Fraud, Corruption and Governance in pension funds: the legal framework SK

ABSA BANK LIMITED v SACCAWU NATIONAL PROVIDENT FUND REMARK - BASHALL AJ “assets of pension funds, not infrequently viewed as a prize by commercial buccaneers, must be safeguarded”

BASHALL AJ : FURTHER COMMENTS Pension rules to be interpreted strictly Pensioners vulnerable group Interests of this group must be safeguarded Pension fund assets are trust property They deserve special protection

WHAT HAS GOVT DONE ON ITS PART Passed laws to regulate funds Appointed a regulatory body (FSB) Given regulatory body wide powers All these to reduce fraud and corruption and ensure good governance

WHAT ARE THESE LAWS Pension Funds Act of 1956 Financial Institutions Protection of Funds Act of 2001 FSB Act of 1990 FAIS Act of 2002

WHAT DO THESE LAWS PROVIDE FOR Fund owns assets in own name to exclusion of others Board only managing organ to exclusion of others Funds to have constitution/rules binding on everyone Impose fiduciary and statutory duties on boards, PO’s and administrators and service providers

WHAT DO THESE LAWS PROVIDE FOR PFA makes clear that good governance responsibility of board FSB oversees and can interve where there’s failure by PO, BOARD and service providers Board must therefore have policies in place to ensure good governance (PF 130, KING, UN, OECD principles) Board must also implement policies

REGULATOR’S POWER TO INTERVENE Bad management (actual or likely) calls for FSB intervention Registrar and FSB have wide powers in this regard

WHAT IS FSB EMPOWERED TO DO? Issue directives Remove PO from office Remove board from office Remove administrator Admin penalties

WHAT IS FSB EMPOWERED TO DO? Impose fines or withdraw licences of service providers Call on anyone to cease and desist from continuing with undesirable practices Refer wrongdoers to enforcement committee Apply to court to place institution under curatorship

WHAT IS FSB EMPOWERED TO DO? Can cause an inspection or investigation to be carried out on fund or service provider Take action against wrongdoers based on outcome of investigation Report them even to SARS or NPA or professional bodies for further action to be taken

WITH ALL THESE MEASURES IN PLACE, WHY ARE WE STILL GETTING IT WRONG? There will always be people who bend or break laws Current measures dont always allow for problem to be detected earlier Usually we find out after the fact Good policies (paper) dont necessarily ensure good governance (good people do)

WHY ARE WE STILL GETTING IT WRONG? Tough sanctions set out in legislation rarely imposed Trustees and service providers often neglect their duties or pass the buck

WHERE TO NEXT? WHAT MORE CAN BE DONE?