PowerPlusWaterMarkObject357831064 ENQUIRIES Alta Marais D DIALLING NO 012 428

powerpluswatermarkobject357831064 enquiries: alta marais d. dialling no.: 012 428 8065 our ref: guidance notice 1/2018

PowerPlusWaterMarkObject357831064
ENQUIRIES:
Alta Marais
D. DIALLING NO.:
012 428 8065
OUR REF:
Guidance Notice 1/2018 PF
FAX:
DATE:
24 April 2018
E-MAIL:
[email protected]
DRAFT GUIDANCE NOTICE N0. ____ OF 2018
GENERAL EXEMPTION FROM THE REQUIREMENT THAT MEMBERS OF A FUND HAVE THE
RIGHT TO ELECT MEMBERS OF THE BOARD OF A FUND
SECTION 7B(1)(b) OF THE PENSION FUNDS ACT, 1956
1.
INTRODUCTION
1.
This Guidance Notice intends to clarify and reflect the position
of the Financial Sector Conduct Authority (Authority) on
exemptions in terms of section 7B(1)(b) of the Pension Funds
Act, 1956 (PFA) and provides details of the conditions that may
be imposed by the Authority in such cases.
2.
The default position as regards the composition of the board of
management of a fund is in section 7A(1) of the PFA, which
requires that every fund have a board consisting of at least
four members, at least 50% of whom the members of the fund shall
have the right to elect. Section 7B of the PFA provides an
alternative to the provisions of section 7A in certain defined
circumstances.
2.
BACKGROUND
1.
Section 7B(1)(b) reads as follows –
‘(1) The registrar may on written application of a fund and subject to
such conditions as may be determined by the registrar –
(b) exempt a fund from the requirement that the members of the fund
have the right to elect members of the board, if the fund –
i.
has been established for the benefit of employees of different
employers referred to in the definition of ‘pension fund’ and
‘provident fund’ as defined in section 1 of the Income Tax Act,
1962 (Act 58 of 1962);
ii.
is a retirement annuity fund;
iii.
is a beneficiary fund; or
iv.
is a pension preservation fund or a provident preservation fund as
defined in section 1 of the Income Tax Act, 1962.’
2.
For the purposes of section 7B(1)(b), the PFA recognises the
following types of funds that may be granted exemption from the
provisions of section 7A(1) -
1.
funds established for the benefit of employees of different
employers, which are commonly known as umbrella funds;
2.
retirement annuity funds;
3.
beneficiary funds; and
4.
pension and provident preservation funds as defined in section
1 of the Income Tax Act, 1962.
3.
Previously, the Registrar of Pension Funds (Registrar) accepted
that in most cases it is difficult for these types of funds to
arrange member elections and that the costs associated with such
elections place financial strain on the funds, which may be
detrimental to the interests of members. Consequently, and on
written application by an eligible fund, the Registrar granted
exemption from the requirement that members have the right to
elect at least 50% of the board.
4.
The exemptions referred to in paragraph 2.3 were granted for a
limited period, not exceeding three years. However, some
practical problems were encountered where some funds failed to
renew their exemption timeously, which led the Registrar to
issue Information Circular 1 of 2015 in an attempt to address
the issue. This proved to be a cumbersome way of resolving these
cases and the limited period exemptions also raised legal
queries.
5.
After receiving representations in this regard from funds and
re-considering the provisions of section 7B(1)(b) of the PFA,
the Authority concluded that exemptions granted upon written
application by a fund will no longer be time bound or subject to
a specific period. Paragraph 6.4 of Circular PF No. 96 is
therefore replaced and the exemption granted by the Authority on
application by a fund will be of indefinite duration if it is
granted.
3.
OPERATION OF THE SECTION 7B(1)(b) EXEMPTION
1.
The exemption envisaged in section 7B(1)(b) of the PFA is not
automatic, so funds that currently have exemption must also
apply for exemption with indefinite duration. Funds must apply
in writing and the Authority will grant an exemption on a
case-by-case basis taking into account the requirements in
section 7B(1)(b) of the PFA and section 281 of the Financial
Sector Regulation Act, 2017. The Authority may call for such
further information as it considers necessary, having regard to
the particular circumstances of the fund.
2.
In addition to any other conditions the Authority may impose,
the following conditions will be applied to funds which are
granted section 7B(1)(b) exemption on application:
1.
at least fifty per cent of the members of the board of a fund
must be independent board members. If a fund cannot adhere to
this requirement, it must provide reasons and any timelines,
which the Authority will consider.
2.
bargaining council, sectoral determination, trade union and municipal
funds which provide for alternative forms of member
representation other than direct member elections in their
rules may apply for a specific condition that the Authority
not impose, or relax this condition, subject to adherence to
the member representation provisions in the registered rules.
These rules must also provide for the manner in which
non-unionised members or members of minority unions, for
example, will be accommodated.
3.2.3 every independent board member appointed to the board must have
the relevant experience or expertise required for the effective
fulfilment of their duties, which the fund must demonstrate it has
considered before making any appointment, and
*
should be free from any relationships that could, in the opinion
of a reasonable and informed outside party, be considered as
something that would affect their objectivity; and
*
has never been expelled from any professional body of which he or
she was a member or which was entitled to exercise disciplinary
powers over him or her; and
*
has never been convicted of an offence involving dishonesty or
violence; and
*
must demonstrate that the independent board members will be able
to provide sufficient time, expertise and resources to the fund at
a reasonable cost to the fund, and will continue to do so for so
long as the person remains on the board.
3.2.4 the board must take remedial action if an independent board
member is not, or is no longer, able to comply with the requirements
for independence.
3.2.5 if the board utilises sub-committees, similar criteria apply to
the composition of the members of each sub-committee and the
requirement for independence of those sub-committee members.
3.2.6 if an independent board member ceases to comply with any of the
conditions specified above, his or her appointment to the board of the
fund must automatically and immediately terminate;
3.2.7 an independent board member must report any irregularities and
concerns to the Authority and he or she shall not be held liable or to
be victimized as a result of the reporting;
3.2.8 the rules of the fund must provide for a quorum of at least four
board members, including the independent trustees, and that no
decision of the board will be binding on it unless that decision was
supported by no fewer than:-
3.2.8.1 50 (fifty) per cent of the members of the board, of which no
fewer than 70 (seventy) per cent are independent board members; and
3.2.8.2 if a decision is taken by round-robin resolution, it is
ratified by the board at its next meeting.
3.2.9 depending on the size of an umbrella fund, the Authority will
consider it necessary that management committees1 at employer, sector
or regional level be established, so that there is sufficient
transparency and participation in the decision-making process of
funds;
3.2.10 the board must adopt a stakeholder-inclusive approach that
balances the needs, interests and expectations of material
stakeholders in the best interests of the fund over time, which must
be combined with a timeous, regular and relevant communication
strategy for the fund and its members.
3.3 The Authority may add, delete, vary or in any other manner change
or amend the conditions attached to exemptions and it may also
withdraw an exemption.
3.4 Before funds apply for a section 7B(1)(b) exemption they should
ensure that they are able to comply with the above-mentioned
conditions, failing which the Authority may not grant the application.
4.
FURNISHING OF INFORMATION BY AN UMBRELLA FUND
1.
Upon receipt of an exemption, the fund must, within 30 (thirty)
ordinary days of the appointment of an independent board
member(s), furnish to the Authority in writing:
4.1.1 the full names and identity number of the board member;
4.1.2 a telephone number which may be used by this office to contact
the board member during working hours;
4.1.3 an email address which may be used by this office to contact the
board member;
4.1.4 the board member’s full employment history including, in
relation to each period during which he or she was employed –
*
the name and registered address of the employer(s) by which he or
she was employed during that period;
*
the date on which he or she became employed by that employer and
the date on which that employment terminated;
*
the position(s) in which he or she was employed;
*
the reason(s) for the termination of that employment;
*
the name and contact details of an employee, official or other
representative of that employer who would be willing to confirm in
writing and, on request, under oath, the information given by the
fund in relation to the board member.
4.1.5 Details of any other positions of trust occupied by the board
member within a period of ten years prior to the date with effect from
which he or she was appointed to the board including, but not limited
to –
*
the identity of the organisation in relation to which the board
member occupied a position of trust;
*
the nature of the position of trust;
*
the period(s) during which it was occupied by the board member;
*
if applicable, why his or her appointment to that position of
trust terminated; and
*
the name and contact details of an employee, official or other
representative of the organisation who would be willing to confirm
in writing and, on request, under oath, the information given by
the fund in relation to the board member.
2.
If, after considering the information provided on the
independent board member and any other relevant information, the
Authority informs the fund that it is not satisfied that the
independent board member is a fit and proper person to occupy a
position of trust in relation to the fund, the sponsor must
procure the immediate termination of the board member’s
appointment.
3.
The board must declare at each year-end its adherence to the
principles of Good Governance, Code of Conduct and Code of
Ethics issued as a guide to the boards by the Authority from
time to time.
4.
The Authority will take appropriate regulatory action in the
event of any failure by the fund and its board to adhere to any
of the provisions stipulated herein.
OLANO MAKHUBELA
ON BEHALF OF THE FINANCIAL SECTOR CONDUCT AUTHORITY
1 Management committees may take the form of committees of an umbrella
fund, and which are intended to assist the board of management to
liaise better with members and employers, thus ensuring adequate and
timeous communication, interaction and understanding of matters which
impact these stakeholders.
6