4 OF 2021

Endorsements of rule amendments

The Pension Funds Act requires that once the FSCA is satisfied that any alteration, rescission or addition of the rules of a fund is consistent with the Act and is satisfied that it is financially sound, it will register the document and return a copy to the principal officer with the date of registration endorsed thereon, and such alteration, rescission or addition shall take effect as from the date determined by the fund concerned or, if no date has been so determined, as from the date of registration. Due to practical implications of the Covid-19 pandemic and related capacity constraints, the FSCA was unable to send the endorsed resolutions (stamped amendment documents) to funds, but only the letter stating that the amendment had been approved.

The FSCA has since undertaken the process of finalising the formal endorsement of amendments to rules of funds and returning the endorsed versions of the rules to the relevant funds, which should be finalised by 31 July 2021.

Draft notice – levies on financial institutions

On 5 May 2021, the FSCA gave notice of the release of a draft notice imposing levies on financial institutions for the levy year 1 April 2021 to 31 March 2022. Interested persons were invited to make written submission on the draft notice to the Authority on or before 17 June 2021. The proposed levies reflect a slight increase from the 2020 levies.

The draft notice should not be confused with the new levy structure as proposed in the Financial Sector Levies Bill, which was released for comments in the beginning of the year. It is envisaged that the current levy structure will fall away once this Bill is promulgated.

Minimum skills and training for board members or retirement funds toolkit

Following feedback from auditors on reportable irregularities, the FSCA noted that not all board members have completed the Trustee Toolkit. Section 26(2) of the Pension Funds Act states that where a board member fails to comply with any requirements prescribed by the FSCA, the FSCA may, notwithstanding the rules of the fund and at the cost of the fund, appoint a person to make up the full complement or quorum of the board. The FSCA is further of the view that principal officers should report non-compliance to the FSCA.

The Trustee Toolkit must be completed by alternate board members as well.

Standard on the governance of retirement funds

The FCSA is drafting a conduct standard on the governance of retirement funds. The conduct standard will deal with all aspects of the governance of retirements funds, including management boards. The conduct standard will replace PF130 and Directive 8. It is expected that the draft conduct standard will be issued for public comment within the next three months.

Surrender value of retirement annuities increased

The Government Gazette prescribing the limit for the commutation of small annuities to increase from R7 000 to R15 000 has been published. This means that members of retirement annuity funds younger than 55 years, with surrender values lower than R15 000, may from 1 March 2021 withdraw the full amount. The benefit is a withdrawal benefit and not a retirement benefit and will therefore be taxed in accordance with the withdrawal tax table.

Automated ROT notifications

When members transfer to another fund, the administrators of both the old fund and the new fund are required to complete different parts of a Recognition of Transfer (ROT) form and submit these to SARS electronically. If the content of the ROT form does not comply precisely with all of the SARS requirements, an indicator will show on the SARS system that a ROT is outstanding, which may mean that the member would not be able to submit a tax return. There is also a risk that the benefit that had been transferred would be taxed.

SARS switched off their automated communication to members in 2019, to afford stakeholders in the retirement industry time to resolve the impediments to the effective operation of the new ROT system.

SARS has indicated that the automated communication has been switched on again as from 23 April 2021, which will result in members with outstanding ROT’s receiving SMS notifications from SARS advising that they may not be able to submit a tax return.

Unapproved benefits – change to payment method

On 1 July 2018, the Insurance Act 18 of 2017 became effective and certain sections of the Long-term Insurance Act and Short-term Insurance Act were repealed.

The Insurance Act in Schedule 2 sets out the different classes and sub-classes of insurance business that the insurer may conduct and describes how group life policies and funeral policies should be dealt with. It requires that payment of unapproved group life policies be made directly to beneficiaries in accordance with the deceased employee’s nomination of beneficiary form.

Unapproved group death benefits

One of the sub-classes of life insurance business in Schedule 2 of the Insurance Act is “group death”, which is defined as a “lump sum or specified or determinable equal or unequal sums of money payable at specified intervals payable to a beneficiary on the happening of a death event”.

Beneficiary is defined in respect of a group insurance policy as a member of an association or fund, or an employee or a person nominated by the member, which person is not the association, fund or employer.

Therefore, a policy entered into with an employer to provide death benefits to, or in respect of its employees would fall within the definition of “group” and such benefit would need to be paid to a nominated beneficiary.

Funeral benefits

Funeral benefits under the Insurance Act are described as a “lump sum or specified or determinable equal or unequal sums of money payable at specified intervals not exceeding an amount prescribed by the Prudential Authority payable to a beneficiary to cover costs associated with a funeral or the rendering of a service on the happening of a death event”.

This means that group funeral policy proceeds should also be paid to a nominated beneficiary. An employer is not included in the definition of beneficiary and therefore the proceeds of policies in which the employer can exercise a discretion as to which beneficiary to pay, can no longer be paid to the employer but must instead be paid to the member, or his or her beneficiaries.

The Prudential Authority agreed to grant a reasonable period to affected insurers to achieve regulatory compliance with the new provisions and review policy contracts. It is unclear at this stage what grace period the Prudential Authority will grant, and the different insurers are still negotiating with the Prudential Authority.

Employers will need to verify with the insurer of their funeral benefits how they will treat the payment of funeral benefits where the member has not nominated a beneficiary. Employers should also check their service level agreements with the insurer to ensure that it follows the Insurance Act and should encourage their employees to complete their nomination of beneficiary forms.

Draft administrative action procedures

On 11 May 2021, the FSCA issued the Draft Administrative Action Procedures (“Procedures”) for comments by 21 June 2021.

The Procedures will apply to the decisions to be taken by the FSCA under a financial sector law (for example Pension Funds Act), in relation to a financial institution, where the decision adversely affects the rights of that financial institution and has a direct external legal effect.

“administrative action means any decision taken, or any failure to take a decision, by –

• An organ of state, when… or
• A natural or juristic person, other than an organ of state, when exercising a public power or performing a public function in terms of an empowering provision, which adversely affects the rights of any person and which has a direct, external legal effect, but does not include…”

For example, the FSCA exercises public power or performs a public function over retirement funds in terms of the Pension Funds Act. If the FSCA intends to take regulatory action against a fund for non-compliance with the Pension Funds Act, the Procedures will have to be followed.

The Procedures will come into operation on the date of publication.

The proposed Procedures aim to promote a uniform approach to different types of administrative action by the FSCA; however, this will not detract from the FSCA’s discretion to apply different procedures for different types of administrative action and circumstances.

A three-step procedure will have to be followed for administrative action.

1. Notice of intent

The FSCA must provide the affected person with adequate notice of the nature and purpose of the proposed administrative action, i.e., a Notice of Intent which must be in writing and served on the affected person. The information contained in the Notice of Intent must as a minimum include the information specified in the financial sector law.

2. Reasonable opportunity to make representations

The FSCA must afford an affected person reasonable opportunity to make representations.

3. Final decision (notice of administrative action)

The FSCA must inform all affected persons of its final decision in respect of the proposed administrative action. The FSCA may depart from the prescribed processes in exceptional circumstances.

 FST rules changes

The Financial Services Tribunal (Tribunal) updated its rules with effect from 1 June 2021. The changes include the following:

Withdrawal of cases

The Tribunal rules state that an applicant may withdraw a matter at any stage. The withdrawal rule has been expanded to state that an application that is not followed through to completion within the time frames laid down by the Tribunal, may be dismissed by the Tribunal for non-prosecution.

Protection of personal information and the Tribunal  

The Tribunal is a public body and any documents filed become part of a public record that is accessible in the public domain. The Tribunal will keep personal information confidential, but parties are deemed to consent to the Tribunal sharing any submitted information by the parties with any of the regulators and/or relevant/interested parties involved, to enable the Tribunal to process and adjudicate the application(s). Parties have the right to object to their personal information being shared with other parties. However, this may lead to the Tribunal not being able to process and adjudicate the application(s) or opposition(s) lodged with its office.

The Tribunal may conduct a hearing in public, but the chairperson presiding over the panel may direct that a person be excluded from the hearing based on any grounds. 

Use of electronic signatures and prepopulated documents

The FSCA distributed Communication 12 of 2021, dealing with electronic signatures, on 5 July 2021. The document is aimed towards financial services providers who use electronic signatures of clients when rendering financial services. The Communication states that unless a particular provision of the applicable legislation requires differently, the parties are free to decide whether they are desirous to conclude a transaction by way of conventional means (hard copies with signatures), or via electronic means requiring an electronic signature. Should the parties agree on the latter, an electronic signature is legally permissible.

A Financial Services Provider’s role is however that of an intermediary between the client and product providers and it does not have the authority to enter into contracts on behalf of its clients. The FSCA therefore strongly recommends that Financial Services Providers refrain from the practice of using an electronic signature of a client, even with the consent of that client.

C48 SARB reporting

In terms of the Financial Sector Regulation Act, the South African Reserve Bank (SARB) may gather any information concerning financial stability and take steps to mitigate any risks identified.

The SARB said in a presentation to the retirement funds industry that the global financial crisis of 2008 showed the need to understand financial interconnectedness among the various institutional sectors of an economy and between them and their counterparties in the rest of the world. The SARB has been surveying selected pension and provident funds on a quarterly basis for many years. The K48 form is currently used to collect income statement and balance sheet information. However, SARB found that the form is not comprehensive enough for macro-economic and financial stability analysis and a new form C48 has been introduced to address the shortcomings. The purpose of the C48 form is to collect statistical data of retirement funds registered in South Africa. Requested information/data should be submitted on the SARB Forms Web Interface.

The original due date was the quarter-end June 2021, but the SARB has acknowledged concerns raised and postponed the go-live date of the C48 form to 30 September 2021, for submission by mid-November 2021.

Appointment of Ombud Council Board

The Minister of Finance has appointed the first Ombud Council Board and Chief Ombud for the Council, giving effect to the new financial Ombud system in terms of the Financial Sector Regulation Act. The objective of the Ombud Council is to assist in ensuring that financial customers have access to, and are able to use affordable, effective, independent and fair alternative dispute resolution processes for complaints about financial institutions in relation to financial products, financial services and services provided by financial infrastructures.

The Ombud Council will have oversight powers over both the statutory and industry Ombuds, namely:

1. Office of the Pension Funds Adjudicator
2. Office of the Ombud for Financial Services Providers (FAIS Ombud)
3. Office of the Credit Ombud
4. Ombudsman for Long-term Insurance
5. Ombudsman for Short-term Insurance
6. Ombudsman for Banking Services
7. Johannesburg Stock Exchange Ombud.

The Ombud Council will recognise industry schemes such as the Ombudsman for Long-term Insurance. It will further set enhanced governance and accountability requirements and harmonise and strengthen standards of practice for each Ombud scheme through rulemaking and enforcement powers. This is to develop a uniform and consistent framework for external dispute resolution mechanisms across the financial services sector.

The Protection of Personal Information Act (POPIA) and Promotion of Access to Information Act (PAIA)

Information Regulator

As of 30 June 2021, the Information Regulator will be taking over the PAIA function from the South African Human Rights Commission. 

Registration of information officers

In a media statement of 22 June 2021, the Information Regulator confirmed that there will be no deadline for registration of information officers (IO) and deputy information officers. This means that no responsible party will be held liable for not registering an IO by 30 June 2021. This decision follows technical glitches with the registration portal and numerous concerns raised by responsible parties regarding the registration process. The Information Regulator apologised for the glitches in its system and advised that it is currently looking into alternative registration processes and will communicate this in due course.

It was confirmed that a person may be IO of more than one organisation.

Applications for prior authorisation

In terms of POPIA, responsible parties must obtain prior authorisation from the Information Regulator prior to any processing of personal information where that responsible party plans to:

• process any unique identifiers of a data subject;
• process information on criminal behaviour or on unlawful or objectionable conduct on behalf of third parties;
• process information for purposes of credit reporting; and
• transfer special personal information or personal information of children to foreign countries that do not provide an adequate level of protection for processing of personal information.

The Information Regulator has extended the deadline for applications for prior authorisation for the use of personal information to 1 February 2022. This means that the responsible parties who are processing personal information which is subject to prior authorisation, will continue to do so for the next seven months, whilst the Information Regulator is processing their applications.

PAIA manuals  

It is not a requirement to submit PAIA manuals to the Information Regulator. The manual must be available as follows:

• On the website of the private body, if any
• For inspection at place of business of the private body
• To any person upon request
• To the Information Regulator upon request

The PAIA manual must also contain information regarding POPIA, namely the purpose of processing, a description of categories of data subjects and information relating to them, the recipients to whom the personal information may be supplied, planned transborder flows of personal information and a description of the suitability of the information security measures implemented to ensure the confidentiality, integrity and availability of the information to be processed.

The Information Regulator stated at a stakeholder meeting that the exemption for retirement funds to have a PAIA manual in place will be extended to 31 December 2021.

PAIA draft regulations

The Department of Justice and Constitutional Development published draft regulations in terms of PAIA for public comment on 23 April 2021.

The draft regulations seek to bring the provisions and regulations of PAIA in line with similar provisions and regulations in POPIA.

The draft regulations set out  the obligations of the Information Regulator and information officer (IO) to make available a guide on how to use PAIA, deals with availability of and the processes for accessing certain records of public and private bodies and political parties, the process for lodging complaints to the Information Regulator, as well as the handling of such complaints, and deals with offences and penalties. It also contains annexures with the different forms to be used in the PAIA process.

In terms of the draft regulations, the Information Regulator must update and make available the existing guide that has been compiled by the SA Human Rights Commission. This PAIA guide must be available in each of the official languages and must contain information required by a person who wishes to exercise any right contemplated in PAIA. The IO of the private body must make the guide available on its website in each of the official languages. A copy of the guide, in at least two of the official languages, must also be available at each of the private body’s offices for public inspection during normal office hours.

The IO must compile and keep a description of the categories of records that are automatically available, without a requester having to request access thereto. In terms of the draft regulations, this description will have to be updated every month, or as soon as any amendment to the description occurs. The description will have to be made available to the Information Regulator, on the website of the private body and at its offices during normal office hours. The IO must, if a request for access to a record is made orally, because of illiteracy or disability, complete the prescribed request form on behalf of the requester.

A person whose request for information has been refused, may submit a complaint to the Information Regulator. The draft regulations contain the procedure applicable to such complaints, for instance the IO must respond to the complaint within ten working days after receipt of the complaint from the Information Regulator.

An IO who wilfully, or in a grossly negligent manner, charges a fee for the inspection of the guide or any record other than the fee prescribed in the regulations, will be guilty of an offence and liable on conviction to a fine or to imprisonment for a period not exceeding two years.

Comments on the draft regulations had to be submitted by 17 May 2021.

Q&A

Q: The FSCA from time to time requests information from retirement funds (for instance regarding unclaimed benefits), which may include personal information. Does that mean that the FSCA is considered to be a sub-processor in terms of POPIA and will funds be required to have an agreement with the FSCA?

A: In terms of section 131(1) of the Financial Sector Regulation Act, the responsible authority for a financial sector law may, by written notice to any person, request the person to provide specified information or a specified document in the possession of, or under the control of, the person that is relevant to assisting the responsible authority to perform its functions in terms of a financial sector law.

In terms of requirements of the POPIA, further processing of personal information where processing is necessary to comply with an obligation imposed by law, are allowed.  Funds will therefore not be required to have an agreement with the FSCA.

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