is highly unlikely that the courts would avail themselves of such wide powers.
- The Companies Amendment Bill 2004 further introduces the concept of criminal liability and personal liability for the debts of the company on the part of co-directors who know or could reasonably be expected to know that disqualified directors are acting as directors. These new provisions would affect SRO's that are structured as companies but others would escape. To ensure consistency and good corporate governance it should be considered to introduce similar provisions in respect of the controlling body of all SRO's.
- Sec 20 empowers the Registrar to prohibit a person from carrying on the business of buying and selling unlisted securities and to impose conditions for the carrying on of such business and for trading in specified types of unlisted securities. A person who buys or sells unlisted securities to or from a person who contravenes this section, may cancel such transaction. In the interest of legal certainty and to avoid abuse a time limit should be introduced and it should be clear that only counter parties who acted in good faith should be entitled to cancel.
- Off-market transactions in listed securities entered into by financial institutions as defined in terms of this Bill, must be reported to the Registrar who in turn must disclose it to the relevant exchange and to the public unless he is satisfied on reasonable grounds that disclosure to the public will be contrary to the objects of this Act. Disclosure to the Registrar and the relevant Exchange is important for the surveillance function and for policing possible insider trading abuses. Disclosure of such transactions to the public however, seems to serve no legitimate purpose that could not otherwise be protected through disclosure to the Registrar.
- Sec 57 limits control of and shareholding in self-regulatory organisations that are companies or close corporations.
6.1 The threshold for control is set very low at 15% of the nominal value of the issued shares or 15 % of the voting rights.
- In terms of sec 57.3 a person who acquires or holds shares which results in that person exercising control, must obtain the Registrar's approval. Prior approval is not required.
- Sec 57.4, on the other hand, requires prior approval for any acquisition or control of shares that exceeds the 15"/o threshold. It is difficult to distinguish between the two sub- sections other than to conclude that sub-section 4 is applicable and new consent has to be obtained prior to every increase in the holding notwithstanding the fact that approval has already been obtained under sec 57.3. Sec 57.5.c seems to support this interpretation. This may lead to absurd results.
- The Registrar is given the power to amend the rules of an exchange or depository institution if it is necessary to meet the object of the Bill (sec 6l.8.a). It is unclear whether the Registrar is required under these circumstances to first publish it for comment as is required by sub-sec 4 in connection with other amendments. The specific nature of this provision suggests that all that is required is consultation with the SRO without the need to grant an opportunity for objections. This should be reconsidered.
- In similar vein the Registrar should allow for public comment and objections before finalising the Code of Conduct in terms of Chapter VII.
- Chapter VIII deals with Market Abuse and in particular the insider trading provisions. Although substantially similar to the existing insider trading provisions, it is now clearly stated that these provisions apply only in respect of listed securities and in respect of insiders as defined.
Some of the defences available to insiders under the existing Act would, in terms of this Bill, no longer be available. A defendant could no longer excuse himself by pleading that he would have acted in the same manner even without the inside information or that he believed on reasonable ground that no person would deal in the securities as a result of such disclosure.
Such exclusion of defences that would otherwise have been available is even more striking in respect of civil liability where the available defences are restricted to the numerous clauses set out in sec 73.1-b. In contrast thereto the existing Act allows the insider to plead any other defence available ac law. The penalties under this Chapter have been increased from R2 million to R50 million and under these circumstances offenders should not be artificially limited to certain defences only.
- The re-arrangement of die sections and sub-sections in this Chapter is a clear improvement on the existing Insider Trading Act and should lead to a better understanding.
Ms A Rosenberg
Life Offices' Association of SA
Tel: (021) 421-2586
Fax: (012) 4212599