The FSCA is proposing to fast-track an update to retirement funds’ quarterly reporting requirements, to take account of the amendments to regulation 28 under the Pension Funds Act.
The amendments to regulation 28 permit retirement funds to invest up to 45% of their assets in infrastructure and made other changes to the asset allocation limits. As a result of the amendments to regulation 28, the reports in which retirement funds disclose their compliance with the regulation have to be changed.
The disclosure reports, referred to as “quarterly reports”, are prescribed in different notices.
Section 98 of the Financial Sector Regulation Act (FSRA) requires a regulator to publish a draft of a regulatory instrument for at least six weeks, to allow stakeholders to make submissions. In addition, section 103(1) of the FSRA requires that, before a regulator makes a regulatory instrument in terms of section 98, it must submit the regulatory instrument to Parliament for at least 30 days while Parliament is in session.
Herein lies the problem: the amendments to regulation 28 take effect on 3 January. Six weeks plus 30 days mean the revised quarterly reports – the regulatory instruments – won’t be finalised by then. Furthermore, Members of Parliament plan to be on leave from 19 December to 6 January, so Parliament won’t be in session.
The FSCA is therefore proposing to issue a prudential standard as an urgent regulatory instrument in terms of section 100 of the FSRA.
In terms of section 100(1), if a regulator determines that compliance with section 98 is likely to lead to prejudice to financial customers or harm to the financial system, or defeat the object of the proposed regulatory instrument, the regulator must, before making the instrument:
- Publish a draft of the regulatory instrument and a statement explaining the need for and the intended operation of the regulatory instrument.
- Publish a notice inviting submissions in relation to the regulatory instrument. The period allowed for making submissions must be at least seven days.
- Publish a statement of the reasons why the delay involved in complying with sections 98 and 99 is considered likely to lead to prejudice to financial customers, or harm to the financial system, or defeat the object of the proposed regulatory instrument.
The regulator must submit these documents Parliament, whether or not it is in session, for at least seven days, which may run concurrently with the seven days in which comments must be submitted.
The FSCA’s statement supporting the draft prudent standard explains why it is “imperative” that quarterly reports must be amended urgently.
However, it does not explain why the FSCA did not initiate the amendments to the quarterly reports immediately after the amendments to regulation 28 were announced in July. If it had done so, the regulator would have had enough time to follow the process envisaged by sections 98 and 103(1) of the FSRA.
Updated reporting format
The draft prudential standard prescribes quarterly reports for retirement funds and incorporates a revised and updated reporting format, to take account of the amendments to regulation 28.
It also includes a section in which funds must report on their policies and practices in respect of environmental, social and governance issues.
The draft prudential standard replaces the following notices:
- Board Notice 2 of 10 June 2011 (Regulation 28 prescribed report format);
- Board Notice 3 of 19 December 2011 (Reporting format prescribed under regulation 28);
- Board Notice 3 of 31 May 2012 (Quarterly non-compliance reporting prescribed under regulation 28); and
- Board Notice 6 of 2 October 2012 (Quarterly audit annual report format prescribed under regulation 28).
Click here to download the draft prudential statement.
(Note: the draft prudential standard published on 4 November was incomplete. The FSCA subsequently posted the correct version on its website.)
Comments and more information
Comments on the draft prudential standard must be submitted on the comments template (Word document) by 7 December to FSCA.RFDStandards@fsca.co.za.
For more information, contact the FSCA’s Regulatory Frameworks Department at Marianne.Vanrooyen@fsca.co.za or Andile.Mjadu@fsca.co.za.
