Edition: August/October 2018
Wraps off the regulator
Now that the new Financial Sector Conduct Authority has officially taken over from the old Financial&nbs;Services Board, the big questions are on the differences that might be expected for such regulated bodies as retirement funds. From structures to staffing, from powers to policies, and of course costs, TT asks whether the changeover exercise promises improved supervision or is little more than an expensive rebrand of this consumer-financed state bureaucracy.
Thanks to the FSCA’s transitional management committee (TMC) for its forthright replies. They offer a guide through the maze of officialdom and a look into the future of regulatory implementation.
TT: What will be the budget for revenue and expenditure in the first year of the FSCA compared with the last year of the FSB?
TMC: FSB total revenue for the 2017-18 financial year was R802m (budget R765m). The FSCA budget is at R803m for its 2018-19 financial year.
Total expenditure of FSB for the 2017-18 financial year was R766 million (budget R816m) and for FSCA the budget is at R934 million for the 2018/19 financial year.
For FSCA revenues, what proportions (in rand amounts and percentage terms) will be required from levies on retirement funds? How do these compare with the last year of the FSB?
As per the table above (in millions of rand):
Will any additional levies be required from retirement funds for the budget of the Prudential Authority (PA)? If so, in what amounts?
No. Retirement funds will not at this stage be required to pay additional levies to the PA. The Financial Sector Regulation Act (FSRA) provides that the prudential oversight of pension funds will be performed by the FSCA for three years from 1 April 2018, or such longer or shorter period that the Finance Minister may determine. Accordingly, unless and until these prudential oversight powers revert to the PA, retirement funds will not pay levies to the PA.
How many divisional directors/divisional executives will there be at the FSCA, and what are their respective roles? If any persons have already been appointed to these positions, who are they and to what roles?
The FSCA will have 10 positions at the Divisional Executive or equivalent level.
In terms of the FSRA, Abel Moffat Sithole -- as the Commissioner of the FSCA -- has appointed the following individuals on two-year contracts (but with the chief financial officer and chief information officer being permanent appointments):
The vacant Divisional Executive positions have been advertised. These are for Conduct of Business, Corporate Centre, Investigations & Enforcement, and Licencing & Contact Centre.
How does the number of deputy commissioners compare with the number of deputy executive officers at the old FSB? How will the roles of the new deputy commissioners differ from those of the former deputy executive officers?
In terms of the FSRA, the commissioner and up to four deputy commissioners together comprise the executive committee of the FSCA.
It will be the prerogative of the to-be-appointed commissioner to decide on whether the deputy commissioners will have specific “line management”-type responsibilities in relation to the various divisions of the FSCA. Such responsibilities lie with the divisional executives.
It is envisaged that the deputy commissioners will have oversight functions through chairing and/ or participating in various governance and oversight committees to be set up within the FSCA.
Unlike the previous FSB deputy executive officers, the FSCA deputy commissioners will not act as “deputy registrars” in relation to specific financialsector laws. References to “Registrars” in financialsector laws have been replaced with references to “the Authority”.
Delegations of authority in relation to specific functions under specific financial-sector laws have been granted to appropriate divisional executives or other FSCA staff members.
How many applications were received for the posts of FSCA commissioner and deputy commissioners? Of these, how many applicants were short-listed?
National Treasury, not the FSCA, is involved in this process.
Have any deputy executive officers of the old FSB already been appointed to the FSCA? If so, who are they and in what capacities?
The FSCA has appointed two of the former Deputy Executive Officers into the roles of Divisional Executives.
Which new FSCA officials have not been drawn from the ranks of the old FSB?
None at this stage. The vacant Divisional Executive positions have been advertised internally and externally. In terms of FSRA regulations, the Minister has appointed Katherine Gibson from National Treasury to the TMC for her to provide marketconduct expertise.
What will be the staff complement of the FSCA compared with the old FSB?
FSCA’s approved staff complement is 696 whereas the FSB’s approved staff complement was 648.
Compared with the old FSB, will the regulation and supervision of retirement funds differ under the FSCA? If so, in what ways?
Yes, to a certain extent they will differ. There will be more focus on Treating Customers Fairly, from both the members and the funds as clients of service providers. This means, amongst other things, intense scrutiny on costs and charges, benchmarking performance, intensive enforcement of timely submission and analysis of financial returns, and ensuring full compliance with the new default regulations.
Dedicated, rapid and intrusive inspections and follow-ups on whistleblowing and complaints are also envisaged.
Given the complexity of retirement funds, an internal specialisation approach is being considered. There’ll be dedicated units to oversee governance of funds, trustee training, ESG (environmental, social and governance considerations in mandates), and curatorships.
Will the service providers to retirement funds – specifically asset managers, consultants and administrators – be subject to FSCA regulation and supervision?
Yes, asset managers and retirement-fund benefit administrators will be subject to FSCA regulation and supervision in accordance with the FAIS Act and the Pension Funds Act respectively. These sector laws remain in force until such time as they may be wholly or partially replaced by the future overarching Conduct of Financial Institutions Act (COFI). In turn, COFI will also regulate these activities.
Asset consultants remain subject to the FAIS Act, to the extent applicable to their activities. As part of our Retail Distribution Review, we are considering regulatory amendments to more explicitly bring their activities within the scope of the FAIS Act or whatever legislation may replace it.
Is the Public Investment Corporation, as an asset manager, subject to FSCA regulation and supervision as it was under the FSB? If so, has the FSCA investigated recent allegations of irregularities concerning the PIC chief executive and with what result? If there has been no such investigation by the FSCA, why not?
The PIC is currently regulated as a Category II financial services provider (FSP) under the FAIS Act. As a licensed FSP, the PIC is subject to both onsite and offsite supervision by the FAIS department.
An onsite visit was recently conducted into the affairs of PIC. This was a theme-based visit and scope of the visit was mandate compliance. The purpose of the visit was to check processes, procedures and internal controls that are put in place to ensure clients’ assets are managed in accordance with signed mandates and to interrogate the due diligences conducted by the PIC before committing funds to any asset class.
The onsite visit report is currently being reviewed by the FSCA management team. Any further action required will be determined once the review is completed.
The FSCA acting commissioner is Abel Sithole, chair of the old FSB board. He continues to chair the Government Employees Pension Fund (GEPF) board which appointed the PIC as its asset manager. Do these dual chairperson roles not represent a conflict of interests between the regulatory body (the FSCA) and a regulated body (the PIC)? If so, how will the conflict be resolved?
The GEPF was neither regulated and supervised by the FSB previously nor by the FSCA currently. There is therefore no conflict in this regard.
It is true that the PIC was regulated and supervised by FSB previously and by the FSCA currently as an asset manager, like any other in the country. This means that the PIC is, amongst other things, regulated as a Category II FSP in terms of the FAIS Act for managing the assets of public institutions and the GEPF as a pension fund.
The FAIS Act requires that these assets are managed in accordance with specific client mandates setting out the asset classes and investment parameters. It is true that the PIC is the GEPF’s primary asset manager, subject to regulation and supervision as indicated above.
Mr Sithole does not serve on any governing structures of the PIC and is not involved with any of its internal operational and decision-making processes. In his GEPF capacity, his role is to ensure that the PIC delivers on its mandates, i.e. to ensure that the PIC manages the GEPF’s assets in accordance with its specific mandates which set out the asset classes and investment parameters similar to the requirements of the FAIS Act.
The GEPF holds the PIC to account just as the regulator holds it to account. Thus, not only is there no conflict but there is actually an alignment in the PIC’s regulatory and supervisory obligations to the FSB previously and to the FSCA currently, and in its obligations to the GEPF.
Several large funds, related to the public sector, are governed by their own Acts and not by the Pensions Funds Act. As such, they haven’t been subject to FSB regulation and supervision e.g. the GEPF as well as funds of Telkom, Transnet and the SA Post Office. Will these funds be excluded from FSCA regulation and supervision? If so, will amendments to their respective Acts be sought for them to be brought within the FSCA ambit?
As correctly stated, these funds are governed by their own Acts and the current Pension Funds Act allows for it. A decision must first be made by government, and the laws be amended, to have the relevant public-sector funds placed under the FSCA ambit. If or when such a policy or political decision is made, the FSCA will be in a position to supervise the relevant entities.
According to the last FSB annual report, a number of court actions are pending by retirement funds against various FSB decisions. Where litigation has been instituted, will the FSB now be substituted automatically for the FSCA or will delays be caused by litigants having to redraft their papers? In other words, for practical purposes are the FSB and FSCA the same juristic person? Are the liabilities of the FSB now the liabilities of the FSCA?
The FSRA provides at s300(3) that in all pending proceedings -- such as litigation matters before courts and appeals to the Appeal Board (now the Financial Services Tribunal) -- that have commenced but not finally been decided immediately before 1 April 2018, the FSCA must be substituted for the FSB or the various Registrars under the sectoral laws.
The FSCA’s attorneys have attended to the filing of substitution notices where applicable. It is not necessary for litigants to redraft papers as the substitution is given effect by notice.
However, the FSB and the FSCA are not the same juristic persons. The FSB was established by the FSB Act of 1990 and will continue to exist until relevant sections of the FSB Act are repealed.
The FSCA was established by s56 of the FSRA. At s293 of the FSRA provision is made for the transfer of the assets and liabilities of the FSB to the FSCA. Then, at s294, the FSRA provides for the transfer of the FSB staff to the FSCA.
What are the policies of the FSCA in respect of public accountability and transparency through the media?
The FSCA is guided by s251(2) of the FSRA. It’s stipulated that the regulator may only share or disclose information that it deems necessary to perform its obligations. The media, as one of various platforms, is utilised to disseminate information that falls within the parameters of this section.