FINANCIAL regulators and supervisors will have stronger, more intrusive and tougher powers if legislative proposals the Treasury has submitted to Parliament are promulgated.
A controversial proposal will see the Registrar of Insurance empowered to make policyholder protection rules without ministerial approval to ensure customers are treated fairly. This includes requiring improved disclosure in insurance contracts and the use of standardised definitions for concepts such as disability or dread disease so that policyholders can make comparisons between the products different companies offer.
Further, regulators will be given emergency powers to deal quickly with systemic risks to the financial system and in the case of the Financial Services Board will be protected from legal liability for their bona fide actions even if these are negligent.
The proposed Financial Services Laws General Amendment Bill will give regulators and supervisors enhanced powers to conduct inspections and on-site visits, and to summon people to provide documents required for inspections.
The bill will establish the Financial Services Board as the lead regulator in the event of concurrence or conflict with other regulators.
Treasury deputy director-general for tax and financial sector policy Ismail Momoniat conceded in a briefing to Parliament’s standing committee on finance yesterday that the Treasury had "gone overboard" — particularly in the first draft of the clause on the board’s limitation of liability that would give it immunity even if it acted in bad faith.
Mr Momoniat said it was "a mistake" to propose the deletion of the words "bona fide, but not grossly negligent" from the act. In terms of the latest version only the words "but not grossly negligent" would be deleted. This would mean that no person could be liable for any loss sustained by or damage caused as a result of anything done or omitted by them in the exercise of their powers, duties or functions under the act.
Mr Momoniat said it was necessary for liability to be limited to ensure effective rather than "light touch" regulation. Without this protection, regulators would be afraid to act for fear of being held liable.
"Regulators make enemies every time they act against those exploiting the financial system or policyholders," Mr Momoniat told MPs. There was enormous scope in the current system for accused persons to conduct campaigns to discredit regulators and abuse the legal system to delay their trials.
Mr Momoniat said the omnibus bill addressed urgent issues in 11 financial sector laws, including legislative gaps highlighted after the 2008 financial crisis. It further aimed to align these laws with the new Companies Act and to override the application of the Consumer Protection Act in financial services.
The bill would ensure that during the transition to the twin peaks system of regulation, the financial services industry was better regulated.