Edition: April / June 2016


A step at a time

As the Hunter/FSB saga started to unfold, Alec Hogg’s Biznews website
(www.biznews.com) kept readers up-to-date with a series of columns
by TT editorial director Allan Greenblo. They’re republished below.
A full set of the papers filed by Rosemary Hunter is available by downloading,
from the Biznews website, the article it published on Jan 29.

Jan 29: Clean sweep

There’s no way that ‘Twin Peaks’ financial regulation can be implemented as presently envisaged; no way, that is, unless government is prepared to risk the possible disaster of a crumbling peak. It has been warned.

Restructure of the Reserve Bank, to take care of prudential supervision, looks to be smooth sailing. But for the Financial Services Board, due to be remoulded as the authority over market conduct, the same cannot be said.

This is because of the court application brought by Rosemary Hunter, one of the FSB’s most senior executives, against the FSB itself. Her demand for the release of certain reports has set the scene for publicpolicy outrage. Targeted allegations in her founding affidavit, complemented by mountains of supporting annexures, are too meticulous to be dismissed as the ravings of a disaffected crank.
[See link to court application documents on biznews.com article of Jan 29.]

The papers go to the heart of FSB governance. They scream for National Treasury not willy-nilly to morph FSB personnel into the market-conduct peak until it has explored the FSB’s own market conduct under executives and directors to be impartially vindicated or rusticated.

At the least, senior FSB officials will need to be scrutinised for competence and probity before their contracts are extended for moves to the new authority. Such is the gravity and stature of their positions that a selection panel, similar to hearings before the Judicial Service Commission, would help to stimulate public confidence where it’s sorely needed.

By coincidence, the Hunter application is on the cusp of ‘Twin Peaks’. It makes perfect the timing for a clean sweep through the FSB.

Like the Securities & Exchange Commission in the US, the SA regulator of market conduct can be structured into an aspirational destination for the best and the brightest of this country’s suitably qualified job-seekers. Funded by levies on private-sector savings, the FSB and its successor cannot be run as a public-sector bureaucracy.

Meanwhile, since the FSB must continue to function, a few niggling questions:

  • Why has the FSB integrated annual report, for the year to end-March 2015, still not been published? Are there any areas where the contents of the report and the allegations of Hunter are inconsistent?

  • Hunter has specifically fingered FSB executive officer Dube Tshidi and FSB board chair Abel Sithole (who happens also to be principal executive officer of the Government Employees Pension Fund). For delivery of the FSB’s statutory mandate, can the three of them still be expected to work together? If not, who should be suspended and who in their stead should be offered acting appointments? (Is former FSB chair Gill Marcus by now sufficiently bored in her Knysna retirement to ride to the rescue?)

  • After the rand’s hammering, Finance Minister Pravin Gordhan is on a mission to restore confidence and trust in the SA investment environment. Cited in the Hunter application as a respondent, because it’s to him that the regulator of non-bank savings and investment institutions reports, could he have wished for a more straightforward test of his commitment?

Wish or no wish, Gordhan is immediately put to the proof.

Feb 4: Who’s the boss?

With his eyes open or closed, Finance Minister Pravin Gordhan could find himself walking into a trap. Created by default and certainly not by design, his governance confrontation at the SA Revenue Service can be replicated precisely at the envisaged Financial Sector Conduct Authority.

It arises from the absence of a conclusive answer to what should be a simple question: Who’s the boss?

The division is in lines of responsibility. They become confused when the minister appoints a commissioner who must in turn report to the minister, but day-to-day operational duties rest with the commissioner.

The contradiction would probably would have escaped notice had it not been for the January blow-up at SARS. When Gordhan called on SARS commissioner Tom Moyane to stall the implementation of a restructure, Moyane effectively told Gordhan to take a hike.

The argument is that the commissioner, not the minister, runs SARS. Reporting to the minister on policy and performance is quite distinct from the minister having a right to intervene in micromanagement or even in strategic decisions.

Now check the Financial Sector Regulation Bill, tabled in October and intended for enactment later this year. In setting up the Financial Sector Conduct Authority, the finance minister is to appoint the FSCA commissioner “who will be responsible for the day-to-day management and administration of the FSCA”.

In making the appointment, the minister and commissioner must agree in writing “on the performance measures that must be used to assess (the commissioner’s) performance and the level of performance to be achieved against those measures”. That’s it, and rightly so. An unwholesome situation would arise were the commissioner’s performance rendered better or worse by ministerial overrides.

But it leaves the minister exposed. With the FSCA, unlike SARS, operational responsibility goes beyond a domestic employer-employee arrangement. Ultimately it is the minister, not the commissioner, who has to provide the world with confidence in the conduct of SA’s financial institutions. Should the commissioner fall down on the job, the most the minister can do is institute the processes of an independent inquiry to remove him.

Now shift the focus to current goings-on at the Financial Services Board, being readied for absorption into the FSCA. The allegations on affidavit by FSB deputy executive officer Rosemary Hunter, against some of her most senior colleagues, might not make it much easier for the minister to appoint from present FSB ranks a commissioner and up to four deputy commissioners “with appropriate experience in the financial sector” as the legislation requires.

Once the Hunter case is underway, with allegations and counter-allegations to be cast hither and thither, the personnel switchover from the FSB to the FSCA could become more difficult still. And central to it, reverting again to ministerial powers of intervention, is why then finance minister Nhlanhla Nene had sat silently on the sidelines once Hunter had given him every opportunity and argument to push for a resolution.

In the FSB’s present incarnation, the minister appoints an 11-member board. Sitting below it is an eight-member executive committee. The FSCA will change it to a commissioner structure, the commissioner to chair an exco that “must oversee the management and administration of the FSCA to ensure that it is efficient and effective”.

Efficient and effective? Well, let’s see how efficient and effective it will be once all FSB staff are transferred (as per s285 of the Bill) to the FSCA. Or how top people will emerge from the probity criteria once Hunter has had her day in court. Or why the FSB integrated annual report, for the year to end-March 2015, is still publicly unavailable.

Some things won’t change, like the power to raise levies (from you and me) for funding of its operations. There never has been accountability to levy-payers by the FSB, and neither is there to be by the FSCA. Unlike JSE-listed public companies, stakeholders have no say on remuneration levels. It goes without question that the FSB’s top executive be paid a multiple of top civil servants’ remuneration.

Ah well, just a few more items for the plate of poor Pravin. But importantly now, in moving the Twin Peaks regulatory model to implementation, his recent experience at SARS cannot blind him to potential risk at the FSCA.

Feb 10: A loud silence

To put it benignly, there’s a “misunderstanding” on when the annual report of a public body actually becomes publicly available for public discussion. In the case of the Financial Services Board, which reports to Parliament through the Minister of Finance, there should be no misunderstanding.

Evidently, however, there is. And the longer it takes for the “misunderstanding” to be resolved, the longer it will take before the report can be tested for completeness and veracity.

The tests in this instance are whether, and if so how, the FSB has reported to Parliament on the grievances of deputy executive officer Rosemary Hunter. Alternatively, if the report sidesteps the grievances, is economical in revealing the status of various legal and forensic inquiries, or otherwise fails to deal with the “irregular expenditure” of which Hunter complains, then what will Minister Pravin Gordhan and the parliamentary Standing Committee on Finance (SCoF) do about it?

Fireworks will be in order. The annual report of the FSB, for its financial year to end-March 2015, is still unavailable on the FSB website.

The timing looks to be running tight as already the FSB is within weeks of reaching the end of its 2015- 16 financial year. This report will possibly be its last before the FSB morphs into the new Financial Sector Conduct Authority.

There’s something distinctly odd in a process that allows the earlier report to be withheld from perusal while preparations for the later report are about to begin. Or perhaps not so odd, contends FSB spokesperson Tembisa Marele: “The reason that the FSB’s 2015 annual report has not yet been published is purely procedural. We cannot publish it until it is tabled in Parliament. We are waiting for Parliament’s schedule to accommodate us.”

On the other hand, it’s particularly odd. David Maynier, DA shadow finance minister and member of SCoF, states: “I have confirmed that the FSB annual report for 2014-15 was tabled on 28 August 2015 in Parliament.”

Once tabled – which means simply that it has been logged onto a parliamentary database and given a case number – the document is public and available to anybody capable of finding it. There’s no constraint on the FSB to publish the report on its website, or in any other manner that it wishes. There’s no obligation either, except in so far as the FSB wishes to be seen enhancing the principles of transparency and accountability.

Pertinent to the FSB’s 2014-15 annual report is Hunter’s first “statement of non-compliance” submitted to the FSB board in July 2014. It contains her grievance against FSB executive officer Dube Tshidi, arguing that Tshidi had engaged in a “concerted campaign” to have her leave the FSB and had “sabotaged my ability to ensure that the Retirement Funds Department properly fulfils its mandate”.

In the course of these efforts, says Hunter, “Tshidi has incurred expenditure for the FSB in substantial amounts”. Thus the battle shifts up a gear to whether there has been compliance with, or contravention of, the Public Finance Management Act.

It’s reasonable to expect that the FSB annual report, with integrity as its hallmark, will have made the necessary disclosures. But on the offchance that it hasn’t, the disclosures – and reasons for non-disclosures – will have to be prised from FSB officials when they appear for examination at SCOF.

To have compiled and signed off the 2015 report, on the assumption that Hunter wouldn’t go public, might be exposed as one hell of a gamble.