FSCA cancels thousands of dormant retirement funds
The Financial Sector Conduct Authority (FSCA) has cancelled 6,757 inactive retirement funds that were found to have no members, assets or liabilities, with most also not having properly constituted boards in line with the Pension Funds Act.
The deregistration of the affected funds comes after a lengthy cancellations project first initiated by the regulator in 2007, but which was delayed after becoming the subject of litigation, allegations of corruption and three independent investigations. However, after all legal proceedings related to the matter ended up going in favour of the regulator, the FSCA was on March 28 finally able to release its findings on the deregistration of inactive retirement funds.
The origins of the cancellation project have their roots in the 2005 realisation by what was then the Financial Services Board (FSB), the predecessor to the FSCA, which noticed that only 7,684 of the 13,735 retirement funds registered in SA at the time submitted annual financial statements.
By 2006 the situation had worsened, with only 4,384 of 13,132 registered funds submitting financial statements.
After picking up discrepancies in some of the financial statements, the FSB discovered that many of the retirement funds were not active, which prompted the regulator to initiate a verification exercise to identify the active retirement funds. What it uncovered was that the majority of the more than 13,000 registered funds in existence when the cancellations project started in 2007 were considered dormant, orphaned or inactive.
“This undermined the integrity of the FSB’s retirement funds register and impacted the effectiveness of its supervision,” the FSCA said in its report.
The regulator’s cancellations project hit a snag in 2013 when it was placed on hold after the new deputy registrar of pension funds joined the FSB and made allegations of irregularities in the project, including claims of corruption on the part of the retirement funds industry as well as FSB officials.
‘That resulted in a lengthy litigation process that started in 2015 and ultimately went all the way to the Constitutional Court.
However, all the courts ruled in favour of the regulator, with the Constitutional Court ruling on the matter on September 20 2018, not long after the FSCA replaced the FSB on April 1 2018. Court applications launched against the deregistration process by Open Secrets and the Unpaid Benefits Campaign in December 2021 were also withdrawn in August 2022.
Nevertheless, the regulator admitted making mistakes during the project which it said were “inevitable but not systemic” given the scale of the undertaking.
The FSCA also initiated three independent investigations into the deregistration process, which were headed up by judge Kate O’Regan, KPMG and attorney Jonathan Mort, and were designed to identify mistakes that the regulator said were rectified as soon as they were uncovered.
The FSCA said that of the 6,757 funds that were cancelled, only 76 had to be reinstated. Of the 76 funds that were reinstated, 39 funds were cancelled after the publication of their intended cancellation in the Government Gazette.
“These funds remain categorised as query funds on the FSCA’s system and will be cancelled once their outstanding business has been finalised,” the regulator said.
The other 37 reinstated funds were subsequently cancelled following the deregistration applications which were submitted by their representatives.