The National Treasury says it welcomes the judgement by the Constitutional Court dismissing the appeal by former DEO Rosemary Hunter to procure ‘yet another investigation’ into the cancellations project implemented by the Financial Services Board (FSB) between 2007 and 2013.
Under the project, over 4 600 pension funds without properly constituted boards were cancelled by the Registrar in terms of section 271 of the Pension Funds Act (PFA). “The National Treasury and FSB have refrained from commenting on the merits of the case until its final conclusion, to avoid creating confusion and fear amongst members of retirement funds regarding the safety of their funds,” Treasury said in a statement today.
In a split judgement, 7 of the 10 judges dismissed the application because three such investigations had already been conducted. The majority judgement noted that “… not one, not two but at least three investigations with a view to determine whether irregularities that are potentially prejudicial to pensioners were committed in the cancellations process” (paragraph42). The majority opinion concluded that “The danger with the approach adopted by Ms Hunter is that it is very likely to yield a never-ending investigation. Investigations would be difficult to bring to finality as long as, in her view, something might just be uncovered. This observation must be understood within the context of the several credible investigations already conducted by people whose capacity to address actual or perceived irregularities is beyond doubt”. (par46).
Treasury added that given the legal complexity of this case, and contrary to a widespread media campaign, it is important to note that this case was not about issues of corruption, malfeasance, whistle- blowing or unclaimed benefits.
“All members of retirement funds and the public in general should note that the Treasury and FSB have championed the Treat Customers Fairly Initiative in recent years, and hold the strong view that the primary objective of a regulator is to ensure that it always acts in the interests of the customer, including members of retirement funds.
“This is one of the underlying factors behind the significant Twin Peaks regulatory reforms initiated by the Treasury in 2011, to regulate the financial sector more intrusively, intensively and effectively, following the 2008 global financial crisis and the Fidentia and Ghavalas fraud schemes which had severe negative impacts on members of retirement funds.”
Treasury stated that two key initiatives under the reforms were the launch of the Retirement Reform initiative to deal with poor industry practices and abuses, and the establishment of the market conduct regulator, the Financial Sector Conduct Authority (FSCA), which replaced the FSB from 1 April 2018.
Continuing with Retirement Reforms to better serve members
Treasury added that the conclusion of this case enables it and the FSCA to proceed with their reform programme, ensuring that the retirement fund industry better serves members of retirement funds, and that the industry and funds are regulated more effectively and strongly, in the best interests of members.
“This includes accelerating fund consolidation, which aims to deregister genuinely inactive funds and further consolidate small active funds to achieve better economies of scale and reduce costs and charges, thereby contributing to the maximization of benefits to members. The reforms also prioritise improving transparency and disclosure by funds, improving governance and addressing abusive charging practices which can reduce the final savings of members by up to 40%.
“While Treasury is committed to proceeding with further consolidation and the lowering of costs and charges, Treasury will also engage with the FSCA to study the judgement in further detail, and engage with key stakeholders (including NGOs like the Casual Workers Advice Office and RIGHT2KNOW Campaign) to address concerns raised.
“In particular, Treasury believes that the majority and both minority judgements offer valuable insights and observations to inform improvements in the consolidation process in the future, and to strengthen the regulatory system and better protect members of retirement funds.”
Treasury said that a regulator should solve and fix problems related to the financial soundness of any fund, its conduct in relation to members and other stakeholders, and its governance.
“A regulator is more than a lawyer, auditor or compliance officer, and while needing to always act on any past transgressions, must be forward-looking and pro-active, identifying risks that may emerge in future and prevent a fund from delivering on its promise to its members.
“It has always been the view of Treasury that the issues raised in this case are best addressed through a well- managed regulatory process, rather than a litigation or court-driven process. The integrity and reputation of financial sector regulators is critical in ensuring that financial customers are confident that the financial sector is serving their best interests and delivering proper outcomes. In the retirement fund industry, members should be confident that their funds are safe as long as the boards of trustees, principals offices, and auditors are performing their functions in line with regulatory expectations.`’