Improve the way your clients retire

01 October 2013 Shayne Krige, Werksmans Attorneys

One of the sectors within the financial services industry which is undergoing major reform is the retirement industry. The Financial Services Board (FSB) is implementing regulation which hopes to improve the way in which consumers retire, as well as protecting them from some unscrupulous investment managers.

With a view to protecting pensioners from unscrupulous investment managers, the Pension Funds Act (the Act) requires anyone who administers the investments of a pension fund, to be approved by the registrar of pension funds. The relevant approval is referred to as a Section 13B approval.

There is no definition of the term administer in the Act itself but the FSB has sought to provide clarification as to when a person is deemed to be administering a pension fund through a series of circulars.

Legal muscle

In Circular PF4 of 1995 , the FSB sets out examples of persons and organisations that may be regarded as administrators, including a portfolio manager who deals with retirement funds, and any person who receives moneys from a retirement fund for investment purposes.

In 2010, the FSB provided further clarification, splitting administration into benefit administration, which includes the administration of membership data, contributions, benefits and expenses and financial reporting; and investment administration, which refers to investment management or other intermediary functions performed by entities that are approved as Category I (non-discretionary) or Category II (discretionary) financial services providers in terms of the Financial Advisory and Intermediary Services (FAIS) Act.

Circular PF3 also sets out a list of entities that the FSB regards as administrators together with the relevant approvals that they require.

The FSB circulars made it clear that any entity that administered pension fund benefits required a Section 13B approval in addition to any licence that they held under FAIS. It was also clear that a foreign investment manager, regulated in his/her home jurisdiction required a Section 13B approval in order to manage South African pension fund assets even if the management activity took place outside South Africa and consequently was not covered by FAIS.

Important exemptions

On 26 August this year, the FSB exempted all investment administrators from the provisions of Section 13B of the Pension Funds Act with immediate effect. This means that non-discretionary investment advisors and discretionary investment managers who hold Category I or Category II licences under FAIS, are no longer required to hold a separate licence in order to provide services to pension funds.

The exemption will provide welcome relief to financial services providers battling to reconcile duplicate regulatory regimes. However, the following points should be noted:
- Section 13B has not been repealed, but a broad exemption has been granted from its provisions.
- The exemption only applies to investment administration. It does not cover benefit administration. Benefit administrators must therefore still obtain a Section 13B approval in addition to any licence that they hold under FAIS.
- The purpose of the exemption is to avoid duplication of regulation in South Africa. It would appear therefore that the exemption cannot be relied upon by someone who is not already regulated under FAIS.

Although there is some debate surrounding the point, it would seem that the exemption only applies to South African Category I and Category II financial services providers who hold FAIS licences. Any foreign person who acts as an investment manager who receives money, executes mandates, either discretionary or otherwise, or manages investments on behalf of pension funds will still require Section 13B approval.

1 Section 13B of the PFA.
2 Published in the Government Gazette of 24 November 1995.
3 Circular PF5 of 2013.
4 Act 24 of 1956.
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