Category Legal Affairs

The Registrar’s exemption powers impacted by the financial sector regulation bill

06 January 2017 Deirdre Phillips, Senior Associate and Tashia Jithoo, Of Counsel, Banking and Financial Services Regulatory, Bowmans South Africa

Retirement funds seeking exemptions in terms of the Pension Funds Act, 1956 (PFA) must take note that section 281 of the Financial Sector Regulation Bill B34B -2015 (FSRB) (which was passed by the National Assembly on 6 December 2016 and sent to the National Council of Provinces for concurrence) also contains general exemption powers that will be granted to the Registrar if the FSRB is promulgated in its current form. This will impact the scope and application of the Registrar’s exemption powers and so has implications for those seeking exemptions.

Section 2(5)(a) of the PFA provides that the Registrar of Pension Funds (Registrar) “may”, in instances where practicalities impede the strict application of a specific provision, exempt a retirement fund (and no one else) from such strict application, on such conditions determined by the Registrar.  While the Registrar has the discretion regarding whether or not to grant the exemption, such discretion must be exercised in light of the purpose of the PFA, which the Supreme Court of Appeal, in Pepcor Retirement Fund & another v Financial Services Board & another 2003 (6) SA 38 (SCA), articulated  as follows: 

 “general public interest requires that pension funds be operated fairly, properly and successfully and that the pension fund industry be regulated to achieve these objects. That is the whole purpose which underlies the Act.” 

Turning to section 281(1) of the FSRB, it states that the responsible authority for a financial sector law “may” exempt any person or class of persons from a specified provision of the financial sector law “unless” it considers that granting the exemption will be “contrary to the public interest”, or “may prejudice the objects of a financial sector law”. 

The first question that arises is in what circumstances would the exemption power in section 281 find application in relation to other financial sector laws that also contain exemption powers? Section 281(2) of the FSRB states that the power to grant an exemption in terms of section 281(1) of the FSRB exists only if the financial sector law in question does not itself provide a power to grant exemptions. Section 281(3) states that if a financial sector law does provide a power to grant exemption, then section 281(1) will still apply.  In other words, it appears that section 281 must be read as supplementing the exemption power in any other financial sector law.  

Because the requirements of section 281 do not supersede the exemption powers in existing financial sector laws, but apply “in addition to any other requirements”, the question that arises is how easily section 281 will reconcile with exemption powers across the various financial sector laws that exist (such as, the Banks Act of 1990, Financial Services Board Act of 1990, Long-term Insurance Act of 1998, Short-term Insurance Act of 1998, Financial Institutions (Protection of Funds) Act of 2001, Financial Advisory and Intermediary Services Act of 2002 and the Collective Investment Schemes Control Act of 2002) and how inconsistencies between them will be dealt with. 

Looking at section 2(5) of the PFA as an example, we know that the Registrar has the discretion to exempt retirement funds from any provision of the PFA where practicalities impede the strict application of the law. In so doing, he must (as with any power he has under the PFA) act with due regard for the purpose of the PFA and for the public interest in ensuring that purpose is achieved (as was articulated by the SCA in the Pepkor case). 

It might be argued that the effect of section 281 of the FSRB is that the SCA’s findings in Pepkor now seems to find expression in legislation but perhaps more strongly so, ie that an exemption (where practicalities impede the strict application of the law) cannot be granted if the Registrar considers that it will be contrary to the public interest or that it may prejudice the achievements of the objects of the PFA. A question that arises is whether the Registrar would be able to grant an exemption where not to do so would be contrary to the public interest. In other words would the public interest only serve to prevent an exemption being granted, or could it also serve to require that an exemption be granted (provided all other requirements are met)? 

These are very wide discretions and it will be interesting to see how they will be applied and tested in instances where an applicant contests the refusal to grant an exemption. 

Also significant is that section 281 requires a responsible authority that is considering whether to grant an exemption to consider whether it would prejudice the objects of “a financial sector law” not “the financial sector law”. This raises a question as to whether the Registrar, as the responsible authority, would only be required to consider whether granting an exemption may prejudice the achievement of the objects of the PFA – or whether the consideration must include other financial sector laws. Clearly, the latter would considerably expand the scope of the inquiry to be undertaken by the Registrar (or any other responsible authority in the same position) before any exemption is granted. 

Finally, while section 2(5) of the PFA only permits the Registrar to grant exemptions to one or more retirement funds, section 281(1) permits the granting of an exemption to “any class of person or persons”. This is significant because it could mean that the Registrar would be empowered to grant exemptions in terms of section 2(5) of the PFA not just to funds but to other parties such as administrators and employers who also have obligations under the PFA. 

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