The Financial Services Tribunal (FST) has dealt a big blow to the attempts of the Financial Sector Conduct Authority’s (FSCA) to replace the Board of Trustees of the Municipal Employees Pension Fund with an Interim Board.
Recent cases involving the Municipal Employees’ Pension Fund (MEPF) and the Financial Sector Conduct Authority (FSCA) highlight critical issues.
Key points:
• The FSCA’s refusal to approve amendments has caused delays.
• The implications of these decisions affect trustees and fund members directly.
• Ongoing High Court proceedings signal a strained relationship.
The FSCA has significant authority, but its inaction raises questions.
What happens when decisions are delayed?
Who suffers the consequences?
The recent tribunal ruling could change this dynamic.
It emphasizes the need for clarity and accountability.
Stakeholders await the FSCA’s next steps.
The outcomes will impact pension funds across South Africa and most likely in the region.
Decision
This case revolves around the reconsideration of decisions, or the lack thereof, by the Financial Sector Conduct Authority (FSCA) in two related matters, consolidated for hearing. The first case (A33/2023) concerns the Municipal Employees’ Pension Fund’s (MEPF) applications under Section 12 of the Pension Funds Act (PFA) 24 of 1956. These applications involve amendments to the Fund’s rules, a proposed name change, and a request for exemption from compliance with Section 7A(1) of the PFA. The second case (A43/2023) involves the FSCA’s decision under Section 26 of the PFA, which pertains to the removal of the Fund’s Board and the appointment of an interim board.
The strained relationship between the Fund and the FSCA is evident, as highlighted by ongoing High Court proceedings between the parties, though these are not under review by the Tribunal. Further complexity is added by the involvement of some of the Fund’s members, who sought to join the proceedings in a separate application—a move opposed by the Fund but viewed neutrally by the FSCA.
The trustees of the Fund, impacted by the FSCA’s decision in A43/2023, also joined the case, adding further stakeholders to the proceedings.
Both cases fall under Section 230(1) of the Financial Sector Regulation Act 9 of 2017, which allows aggrieved parties to request reconsideration of FSCA decisions. Importantly, under this Act, a “decision” also includes situations where the FSCA has failed to make a decision within a reasonable timeframe.
However, the Tribunal’s powers in these matters are limited. It can either dismiss the application or set aside the FSCA’s decision and remit the case for reconsideration. The Tribunal does not act as an appellate body or a review court. The issue of “non-decision” remains legally ambiguous, as it implies the FSCA’s inaction or delay in deciding.
Ultimately, the A33 reconsideration focuses on the FSCA’s refusal to consider and approve the Fund’s applications for rule amendments, name change, and exemption under Section 7B(1)(b)(i). Meanwhile, the A43 reconsideration concerns the FSCA’s removal of the Board and appointment of an interim board under Section 26(2)(a) of the PFA, which has been temporarily suspended pending resolution.
Akani’s reaction
In a press statement issued on 10 October 2024, Akani welcomed Tribunal’s Decision on MEPF Board Composition and Pension Fund Rule
Amendments.
Its statement read;
Akani Retirement Fund Administrators (Pty) Ltd is pleased to express its support for the
recent ruling made by the Financial Services Tribunal regarding the Municipal Employees’
Pension Fund (MEPF). This decision provides essential clarity on the composition of the
MEPF Board and approves amendments to the Fund’s rules, which had been delayed due to
concerns raised by the Financial Sector Conduct Authority (FSCA).
The Tribunal’s ruling—confirms that the regulator exceeded its authority by failing to
approve the submitted rule amendments and name change applications from the Fund.
These applications faced prolonged delays primarily due to the FSCA’s concerns regarding
the MEPF Board’s composition. However, the Tribunal determined that these concerns did
not justify the indefinite postponement of the application approvals.
The FSCA contended that the Board was not properly constituted, citing alleged non-
compliance with the rules governing the election of employee representatives. The Fund
countered this assertion by clarifying that election processes were conducted at the
municipal level, with results communicated to the Fund by municipal managers, as
stipulated in the Fund’s rules.
In its ruling, the Tribunal underscored the necessity for a reasonable approach when
addressing administrative processes involving lay boards like the MEPF’s. It pointed out that
the FSCA’s decision to delay application approvals based on perceived issues with board
composition was inconsistent with the powers granted to the regulator under the Pension
Funds Act. Additionally, the Tribunal rejected the FSCA’s claim that the Fund’s failure to
involve pensioners in the election of office-bearers constituted a significant violation of the
rules, as those rules did not mandate such involvement.
The Tribunal also criticized the FSCA for its inconsistent position on board appointments,
noting a contradiction in its objections regarding pensioner representation while
simultaneously disregarding the appointment of a former employee-trustee, which was
made to ensure continuity.
The Tribunal has annulled the FSCA’s decisions to delay or reject the rule amendment and
exemption applications, instructing the FSCA to reconsider its invalidation of the MEPF
Board’s actions. It encouraged both the FSCA and the Fund to adopt a more constructive
and collaborative approach in the future, stressing the importance of transparency and
accountability.
Akani welcomes the Tribunal’s decision, as it provides much-needed legal certainty not only
for the MEPF but also for other pension funds facing similar issues. This ruling highlight the
critical importance of adhering to the rules and procedures established in the Pension Funds
Act while also acknowledging the practical challenges encountered by lay trustees and
employee representatives.
Akani remains dedicated to supporting the MEPF in ensuring compliance with all regulatory
requirements and urges the FSCA to act swiftly in reconsidering the applications. We call for
constructive engagement between the FSCA and the Fund to resolve any unresolved
matters.
Removal of the Board
Powers of the FSCA: Section 26 outlines the powers of the Financial Sector Conduct Authority (FSCA) to intervene in the management of pension funds. It establishes three key areas of intervention, specifically addressing the authority to direct amendments to fund rules, direct the removal of trustees, and appoint interim boards.
a. Amendment of Rules: The FSCA can mandate a board to amend its rules if it determines that the fund is not being managed according to the law or its established rules.
b. Removal of Trustees: Should a trustee be deemed unfit or improper, the FSCA has the authority to direct their removal from the board.
c. Appointment of Interim Boards: The FSCA may appoint an interim board if:
• A fund lacks a properly constituted board after a 90-day notice period.
• A board fails to meet the requirements outlined in section 7A of the Pension Funds Act (PFA).
Case Application and Analysis
• Case Summary: The FSCA issued a notification on 30 May 2022, highlighting issues within the election process of a fund’s board. It found that the board was improperly constituted and invited the fund to provide evidence of proper constitution within 30 days. The fund failed to demonstrate compliance, leading to the FSCA’s notice on 4 October 2023 to appoint an interim board.
Findings:
• Lack of oversight in board elections.
• Pensioners were not granted the right to participate in the election of office-bearers.
• Non-compliance with fund rules regarding the appointment of office-bearers.
Legal Principles and Rationality
• Constitutional Principles: The section cites the Constitutional Court’s reiteration of rationality principles governing the exercise of public power. It emphasizes that public power must be grounded in law and exercised in a rational manner that aligns with legitimate governmental purposes.
• Judicial Oversight: The framework underscores that judicial interference is limited to instances where the exercise of public power is deemed irrational or arbitrary. In this case, the FSCA’s actions in removing the board without proper legal grounds could be viewed as irrational, particularly in light of the board operating under binding rules.
MEPF Reaction
Yesterday, on 10 October 2024, the FST issued a ruling that set aside the decision of the FSCA in October last year that found that the MEPF Board of Trustees was not properly constituted under the Pension Funds Act and in accordance with the rules of the Fund and to that end, issued its intention to remove the Board of Trustees and replace with an Interim Board. This decision has now been set aside by the FST.
The FSCA also refused to approve the MEPF’s application to amend its fund rules and change its name. The MEPF Board of Trustees has always upheld a view that its trustees were elected by the member
structures of the Fund in accordance with the rules of the Fund in November 2021, which were registered and approved by the FSCA at the time.
The FST judges were scathing on the conduct of the FSCA. It found that the FSCA engaged in an ‘excessive fault-finding spirit’ regarding its decision that the MEPF board was not properly constituted. The FST also found that the FSCA’s approach to whether the MEPF board was not properly constituted was ‘inconsistent’ and concluded that the FSCA misconceived its powers.
The decision of the FST reinforces the independence of the Board of Trustees as duly elected fiduciaries and empowered to take decisions in the best interest of the Fund.
In terms of the joinder application by certain members of the Fund who were funded by Mergence Investment Managers, an aggrieved Asset Manager that was fired by the Board of Trustees in
October last year, the FST did not consider the members’ application by Ndou Attorneys as it was deemed “irrelevant and vexatious”.
Now that this matter has been brought to a close, the Board of Trustees urges members to engage directly with the Fund through appropriate channels to settle whatever concerns they may have and
not through sponsored third parties with nefarious agendas.
Conclusion and Implications
The powers vested in the FSCA under Section 26 represent a crucial mechanism for ensuring proper governance within pension funds. However, the application of these powers must adhere to legal principles and rationality to prevent arbitrary actions that could undermine the legitimacy of pension fund management.
The detailed exploration of these provisions and their application not only highlights potential pitfalls within the regulatory framework but also calls for greater accountability and transparency in pension fund governance.
