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New guidelines on orphan funds – Cancellation and reinstatement requirements reviewed by Authority

The FSCA recently published PFA Information Circular No. 1 of 2019 which replaces Information Circular PF No. 2 of 2017. The latter provided guidance on the information required for an application for the cancellation of a fund.

“The pre-requisites for a fund to have ceased to exist are that it no longer has any assets, liabilities or members or any pending litigation against it. Similarly, the participation of a participating employer in an umbrella fund would terminate when an umbrella fund no longer has any assets, liabilities or members or any pending litigation against it in respect of the participating employer. All of this only eventuates after the relevant information is provided to the Registrar so that the Registrar is able to make a decision in terms of section 27(1) of the Act in cases requiring the cancellation of a fund’s registration or through informing the Registrar and effecting the appropriate rule amendments in cases where a participating employer’s participation in an umbrella fund has ended. A fund ceases to exist and an employer’s participation in an umbrella fund ends only after the requirements in the Act are met and this is confirmed by the Registrar.”

The matter of the cancellation of orphan funds drew substantial interest in the wake of serious allegations made by Rosemary Hunter after her appointment as Deputy Registrar of the FSCA in 2013. The matter was finally laid to rest in September 2018 when the Constitutional Court ruled against her application for leave to appeal earlier judgments made by the High Court in Pretoria and the Supreme Court of Appeal in a bid to compel the FSCA to do more investigations into the funds cancellation project.

Following these events, one major insurer applied for the reinstatement of 130 funds, which had about R100m in assets and 3,000 beneficiaries. It appears that all funds will now be required do some serious introspection.

Cancellation of registration of funds

In order to manage enquiries with respect to applications for the cancellation of the registration of funds, funds and administrators are required to confirm that –

a) their internal and administration platforms/systems (both administrators and investment managers) have been checked and there is no additional information or assets that will impact on the application for the cancellation of a fund already submitted to the Authority;
b) the records and accounts held by the funds or administrators, e.g. suspense accounts, “slush funds”, etc. have been checked and there are no remaining assets due to the funds in respect of which applications for cancellation have been submitted to the Authority for consideration; and
c) an external auditor has verified and confirmed that the fund to be cancelled does not have assets, liabilities, members or a board, and attach proof thereof.

These confirmations must be accompanied by a list of funds that they relate to.

Applications for the cancellation of registration of funds already submitted to the Authority will only be considered once the information referred to above have been received.

Reinstatement of funds already deregistered by the Authority

Where a fund or administrator becomes aware that the cancellation of the registration of a fund prior to 1 April 2018 was made in error, the fund or administrator must immediately –

a) inform the Authority accordingly;
b) disclose all relevant information and full particularity of the error and provide an explanation for why the error occurred; and
c) make application to a competent Court for the cancellation of the registration of the fund to be reviewed and set aside.

Similar, but stricter rules apply to cancellations after 1 April 2018.

“Depending on the nature of the error uncovered and whether or not the provisions of section 95 of the FSR Act find application, the Authority may require of an administrator or other interested party to make application to a competent Court with jurisdiction to set the Authority’s decision aside.”

The Authority may undertake supervisory on-site inspections or investigations and invoke any other legal measures to verify whether or not funds and administrators are implementing the appropriate processes.

Failure to comply with the guidelines may result in the Authority taking regulatory action.

The Authority intends publishing a Guidance Notice setting out the revised requirements by the end of March 2019.

Click here to download PFA Information Circular No 1 of 2019.

Click here to read a 2018 Business Day article that summarises the pension fund deregistrations.

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