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No joy for Hunter as the FSB triumphs

25 January 2017 Jonathan Faurie

After a year where the Financial Services Board (FSB) was engaged in a legal war of attrition with one of its key employees, the regulator got its day in court and prevailed as the rest of the country departed for their holiday destinations. The industry was shocked last year when it heard about the legal woes that the regulator could face following a standoff with former employee Rosemary Hunter. But on 14 December 2016, the FSBs legal woes ended.

A recap

I’m sure there are very few people in the industry who have not been following the news regarding the battle. However, for those who are unaware, here is a summary.

In January 2016, the financial services industry was rocked by reports that Hunter, the former Deputy Executive Officer of Retirement Funds at the Financial Services Board (FSB), took the regulator to court following what she deemed as irregularities when it came to the closing of some pension funds by the FSB.

Because the issue is being fought through the courts, precious little information was released because the matter was sub judice.

However, this changed in December when Acting Judge Jacobs dismissed Hunter’s application which related to the cancellation of the registration of dormant and orphaned retirement funds over the period 2007 to 2013.

Welcome vindication

The ruling follows a lengthy and exhaustive process during which the FSB defended itself against serious allegations by Hunter.

Tembisa Marele, FSB Communications Specialist, added that the FSB finds it unfortunate that this difference of opinion resulted in a long and costly court case, as the Board at all times pursued a proactive process of achieving clarity on such issues.

“The FSB has always acted in good faith in its approach and execution of the cancellation of dormant and orphaned funds and the organisation will follow the legal guidance in concluding the matter, and will continue to do so with the investigations that it has launched by engaging inter alia retired Constitutional Court Judge Kate O’Regan, KPMG and Jonathan Mort, independent specialist pensions lawyer Jonathan Mort Attorneys,” said Marele.

The FSB was not immediately available at the time of publishing this article to give any further comment on the matter.

Moving on

Why is this victory important in a year that Twin Peaks may be implemented? The industry needs to trust that the regulator is working ethically. And when the regulator becomes the custodian of industry conduct, this victory is important.

This victory comes on the eve of a very important year for the FSB. The much publicised Twin Peaks regulation looks set to be implemented this year which will split the responsibilities of regulating the financial services industry. This means that the FSB will no longer be both law maker and sheriff.

When this will happen remains a matter of debate. The FSB provided many dates last year regarding the implementation of key regulatory changes only for these dates to be moved. One feels that this legal battle was the first step in implementing this change as confidence in the Financial Services Conduct Authority will be a necessary ingredient in any relationship with it.

Treading carefully

There also needs to be trust that the regulator is operating in the industry’s best interests. If the FSB had lost the Hunter case, there would be fuel to the fire that the FSB is not acting in the industry’s best interests with the implementation of the retail distribution review (RDR).

RDR is one of the important pieces of legislation that the FSB hopes to pass this year.

There is already discontent surrounding RDR with questions being asked of the regulator. RDR has split the industry down definite lines. There are those who believe that it will improve the industry and there are those who believe that if we implement RDR in its current form, the industry will struggle to operate as it used to.

Our version of RDR comes hot off the heels of the implementation of RDR in the UK. By all accounts, our version of RDR will look very similar to that implemented in the UK.

Exploring the debate

This discontent surfaced in a vigorous debate at the SRP Africa Structured & Alternative Investments Conference where a number of industry professionals spoke about the danger of following a cut and paste model from the UK. These professionals suggested that adaptation was needed; particularly when it comes to the issue of banning commissions.

Marius de Jongh, Senior Specialist within the Collective Investment Scheme team at the FSB, said at the conference that commission will indeed be banned and that performance fees will be brought in. He added that the FSB feels very strongly about this.

De Jongh stood his ground. “We cannot build an industry where commission is banned in some cases and not in other cases. We will not regulate by exception. The stance taken by the FSB is an informed decision; however, this doesn’t mean that it is the right decision,” De Jongh did try and extrapolate this stance further by saying “It’s more about getting a car on the road then getting the perfect car on the road,” said De Jongh.

Editor’s Thoughts:
It seems as if the FSB currently has match point regarding confidence surrounding the regulator. However, as evidenced by political changes surrounding the Municipal Elections last year, this confidence can be taken away by wrong actions. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by Mick, 25 Jan 2017
Speaking of RDR, Twin Peaks and the like, has anyone read Prof. Vivian's report regarding the impact of Twin Peaks on the consumer? How then can the FSB thus justify ramming down the Twin Peaks and RDR model down both our and the customers throats? Is that Treating Customers Fairly? I think not...
Report Abuse
Added by Chris Brits, 25 Jan 2017
Hi Jonathan.

The Hunter case I think took an unfortunate turn in that it became a tussle between Hunter and the FSB with personal allegations flying about. However, the original cause for Hunter's concerns and the reason for embarking on this process was the way the FSB handled some of those fund closures. Hunter contains that it was delegated to too junior people and that not enough was done to really get those funds sorted out and as a result, possibly prejudicing thousands of former members. That was the real issue and it, rather than who was to blame etc should have been focused on. I'm not sure how much proper attention it will receive now with the FSB on it's back foot defending itself.
Pity.

Regards

Chris
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