The Financial Sector Conduct Authority does not have the statutory power to impose time limits on exemptions granted to retirement funds, such as the exemption from holding direct member elections for their boards.
In decision handed down last week, the Financial Services Tribunal (FST) ruled that such conditions are ultra vires (beyond the FSCA’s legal authority) because the Pension Funds Act (PFA) does not authorise them.
The reconsideration application that came before the Tribunal centred on an exemption granted to the Bokamoso Retirement Fund, an umbrella fund, under section 7B(1)(b)(i) of the PFA.
Section 7B(1)(b)(i) provides that certain types of retirement funds may be exempted from the requirement that fund members elect at least 50% of the board of trustees. This provision recognises that in certain fund structures, such as umbrella funds serving multiple unrelated employers, the standard requirement for member-elected trustees may not be practical.
The exemption, which was granted in August 2017 by the Registrar of Pension Funds, was valid for three years. Assuming the exemption had lapsed in 2020, the fund applied for a new exemption in January 2022.
The FSCA refused to process the application, citing concerns about the board’s composition, claiming the original exemption had expired and the board elected in November 2021 was irregular. The Authority also declined to process applications for registering special rules for three employers, using the same reasoning.
Precedent established by FSCA v MWRF
A cornerstone of the Tribunal’s reasoning was the precedent established by the High Court in Pretoria in Financial Sector Conduct Authority v Municipal Workers’ Retirement Fund (2022). This case addressed a nearly identical issue: the FSCA’s imposition of a time limit on an exemption under section 7B(1)(b)(i).
The Tribunal leaned heavily on the High Court’s interpretation, quoting the following passage from the judgment:
“There is no express provision in section 7B that the exemption is to be for a limited duration. There is no reason to read in such implied provision. The Authority had no right to impose a time limit and should not do so. A policy, as correctly argued by the fund, can be amended, and a court is required to pronounce on this issue. A time limit is not a condition; it is limiting the life of the exemption.”
The Tribunal said this ruling was a decision in rem, meaning it applied universally to all similar cases, not only Municipal Workers’ Retirement Fund.
The FSCA did not appeal the High Court’s decision, rendering it binding on both the FSCA and the Tribunal. Consequently, the FST concluded that the time limit imposed on Bokamoso’s exemption was void ex tunc (invalid from the outset) and should be treated as pro non scripto (as if it had never been written).
Rejection of the Oudekraal principle
The FSCA sought to defend its position by invoking the principle established by the Supreme Court of Appeal in Oudekraal Estates (Pty) Ltd v City of Cape Town and Others (2004). The Oudekraal principle states that an administrative act, even if legally flawed, remains valid until it is formally set aside through judicial review.
The FSCA argued the time limit should stand until Bokamoso successfully challenged it in court. The Tribunal rejected this argument, distinguishing the circumstances of the case from the framework in Oudekraal. It explained: “This is not an instance covered by the Oudekraal principle, because the exemption was validly granted and only the time-limit condition was void.”
The Tribunal reasoned that the exemption itself was lawfully issued under section 7B(1)(b)(i), and the time limit was merely an unauthorised condition that could be excised without affecting the exemption’s underlying validity. Thus, no formal review was required to invalidate the time limit – it was ultra vires and void from the moment it was imposed.
Procedural steps not the central issue
The Tribunal noted the practical impossibility of holding board elections during the Covid-19 pandemic, a reality the FSCA appeared to ignore. The term of the fund’s previous board expired in 2020, but pandemic-related restrictions prevented elections until November 2021.
The Tribunal criticised the FSCA for not acting under section 26(2) of the PFA to ensure the board was properly constituted during this period. Instead, the FSCA allowed the board to operate without questioning its legitimacy until later raising objections.
The Tribunal tackled the FSCA’s objection to the fund’s conducting indirect elections, which the authority argued was improper. The FST found this complaint rested on the mistaken belief that the fund’s exemption had lapsed.
The Authority also argued that since the exemption was granted under the “old dispensation” – meaning, the Financial Services Board (FSB) – Bokamoso should have followed the appeal process. But the Tribunal said the FSB and its Appeal Board had been dissolved by the time the dispute arose in 2022, rendering this process obsolete.
In any event, this argument misconceived the central issue. The key question was the exemption’s validity, not the procedural steps for appealing its status.
The Tribunal concluded that the FSCA erred in not considering the fund’s application because of the lapse of the exemption. It set aside all the decisions or non-decisions by the Authority based on the supposition that the exemption had lapsed.
