FSB Directive on Principal Officers

FSB Directives have the same binding effect on funds as legislation (as opposed to PF Circulars which are issued on a “comply or explain” basis). The FSB gazetted Directive 5 on 14 February 2011. This Directive lays down the following in respect of Principal Officers (“Pos”):

• a new appointment procedure
• fit and proper requirements
• the Fund’s obligations to ensure PO is fit and proper.

The Directive also re-emphasises the amendments to Section 8(6) of the Pension Funds Act (as amended in the General Financial Services Amendment Act, 2008) regarding the PO’s “whistle blowing” duty, and their duty to inform the FSB if and when their appointment as PO is terminated.

New procedure to appoint PO

The Directive provides that when the Trustees appoint a new PO, they must make sure that the new PO:

• has the required qualifications and experience
• is fit and proper for the position
• acts with integrity
• is informed of their duties and responsibilities.

The Directive requires that two forms be completed when requesting the FSB to accept a new PO. Annexure A to the Directive must be signed by the Chairperson of the Fund and Annexure B by the new PO.

Annexure A must confirm that the new PO:

• is fit and proper (this differs from FAIS accreditation, which, for example, requires continued education)
• has relevant competence and soundness of judgment, is diligent and an appropriate candidate to be PO to the Fund (based on their qualifications, retirement funds experience, references, police clearance and previous conduct in business / financial matter).

Annexure B requires full details of the PO’s qualifications and experience as well as a declaration that the PO:

• has not been found guilty in the previous five years of offences relating to dishonesty, fraud or breach of a fiduciary duty
• has not been found guilty in the previous five years by any professional or regulatory body of any act which undermines the PO’s honesty
• has not been sequestrated
• has not been barred from entry to any profession or occupation
• is not a former PO of a fund whose actions contributed to the fund’s inability to pay its debts or caused loss to its members
• has not taken part in deceitful or improper business practices.

The Directive provides the FSB with the right to request further information after assessing the above forms, if the FSB deems this necessary.

Furthermore, the FSB has informed the industry that the above forms only need to be completed for the appointment of new POs from 14 February 2011 onwards.

Ongoing duty to report to FSB

The Trustees and the PO must update the FSB on all matters that adversely affect the PO “fit and proper” status, as and when such events occur.

Objection to the appointment/continued appointment of
the PO

If the Registrar believes that the PO is not “fit and proper” or that it is not in the public interest that the PO holds or continues to hold office, the FSB can object to the PO’s appointment or continued appointment. The FSB must substantiate
its objection to the Chairperson of the Fund’s Board and to the PO. The Chairman and PO must then be given a reasonable opportunity to respond to this objection.

Once the FSB has considered the response, it can approve or object to the appointment. If the FSB still objects, the Trustees must terminate the PO’s appointment within 30 days of the FSB’s notification. If the PO or Fund does not agree with the FSB’s decision, they may approach the FSB’s Appeal Board.

Termination of PO’s appointment

The Directive (as well as Section 8(6) of the Pension Funds Act) provides that if a PO’s appointment is terminated for any reason other than the FSB’s objection to the appointment, the PO must inform the FSB in writing within 21 days giving reasons for this termination. This includes circumstances where the PO resigns voluntarily.

“Whistle blowing” duty of the PO

PO’s must inform the FSB in writing if they become aware of any issue which may prejudice the Fund or its members. This provision is very broad and requires POs to exercise their discretion. However, the provision emphasises the role of the PO as the “eyes and ears” of the FSB. POs who do not report relevant matters to the FSB will be guilty of wrongdoing.

This PO duty is not new. Although emphasised in the Directive, it first became law when the Pension Funds Act was amended in the 2008 General Financial Services Amendment Act.

This duty should be carefully considered by PO’s, as it expands their secretarial role to FSB watchdog and chief operational officer of the Fund. Furthermore, any documentation/statutory returns required to be signed by the PO and submitted to the FSB should take this duty into account.