Edition: Dec 2014 - Feb 2015


A mirror on the FSB

What it reflects to itself is one thing.
What it reflects to others might be another.

In the first "integrated" annual report of the Financial Services Board, for the year to end-March, it’s proclaimed: "The board generally exercises leadership, integrity and judgment in directing the FSB in a manner based on transparency, accountability and responsibility."

Lots of key words here. One of them is "generally", which is distinct from "specifically". To be specific, the adherence to transparency and the rest look a little thin when FSB executive officer Dube Tshidi can take it upon himself to refuse information on the costs, progress and payouts in various curatorships (TT Sept-Nov).

Which raises the matter of "accountability" i.e. accountability to whom? It can be argued that his refusal contradicts accountability to members of pension funds interested in the conduct of curatorships. Pension funds are stakeholders because over the year they contributed R153m in FSB levies.

Also, "integrated" reports are supposed to provide qualitative non-financial information. This report provides mission statements and quantitative data on FSB activities in such areas as consumer education, which is an FSB statutory duty. But search in vain for discussion on the success or otherwise of impacts.

Similarly, as if it were something to boast about, there are numerous references to the FSB website as a communication tool. Well, try using it. Publication of curatorship reports, for instance, is sporadic, incomplete, inconsistent and sometimes outdated (e.g. a 2012 media release, with no report, on the Saccawu national provident fund despite the happenings there since).

Then there’s an important document, ‘Proposed Guidelines on the Conduct of Curators'. It appears on the website neither under ‘Latest News’ nor ‘Documents for Comments'. You'd need to hear on the grapevine of its existence eventually to search successfully for it. Signed by Tshidi on Oct 28, comments are invited by Nov 28 (so don't send them via post).

The document is important because the amended Financial Laws General Amendment Act allows the Registrar at s5(6) to prescribe "guidelines" in accordance with which curators appointed under the section "must" act, says Tshidi in a covering note.

While most of these guidelines are of a motherhoodand- apple pie nature – like expecting curators to carry out their duties "honestly and fairly, with due skill and diligence and in the best interests of the institution and investors" – there are some which require more detailed attention; that is, if the intent to promote "effective supervision of curators by the Registrar in the best interests of the financial sector and investors" is to be fulfilled.

Some suggestions (in italics) for the Registrar, without anticipating that Tshidi will fall over himself to honour anything from TT with his consideration:

  • There’s nothing on how curators are appointed. Apparently, this is left to the Registrar’s discretion. 38 Today’s Trustee December 2014/February 2015 Skilled professionals should be invited to form a pool of potential applicants, having contractually committed themselves to guidelines adherence, from which the Registrar draws. He should be obliged to make appointments from within this pool and, when called upon by an investor with bona fide interest, curators should expect him to explain why a particular appointment was made or not timeously cancelled e.g. Dines Gihwala at Fidentia.
  • The curator is required to preserve confidential information except to the extent that a court of law may order disclosure. Who is to decide what information is confidential and what isn't? Can a decision of the Registrar override a decision of the curator? In the experience of TT, Tshidi elects not to disclose even information that cannot conceivably be confidential e.g. the costs incurred and the payments made to beneficiaries of the CAF pension fund following a 2001 judgment against Old Mutual in the Supreme Court of Appeal.
  • The draft provides that the curator must regularly report to the Registrar on specified matters. These reports should be in writing to enable publication on the FSB website e.g. reports in the so-called ‘Ghavalas funds’ which don't appear on the website or don't make all the disclosures specified, and to enable compliance with the Promotion of Access to Information Act when it is invoked.
  • There are provisions for curators to appoint independent firms for legal proceedings and forensic investigations, subject to the Registrar’s approval. Curators should be obliged to approach the Registrar for approval before these proceedings and investigations are instituted i.e. to intervene where he considers them unnecessary or extravagant relative to the costs that fund members will have to bear.
  • Where an institution has insufficient resources to cover the cost of the curator’s remuneration, it’s proposed that the curator shall be entitled to an "agreed" percentage of recoveries. It’s too vague that contingency fees, although they "must" be sanctioned by court order and "may" be subject to a maximum, can first be "agreed" between the curator and the Registrar. Curators who propose a contingency arrangement should consider their proposal to be tentative and a basis for the Registrar to invite competitive tenders from within the pool. It must be understood that the tender process will precede an application for court approval, and that in this application the Registrar will motivate his reasons for having reached agreement with a particular curator. Further, the application will include the curator’s disclosure of his financial relationship with any professional firm that he might intend to engage.
  • Fees paid to curators must be reasonable, in accordance with professional tariffs and agreed with the Registrar. Sounds fair enough, but in reporting to the Registrar the curators should also be required to itemise the work being charged i.e. not only the hours but also who actually has done the hours; for example, not to pay the curator at the tariff of a law firm’s senior partner when the grind has been delegated to a junior associate.

Curatorships can be immensely lucrative. Fund members have an interest in making them less lucrative, and rely on the Registrar to make them so.