On 19 December 2017, the Pretoria High Court granted an application brought by the Registrar of Pension Funds in terms of section 5(1) of the Financial Institutions (Protection of Funds) Act (FI Act) for the appointment of curators to the Municipal Councillors Pension Fund. The court appointed the two joint curators of the fund.
The application was brought pursuant to an inspection and reports issued by the Financial Services Conduct Authority (FSCA) after several serious irregularities pertaining to poor investment decisions and lack of governance in the fund were reported. The fund remains under curatorship.
Since 2017, four funds have been placed under curatorship and curators were appointed in terms of the FI Act by agreement with the retirement funds and without the intervention of a court.
Once under curatorship, the primary role of the curator is to protect the interests of those who invested in the institution. It can be done either by attempting to restore the institution to health or, failing this, to realise the institution’s assets for the investors’ optimal benefit. The complementary role is to pursue wrongdoers for punishment.
“The curators are experienced lawyers or accountants, who are well placed to fulfil the duties required of them as curators and to ensure that all necessary steps are taken to protect the interests of the fund and its members,” says Cornelia Buitendag, who heads up the retirement fund conduct supervision unit at the FSCA.
Throughout the process, the veracity of the FSCA inspection report is central. It guides the curators in the performance of their duties and, where wrongdoing is found, it lays the basis for successful remedial action, she says.
The curatorship is intended to stabilise the management and operation of the fund, and to protect the interests of its members, she adds. The curators that have assumed office upload bi-annual reports to the FSCA website.
The FSCA has come in for plenty of stick for its appointment of curators to retirement funds and the ensuing, costly and lengthy processes – some up to 20 years. There are countless media stories of funds in curatorship for years on end, not to mention frequent reports of excessive curatorship fees, and the lack of updated reports on many cases.
Buitendag says reviews of past curatorship proceedings flagged shortcomings for which changes had been introduced, which include that curators’ appointment letters must now indicate their monthly fee cap. Curators are also required to submit their invoices to the FSCA offices, along with supporting schedules and monthly statements of the retirement funds they are overseeing. Curators are also required to report to the authority regularly, by submitting monthly or bi-monthly feedback reports; and have quarterly meetings with the FSCA.
Before a curator can affect payment of its fees, it must receive formal approval of these fees from our office,” says Buitendag, adding that this hands-on regulatory approach is yielding results. “The approach has proven to be effective in ensuring that curators discharge their duties efficiently within the ambit of the legislation.”
The FSCA issued board notice 56 containing guidelines on the conduct of curators in 2015.
However, Wilmi van der Walt, manager of conduct supervision at the FSCA, sayst the latest thinking on the matter is to use curatorship as a last resort and to rather appoint a statutory manager, as has happened in the recent case of N-e-FG Administrators. “It is a valuable regulatory tool of intervention, which is not considered as adverse as a curatorship,” she says.
Because a statutory manager is appointed by agreement, according to the FI Act, it promotes cooperation between the retirement fund and the authority, whose primary objective is to act in the best interest of the members of the fund.
“We have also proposed changes to the law to enable the FSCA to appoint one without fund consent,” Van der Walt says.
According to the Act, statutory managers are required to report to the authority monthly or bi-monthly on the progress made in regularising the affairs of the retirement fund and any other matter considered material, and to make a recommendation to FSCA, following a thorough analysis of challenges faced by the retirement fund, as to whether the fund should be placed under curatorship.
That said, it is likely that more reliance will be placed on statutory managers in future, as provided for under the FI Act.
The FI Act provides for a statutory manager having a casting vote, should a disagreement exist between the board of the retirement fund and the statutory manager.
“Statutory management has proven an effective way to address non-compliance by a retirement fund,” says Van der Walt. The FSCA says it has four funds under statutory management, but unlike curatorship these records are not public.
The definition of a distressed fund goes a bit further than just curatorship or statutory manager. According to section 26 of the Pension Funds Act (PFA), a board of trustees must consist of at least four members with representation from the employer and the member. There are exemptions to the rule, including for bargaining council and umbrella funds for example, but most stand-alone funds have to comply with this rule. Exempted structures do, however, have at least one independent member serving on its board.
So the point is if retirement funds fall foul of this stipulation or find themselves without a board at all, which could be the case when a company closes down or the fund is transferred to a new employer, the FSCA will then appoint the board members itself to represent members’ best interests. But this is only a short term solution, says Buitendag.
During the Covid-19 pandemic, lockdown restrictions made it impossible for some funds to hold elections within the period stipulated in their rules, and the FSCA had to intervene there as well, in terms of Section 26 of the PFA, but this was very specific and special circumstances, according to the fund.
But Buitendag makes it very clear that the regulator does not get directly involved in the normal running of a fund. “With a staff complement of 19 in my division, it is simply impossible to do that. The FSCA is responsible for the oversight of 1 200 active funds already, not to mention the 4 000 or so dormant, distressed and unclaimed benefit structures that have to be supervised. We also don’t have the experience to manage all these funds, with different rules, and across diverse definitions,” she says.
The FSCA appoints qualified trustees, following a rigorous selection process, and also has a selected and vetted pool of professionals registered on its database. But there is an exception to everything, and there have been instances where one of Buitendag’s team members had to take up a position as an interim board trustee, she says.
But although curatorship and statutory management are intended to be interim solutions, it doesn’t always work out that way. The FSCA has inherited a legacy system from stand-alone and state-owned funds that go back many years and with paper trails miles long, and contact methods long gone, so timelines are prescribed on a case-to-case basis, says Buitendag. “No specific time is prescribed in the FI or PFA for any of these interventions,” she says. However, she does point out that both the SATAWU fund – which was under curatorship for 20 years – and Bophelo have been removed from it recently.
This article first appeared in the Personal Finance Quarterly Magazine.
The initial version of this article mistakenly referred to Akani as an entity under curatorship. Akani is not a fund and has never been placed under curatorship. This has been corrected in the updated version of the article.