1. The Financial Services Board ("FSB") is the public entity responsible for the supervision of financial institutions and financial services (other than banks). By virtue of various pieces of legislation falling under the jurisdiction of the FSB, the Executive Officer of the FSB is also the registrar of financial institutions, notably the Registrar under the two Insurance Acts of 1998, the Stock Exchanges Act,1985, the Financial Markets Control Act, 1989, the Pensions Funds Act, 1956, the Unit Trusts Control Act, 1981, and others.
  2. This submission focuses on the proposal that section 3(1)(d) of the Competition Act be deleted. The stated object of this amendment is to bring about parallel jurisdiction for the Competition Commission in regulating competition aspects thus far regulated by dedicated regulators such as the Banks Supervision Department of the South African Reserve Bank and the FSB. Hitherto only the Registrar of Insurance (long-term and short-term) was authorised to exercise jurisdiction over the acquisition of shares in an insurer (control over mergers), as well as the merger of businesses (eg. where two insurers wish to merge their respective businesses). If section 3(1)(d) of the Competition Act is removed, that will have the effect of empowering the Competition Commission to exercise jurisdiction over such mergers from the point of view of the Competition Act. No provision is made for the situation where the two authorities with parallel jurisdiction are unable to agree.
  3. While sec 3(1)(d), couched as it were in very wide terms, brought about undesired consequences, its deletion in entirety may equally result in an unsatisfactory state of affairs. As stated, the effect of the deletion will be to impose parallel jurisdiction on the Competition authorities, along with that of the industry specific regulators such as the Registrar of Banks and the Registrar of Insurance, in every instance covered by both the Competition Act and the regulatory laws. Both regulators will have to go through the full procedures of their respective Acts which will be time-consuming and at the end of the day allow very little opportunity for deliberation or consultation as each Act will have to be applied according to its specific terms.
  4. The FSB believes that circumstances may be such that the principles expounded by the Competition Act must yield to those of the Insurance Acts, or other regulatory law, for example the Banks Act. The object of regulation of financial services institutions (such as is provided for in the two Insurance Acts) in essence is to ensure market stability, efficiency and the protection of the interests of investors (or, in the case of insurers, policyholders). In a given situation a merger, for example, may serve these objectives by preventing a market failure, or stabilising the market, thereby preventing public losses, or ensuring the soundness of financial institutions not only nationally but also their competitiveness in the international arena. Competition considerations ought not to interfere with or stifle a merger in such a situation, nor delay it, as very often time is of the essence.
  5. Two types of situation ought to be distinguished. In the first, competition considerations may be taken into account together with regulatory ones, in the case of a merger of two large financially sound institutions which have fallen under the supervision of an industry specific regulator, and with established records and management, and where regulatory approval from the industry regulator would be virtually a matter of routine. In the second, where the merger is between a strong and a weak institution and is arranged to prevent market failure, or where the merger is for another reason highly desirable or necessary, regulatory considerations should take preference over competition issues. The regulator under the Insurance Acts or the Banks Act, as the case may be, should be in the position to determine to which of these two categories a particular merger belongs.
  6. Recognition must, therefore, be given to the concept of a "determining regulator" in a situation where two or more authorities have jurisdiction or are approached to consider a transaction. This will obviate any impasse if two regulators do not agree. In our opinion this could best be achieved if sec 3(1)(d) is not deleted in toto but the Act amended to provide for a compulsory process of consultation with the Competition authorities in matters falling under the jurisdiction of industry specific regulators who in their domain should always be the "determining regulator". The latter will, however, be compelled to consult with the Competition authorities bringing about a sound deliberation process.
  7. Finally, the FSB doubts if the mere deletion of sec 3(1)(d) will remove the present uncertainty. Provisions like sec 37 of the Banks Act and sec 26 of the Long-term Insurance Act, 1998, will still be special laws (leges speciales) which will, with regard to matters dealt with by those Acts, take dominance over a general law (lex generalis) such as the Competition Act. If the Banks Act, therefore, in the case of mergers provides for a consultation process with the Competition authorities, that process will apply and not any independent process provided for in the Competition Act, despite the absence of sec 3(1)(d). A simple deletion of section 3(1)(d) might, therefore, bring about more uncertainty than solutions.
  8. The proposed clause 22(2) of the Bill, which enables the Minister of Finance to override the Competition Commission, presents no consolation for the FSB as it relates merely to bank mergers. The Minister of Finance will not be able to exercise his proposed jurisdiction in the event of the merger of other institutions such as two long-term insurers, or for that matter the merger of any other type of financial institution. Unlike the situation with banks, the Minister of Finance exercises no regulatory powers over those institutions falling under the jurisdiction of the FSB. The proposed Bill therefore allows no escape route whereby the jurisdiction of the Competition authorities could be excluded when the industry specific regulator deems such exclusion of critical importance.
  9. If the deletion of section 3(1)(d) of the Competition Act is inevitable, the unsatisfactory state of affairs ought to be addressed by a provision similar to clause 22(2) in which the Executive Officer of the Financial Services Board should take the position of that of the Minister of Finance in a situation such as is conceived by clause 22(2).
  10. In the case of merger transactions involving financial institutions subject to the FSBís jurisdiction, the stability of the financial system is not of such major consequence as other considerations. In the opinion of the FSB, the factors which ought to apply to the FSB and its power to override the Competition authorities, are the following:
    1. whether the proposed transaction may prevent a market failure and consequent public losses;
    2. whether the proposed transaction will induce market stability, efficiency, and the protection of the interests of the investors/ policy holders; and
    3. whether the financial soundness or management competence of any financial institution involved in the proposed transaction is a matter of concern.
  11. Needless to say, the failure of a financial institution may have catastrophic consequences on the public. This is especially so in the case of long-term insurance where lifetime savings may become exposed to risk. Nothing ought to stand in the way of the Registrar of Insurance who considers that for any of the above reasons, a merger must take place, even at the expense of considerations of competition.
  12. Summary
    1. The Financial Services Board proposes that section 3(1)(d) should not be removed in its entirety and that its provisions should remain applicable to instances where there is a public regulator who is empowered to regulate mergers and acquisitions in the financial services industry.
    2. Alternatively, that if section 3(1)(d) will be deleted, safeguards along the lines suggested above be built into the legislation so as to ensure that the dedicated regulator has the power to override the competition authorities in certain circumstances which will serve the public interest.