In early July 2024, the Financial Sector Conduct Authority (FSCA) published its latest Regulation Plan (2024 Regulation Plan), which sets out its focus areas for the financial sector regulatory framework for the next three years.

The 2024 Regulation Plan includes an overview of the progress of several ongoing regulatory developments as well as new projects the FSCA plans to implement from 1 April 2024 to 31 March 2027.

The aspects that impact retirement funds directly, are summarised below.

New retirement fund-related projects

Draft Prudential Standard – Regulation 28 Reporting Requirements for Pension Funds (holistic reporting Prudential Standard):

The FSCA intends to bolster the retirement funds’ quarterly reporting requirements that are directed at ensuring compliance with Regulation 28 of the Regulations issued in terms of the Pension Funds Act, 1956 (PFA), by introducing holistic reporting on assets held in compliance with Regulation 28.

In terms of Prudential Standard: Regulation 28 Quarterly Reporting Requirements for Pension Funds, 2024 (exception reporting Prudential Standard), which came into effect on 2 April 2024 and repealed the various Board Notices that previously prescribed Regulation 28 reporting requirements, funds are currently only required to report instances of non-compliance with Regulation 28 every quarter.

In introducing the holistic reporting Prudential Standard, the FSCA intends to build on the current ‘exception-based’ reporting by including an additional layer of reporting on assets held in terms of Regulation 28. This approach will ensure more proactive and pre-emptive supervision of compliance with Regulation 28.

According to the 2024 Regulation Plan, it is projected that the process for implementing the holistic reporting Prudential Standard will be completed at the end of the 2024/ 2025 period or early in the 2025/ 2026 period.

Once the holistic reporting Prudential Standard is made final, it will repeal the Prudential Standard: Regulation 28 Quarterly Reporting Requirements for Pension Funds, 2024.

Amendments to Conduct Standard: Section 14 Transfers, 2018 (Conduct Standard 1 of 2019 (PFA))

The Conduct Standard sets out the requirements and conditions for amalgamations and transfers in terms of section 14 of the PFA and prescribes the forms (which are embedded as appendices to the Conduct Standard) that must be completed when giving effect to an amalgamation or transfer.

In light of the imminent implementation of the Two-Pot System (which will necessitate changes to certain section 14 application forms), the FSCA proposes that the Conduct Standard be amended to remove the prescribed forms and to enable the FSCA to determine the content, format and manner of submission of the relevant section 14 application forms.

Draft amendments to the Conduct Standard were published for public comment on 8 May 2024. Once the amendment of the Conduct Standard is finalised, the FSCA will amend the section 14 application forms to accommodate the necessary changes as a result of the implementation of the Two-Pot System. These forms will then be determined on the FSCA’s website. This will provide the FSCA with more flexibility to determine the forms and alleviate the need to amend the Conduct Standard each time the FSCA needs to amend the forms.

Potential regulatory reviews

The FSCA is in the process of considering potential reviews and/ or interventions relating to various other areas in the retirement fund sector. Although the FSCA has not made any final decisions in this regard, this potential project could include reviews of Directive 8, Pension Fund Circulars 86 and 90, practices in the employer environment, retirement fund liquidation requirements and retirement fund costs and fees.

Update on other retirement fund-related projects continued from the previous regulation plan

Transitional arrangements pertaining to the prudential regulation of retirement funds, collective investment schemes and friendly societies:

In preparation for the transition of prudential regulatory oversight from the FSCA to the Prudential Authority (PA) in respect of retirement funds, collective investment schemes and friendly societies, the FSCA and PA established a working group tasked with developing roadmaps that will set out how the transition will occur.

The FSCA notes that the transition process will likely entail:

• transitioning certain prudentially focused frameworks currently supervised by the FSCA to the PA;
• converting certain frameworks currently supervised by the FSCA to Joint Standards; and
• the PA developing new prudentially focused frameworks.

Draft Conduct Standard Prescribing Conditions for Securities Lending for Pension Funds

The FSCA has confirmed that this draft Conduct Standard, which was published in October 2020, remains on hold because it overlaps with other ongoing developments relating to security financing transactions (including, securities lending transactions) that broadly impact retirement funds, banks and insurers.

The FSCA, however, envisages that work on this Conduct Standard might be resuscitated in due course given that progress has been made on some of the broader securities financing transactions proposals.

Draft Prudential Standard – Requirements Related to Regulatory Reporting and Audited Financial Statements for Pension Funds

Following the public consultation process, work on the draft Prudential Standard is ongoing. The FSCA has projected that the process for implementing this draft Prudential Standard will be completed at the end of the 2024/ 2025 period or early in the 2025/ 2026 period.

Draft Conduct Standard – Conditions for Living Annuities in an Annuity Strategy

The FSCA is reconsidering this Conduct Standard, especially the assumptions it applies. Therefore, the FSCA is not certain as to when this draft Conduct Standard will be progressed.

Draft Conduct Standard – Communication of Benefit Projections to Members of Pension Funds

The FSCA is considering whether this project should be pended and collapsed into the Conduct of Financial Institutions Bill (COFI Bill) transition project, in particular, the Advertising and Disclosure themed framework. The FSCA has also indicated that it is aware that requiring this Conduct Standard to be implemented at a time when funds will be required to implement the Two-Pot System, will place excessive pressure on the retirement fund industry.

Draft Conduct Standard relating to Pension Fund Benefit Administrators

The draft Conduct Standard relating to pension fund benefit administrators was revised during the 2023/ 2024 period and a final draft Conduct Standard has been compiled. The FSCA intends to undertake informal consultation on the revised Conduct Standard during the second half of 2024, following which the draft Conduct Standard will be submitted to Parliament.

Sector regulatory framework developments

Envisaged Conduct Standard regarding Industry Practices and Treatment of Lost Accounts and Unclaimed Assets

The FSCA published a discussion paper, titled ‘A Framework for Unclaimed Financial Assets In South Africa’ on 22 September 2022. It considered industry practices and the treatment of lost accounts and unclaimed assets. The FSCA expects that regulatory framework interventions will be developed following the consultation process undertaken on the discussion paper. The FSCA envisages that a draft Conduct Standard will be published for public consultation during the 2025/ 2026 period.

Guidance Notices and Interpretation Rulings

The 2024 Regulation Plan alludes to the FSCA’s intention to adopt a new approach to guidance notices, which will entail it using guidance notices as a strategic tool to support its supervisory function (as opposed to the current approach of issuing guidance notices as and when a need is identified).

This will be done to respond to the changes in the regulatory framework, as it starts to evolve to one that is more outcomes and principles based. Although the 2024 Regulation Plan does not set out significant detail in this regard, the FSCA has indicated that guidance notices will be used, for example, to highlight practices that align or do not align with legislated outcomes or principles.

The 2024 Regulation Plan can be accessed here.

Written by Deirdre Phillips, Partner, David Geral, Partner, Tshepo Mokoana, Senior Associate, and Kgomotso Mjiyako, Associate, Bowmans South Africa