Financial Services Board on its 2016 Strategic & Annual Performance Plan & Quarterly Reports

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Finance Standing Committee

13 April 2016
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Committee met with delegates from the Financial Services Board (FSB) to discuss its strategic and annual performance plans, and performance report for 2016.

The FSB said its performance had been satisfactory over the period, with almost all targets being met or exceeded. The strategy document had been influenced largely by the upcoming Twin Peaks legislation, under which the FSB would transition to become the Financial Services Conduct Authority (FSCA). In particular, this had affected the FSB budget and the variance of expenditure from targets. In many cases there had been under-spending, which was the result of a general slowdown at the FSB as it focused on preparing for a smooth transition to the Twin Peaks system.

Members raised the issue of the accusations of misconduct brought against the executive officers of the FSB over their management of “orphan funds,” and requested that the reports into the investigations be made available to the Committee. It was also suggested that there was a conflict of interest involving the chairperson of the FSB, as the FSB was responsible for regulation of the Public Investment Corporation (PIC), and he was also CEO of the Government Employees Pension Fund (GEPF), the largest client of the PIC. There was criticism of the remuneration of the ten members of the executive management committee, as five earned R3 million per year or more, while one member earned R6 million per year, which was considered excessive. Furthermore, performance bonuses had been paid over a period where the performance of the FSB had come under criticism.

The FSB responded that the FSB felt the remuneration levels were necessary in order to attract the kind of skills required to do such work. The investigations into the management of orphan funds were ongoing and at present could not be disclosed as officials had had to sign a non-disclosure agreement. However, the FSB fully intended to make the reports public once the process was finished -- there was no intention of hiding anything.

Members urged the FSB to broaden the base for asset ownership, financial education and pension reform to support the previously disadvantaged. They expressed worry over the progress of the Financial Sector Regulation Bill, and sought clarity on the FSB’s stance on the pension fund preservation issue. It was stressed that there was a need for the FSB to play a proactive role in educating the public about avoiding bad debt, which was pervasive in South Africa.

Meeting report

Adv Dube Tshidi, Executive Officer, Financial Services Board (FSB), said the FSB was driven by its mandate as stipulated in the Acts. Its overall job could be summarized as making sure that there was integrity and stability in the financial sector, and that the consumer was protected.

The strategic document to be presented was mixed in the sense that much of the work of the FSB at present involved navigating the transition to become the Financial Services Conduct Authority (FSCA) under the Twin Peaks arrangement. Normally the FSB would present one simple strategic plan for the next five years, but this framework document had been revised in light of the imperatives of the upcoming Twin Peaks legislation. The document covered the period 2015-2017, the point at which it was believed this legislation would have arrived.

Ms Caroline da Silva, Deputy Executive Officer: Financial Advisory and Intermediary Services, FSB, confirmed that the document covered a transitional period. There was a significant shift coming regarding who the Board regulated and how it was done. The transitional strategic document had the overriding objecting of providing a smooth transition to the new system -- the shift from the FSB to the FSCA.

The FSB was currently a sectoral based supervisor; the shift was now to protect consumers. The move was from sectoral compliance to an outcomes focus, based across all financial institutions. The inclusion of the protection of the customer was very important for the FSB’s mandate. It would also be supervising the conduct of banks for the first time.

In the context of the National Development Plan (NDP) and the question of providing growth for the financial sector, the FSB aimed to improve employment and reduce poverty. The question for the FSB was how to achieve this. The role of the FSB in achieving growth was related to the kinds of licences that it issued and the methods it used to assist emerging players to enter the sector. It examined the products provided by suppliers to make sure that they were actually of assistance to consumers. Under Twin Peaks, it would have legislative power to monitor financial product design.

Retirement benefits were currently a difficult issue for the FSB. It improved retirement funds and increased the asset ownership and management of retirement funds. Currently, many assets within retirement funds were managed by too few hands. There was a need to find a way to spread management and ownership, and to further cut red tape around regulatory compliance. There was a one-size-fits all approach to regulation which caused problems for smaller and medium upcoming players, who suffered the costs of regulation badly. The Board was also currently focused on moving from the FSB to the FSCA, and needed to ensure that the skills and the skilled workers that it had were maintained as it went forward.

Ms da Silva discussed five strategic outcomes within the strategy document. The first was to empower consumers of financial products and services, through financial education and the promotion of transformation and financial inclusion. This could be achieved through changing access laws and reducing the regulatory burden, and improving financial institutions through innovation. Importantly, access was not enough, and it was necessary to ensure that the use of the financial products achieved an improved quality of life.

The second strategic outcome was to create proactive stakeholder management, by implementing a strategy which ensured timely and transparent communication with stakeholders. This would improve trust and respect for the FSCA brand.

The third strategic outcome was to create sound financial institutions that treated customers fairly. This would be done by ensuring that the regulatory and supervisory framework was in line with international standards and best practices, and by ensuring effective and efficient prudential and conduct supervision processes. She emphasised that the FSB currently supervised as many as 11 000 financial institutions. The scale of the operation required a risk-based approach.

The fourth strategic outcome would be very important as the FSB transitioned to the FSCA. The FSB should establish sound internal policies, systems and procedures that could be continued in the FSCA.

The fifth and last strategic outcome was the transition itself, which would require recommendations on the future structure of the organisation and the regulatory strategy. The FSB had been an organization in a sectoral-based structure, but would shift to the role of an industry-wide market conduct regulator. It would need to shift the organisation to a functional approach, with one body for each function across the industry. There had been a focus on the process of organisational redesign and change management. Skills and a potential skills-gap in the new institution was another focal area.

Mr Tshidi then discussed the FSB’s annual performance plan. The FSB would change to the FSCA, which had caused some uncertainty in terms of setting performance measures. As a result, it had decided in this report to rely on the performance indicators from 2015/16 in most cases. When the FSCA came into being, the presumption again was that it would have to revisit the FSB’s strategy and create appropriate performance indicators.

Performance information

Mr Tshidi brought to the attention of the Committee the fact that the performance information was unaudited. The FSB had achieved targets for strategic outcome 1 regarding financial education. Targets for stakeholder management -- strategic outcome 2 -- and the promotion of transformation in the industries that the FSB regulated had also been achieved and two additional workshops had been held in order to meet demand. The communication strategy would be finalized when the Twin Peaks legislation in the Financial Sector Regulation Bill was enacted. Overall targets had largely been achieved, although goals for the FSB Bulletin targets and the FSB Buzz from the Board had not entirely been met.

The development of sound financial institutions­­­ (strategic outcome 3) in line with international standards had been successful. There had been four reports on progress with the implementation of the findings and recommendations of international peer review bodies. The FSB had submitted the legislation review to the National Treasury on time. It had exceeded its goals for the implementation of a risk-based supervisory approach and the effective enforcement of compliance with legislation. Internal process targets had also been reached. With regard to the effective transition to a market conduct regulation, at this point in time it was very much a work in progress but the three targeted areas were in full readiness for the transition, a recommended regulatory strategy, and a recommended organisational design plan.

Mr Paul Kekana, Chief Financial Officer, reported on the financial situation of the FSB. The targeted budget for the 2015/16 period was R686 million, and the actual expenditure had been R613 million. In all categories the budget had been under-spent, with an average variance around targets of 11%. (34:45)

Other expenditures included payments for employee costs and high value goods and services. The biggest contributor had been employee costs, which required around 70% of the budget. Other large contributors were office rental payments and professional fees. There had been a large amount of variance around and below budget in these categories, which had mostly been caused by a general slowdown due to alignment with the Twin Peaks legislation.

Capital expenditures had also had a significant variance, averaging at 63%, a figure driven by variance in the computer software and application architecture under-spending. This variance was also mainly the result of the transitional changes to the system, as Twin Peaks software and applications were currently under the bid evaluation process.


Ms P Kekana (ANC) commented that the sooner the Twin Peaks legislation was complete the better. She was encouraged by the goals set out by the FSB, but stressed that the Committee needed to take the FSB to account and monitor it in terms of meeting these goals. She mentioned in particular the objectives of increasing the base for asset ownership, financial education and pension reform. She also suggested that further meetings with the FSB be held in conjunction with other relevant parties and stakeholders, so that the matter could be considered from various perspectives.

The Chairperson said that Members of the Committee were worried about the progress of the Financial Sector Regulation (FSR) Bill. It was going to be a lot of work to finish such a challenging Bill, especially given the upcoming oversight responsibilities and legislative responsibilities of the Committee. Such a Bill ideally required the full attention of the Committee for around three to four weeks. He suggested that such a period of time would be available in August. This would be after the election campaign and at a time when the Committee could be focused. The work and staff of the FSB depended on the outcomes of the FSR Bill, and public hearings would be necessary when it was complete. As such, the majority within the Committee thought they should focus on the Bill and get it done by the middle of September. He suggested that there might be some opposition to this proposition from DA Members.

Mr B Topham (DA) said he had two questions. He firstly noted that, as a self-funding unit, the FSB was running with significant under-expenditure. He questioned whether the FSB was doing enough proactive work to protect consumers in the market -- for instance, inspecting unlicensed schemes. Secondly, regarding strategic outcomes 2 and 4, his question related to the recent press coverage concerning the accusations made against the FSB by one of its officials, Ms Rosemary Hunter, involving the management of orphan funds. He would like to hear a basic version of the facts from the FSB’s point of view. He wanted to know what the legal situation was, if any laws had been breached, and if there was perhaps a grey-area in law that needed to be dealt with by the Committee.

Mr S Buthelezi (ANC) drew attention to the strategic document as a statement of intent. He was concerned by the lack of timeframes to accompany these goals. One saw the same statements of intent as before – how did the Committee know that the FSB was getting anywhere with these matters? He gave the example of the goal of increasing asset ownership and asset protection by the previously disadvantaged. He wanted to know what had been achieved since this goal had been previously stated. Similarly, for example, he would like to know how transformation of the industry was measured. The Committee needed the opportunity to assess whether or not progress was being made. He lastly requested that more information be given about the sources of the variance from budget targets.

Ms N Mokgosi (EFF, Northern Cape) expressed satisfaction with the management of the transition. However, she noted certain areas of concern. The Committee and the FSB had not spent sufficient time assessing the gains that were being made and the adequacy of their approach. For example, did the FSB or the FSCB understand the space of their operations? Looking at the economic situation of South Africa – there was not just a first and second economy, but a third economy also. There were those operating in the third economy who were not being recognised. There was a mental focus on ‘clients’ as the members of the first economy, without taking into account the possible clients and consumers in the third economy.

To take another example, the Members and delegates at the meeting talked about inclusion and education, but had they addressed the language landscape of South Africa? Were they taking languages into account? One could not operate in a situation where one claimed to aim for inclusion and transformation but language presented an impassable barrier to entry for the majority of the people. The country’s institutions were still focused on the colonial languages. A language policy was needed that spoke to the 79% of the population.

Secondly, when one came up with standards, the evolution of the financial sector in South Africa was often forgotten. ABSA and Nedbank were once cooperatives. People were investing in rural areas but no one was insuring the properties because the insurers were in control of the financial markets, and the government was failing to bring these people to the forefront of its attention. The products were just not suitable for these people, so they were being indirectly excluded.

A point was made of financial literacy – but who was being targeted? She said that based on her personal studies, English and Afrikaans had a different logic to African languages. Most people could not get the benefit of the information being offered. Inadvertently the hierarchical and unequal distribution of opportunities was being perpetuated. As a black African woman, she could not endorse something that excluded her people.

She also took issue with the inclusion of holding meetings as a performance target – how was having a meeting achieving anything? A meeting was not a performance measure. She could organise 100 meetings and all she would be doing was wasting public resources. One had to see practical impacts as an outcome of strategic meetings.

Mr A Lees (DA) commented that the change to Twin Peaks was very prevalent in the strategy document. He wanted to know if any staff members had already been transferred to the South Africa Reserve Bank (SARB) and how that had affected the FSB and the report. He inquired as to how the FSB planned to implement the goal to monitor product design. How involved was the role of the FSB expected to be? For competition to thrive, people had to be innovative and create products to be sold, so there was a natural problem with over-regulation.

The FSB had taken a reasonably strong stance in favour of retirement fund preservation, and Mr Lees expressed support for the FSB having a role to this effect, believing preservation to be in the best interests of the South Africa people. Regarding Sable Industries’ pension funds, he requested background information as to why it was it necessary to go to court, because Mr Mostert had been appointed as the curator. He wanted to know why this was such a big issue and why the court order had not been implemented in terms of the supporting curators? What was the fee structure agreed to with Mr Mostert?

Mr D Maynier (DA) suggested that there was a conflict of interest for Mr Sithole in his role as both chairperson of the FSB, which was responsible for regulation of the Public Investment Corporation (PIC), and his position as CEO of the Government Employees Pension Fund (GEPF), the largest client of the PIC. He requested details of the regulatory actions that had been implemented by the FSB over the financial year with respect to the monitoring of the GEPF. In particular, he sought clarity on whether the FSB had investigated questionable investments – especially those in the public domain.

Mr Maynier also question the remuneration of the FSB board. He pointed out that within the past financial year, the Auditor General had raised questions about the quality of the leadership of the FSB. In light of this, the given remuneration of the executive management of the FSB seemed excessive. There were ten members of the executive management committee, five of whom earned R3 million per year or more, with one member earning R6 million per year. In the same year that performance issues had been raised, a performance bonus of R1.8 million had been awarded. These figures did not seem justifiable.

Lastly, it was now in the public domain that Judge Kate O’Regan and auditing firm KPMG had produced reports regarding the management of dormant funds. These reports had been referred to in the Auditor-General’s report. The relevant question was: what had been the findings and would those findings be implemented, and when would those reports be made public?

The Chairperson drew attention to the pervasion of bad debt amongst the South African population. People were seriously over-indebted. It was the FSB’s role to educate the public about avoiding bad debt, so this was an indication that the FSB was failing in its role as an educator. Even now, people involved in the financial sector often seemed completely unaware of the effects of the upcoming regulatory changes in the Bill. He agreed with Ms Mokgosi about meetings, stating that meetings were only a means to an end, and that performance measures should focus on outcomes.

He said that he had been in contact with Ms Rosemary Hunter regarding the issues raised by Members, but felt it was inappropriate to comment as she was not present to represent herself. He reminded Members that a Parliamentary committee was not a court. He had become familiar with her side of the matter. He had hoped to encourage more discussion between the ministry, Members of the Committee and Ms Hunter, but had not been successful in expanding the dialogue.

Ms Mokgosi echoed Mr Maynier’s question about a conflict of interest. There were very few black people who were well versed in these issues, such as retirement funds etc. Sometimes in these cases, it turned out that an accused person was not necessarily representing their own personal interest, but rather they were representing institutional interests. The matter should therefore be looked at objectively. She also wanted to understand from the FSB whether or not the GEFP had its own Acts.

The Chairperson urged the meeting onwards due to time constraints, stating that the Committee would email to the FSB within 10 days a list of the most important issues, including those not covered in the meeting.

Mr Abel Sithole, Chairperson: FSB, responded on behalf of the entity. Regarding the suggestion that his positions produced a conflict of interest, he said that the Minister had already addressed the issue. The simple answer was that the FSB did not supervise the GEPF. The GEPF had its own board and was supervised by this board, along with the Standing Committee on Finance and other committees. It should be obvious that there was no conflict of interest, as the FSB did not supervise the GEPF. What was more interesting regarding the question of the FSB’s supervision of PIC, was the focus on the PIC simply because he was in the GEPF. The same question could be raised about the interests of managers in charge of FSB investments. The GEPF appointed the PIC the same way that the PIC appoints Coronation Sanlam, so why not ask the same question of the other service providers?

The board of the FSB had a specific mandate in terms of what it did, and it did not include regulation – regulation was in the domain of the registrar and the team that works with the registrar. The board could not interfere with the process of regulation in terms of the law. For the board to try to interfere with regulation in any way, it would need to go to court. From that perspective, there was no way that his position as chairperson could influence the registrar in how he conducted his supervision of the PIC. He could not answer the question of how the FSB regulated the PIC because it was outside of his domain and had to be answered by the registrar.

Responding to the question about remuneration, Mr Sithole said that the board was comfortable that the amounts paid were necessary to attract the skilled individuals needed to perform its mandate. The extent of the work was vast. If one compared the scope of the work done by the FSB to the pay for similar work in the private sector, the remuneration was not excessive. He suggested that by this comparison, members of the FSB were perhaps underpaid, in that their skills would fetch a higher remuneration in the private sector.

The question then became, had they performed with regard to what the auditor’s report was? He urged the Committee not be overly focused on specific small comments, or to see the overall perspective of the executive as negative. Performance agreements were agreed with the executive officer who then engages and agreed on the performance targets with his full team. The board was very comfortable that that which had been agreed upon in terms of what had to be performed, had been delivered upon. And that was what was to be rewarded.

He assured the Committee that arrangements had been made to speak with the executive and the registrar to deal with the matter of orphan funds. The board continued to do what was required to deal with the issue, and processes were not yet complete. A non-compliance report had been issued against the executive officer, so he therefore could not speak about it until it had been dealt with by the board. The board had instituted a number of processes, including securing the services of retired judge Kate O’Regan. One of the recommendations in her report was to appoint an audit company to conduct an audit. KPMG had been appointed, and the process of their work was not yet completely finished. There had been discussions between the board and KPMG over several points of difference. Judge O’Regan had made suggestions which supported the FSB implementing measures to get back to the core of what the FSB should aim to do when dealing with orphan funds, and the potential prejudice of the funds’ members. The mandate of the FSB was to protect the interests of members, and it was a fundamental question to ask: did the process do that?

The second part was some innuendo around the possibility that the process might have resulted or been driven in a way that stood to benefit some officials. The audit process via KPMG had to deal with those issues. Again, as he had indicated, the report was still an ongoing process. The court application was seeking to get access to those reports, and access had been given, provided that the individuals who get access signed a non-disclosure and confidentiality agreement, because the process had not been finished. Those that had signed the agreement had had access to the documents. The contention was whether they should be available to Parliament, and the answer to that was that the processes were not yet complete and the reports were therefore not final reports. All these issues would of course be dealt with in court.

He responded to Members’ questions, saying that the reports would be made public. The process was being done on the understanding that it would become public upon complete – there was no intention to hide anything whatsoever. The FSB did not want anyone jumping to conclusions.

Mr Tshidi responded to Members’ questions about the meanings of certain words. There were three relevant terms involved in this matter: “dormant funds”, “orphan funds”, and “unclaimed funds”.

Dormant funds were funds that had no assets and no liabilities. Dormant funds could arise when the legitimate and legally appointed trustees of a ghost fund effected a 100% transfer of assets and liabilities to other funds in terms section 40 of the Pension Funds Act. After doing this, however, the final step of saying, “registrar, we have moved everything out of this fund – kill it,” had not been completed for whatever reason.

Orphan funds were different – they still had some assets and liabilities. However, in these cases, the members, trustees or employers of the fund could not be traced and the fund therefore had no ‘parents’. Some of the assets of the orphan funds were transferred (by the FSB) to unclaimed benefit funds – the reason for that was to protect the very little amounts that were left in there. The reason was that if they were left in the original fund, on a monthly basis they would be charged for administration, so the FSB moves them to protect them. There was no question of any dormant fund having assets - a dormant fund never had any assets.

In response to Ms Mokgosi’s question about the FSB understanding the space in which it operated, he asserted that it did. Unfortunately, the FSB often had legislative constraints. However, the issues raised were those that members, or ‘players’ in the industry, had often raised to the FSB and Mr Tshidi directly. For example, funeral parlors have approach him and explained that the fact that their work must be underwritten by the big-players had indirectly made them dependent on these players. Another example was insurance licences – if one looked at South Africa, it did not have more than around five wholly-owned black insurance companies. If one applied, one was required to have R15 million that was unencumbered. So the FSB was considering these two issues on the table which were related to financial inclusion.

The task of the FSB as an educator was very challenging in South Africa. This would become more of a challenge under the FSCA, as the regulator would be tasked with being pre-emptive in its role as an educator.

With regard to the nternational participation of the FSB, National Treasury and the FSB had come to realise that when they were attending international meetings, they needed to translate what they learnt into something applicable to the South African environment. The FSB had created a forum to help address this problem.

There had been a misunderstanding not long ago regarding the Congress of South African Trade Unions (COSATU) and the preservation of retirement savings. COSATU had never been against preservation. It had always been for preservation, but also took into account the economic condition of the country and the high rate of unemployment. What was one going to do when a person was retrenched and yet there was money in the pension fund waiting for them? The suggestion from COSATU was that when people retired, they were allowed a one-third commutation of their pension, so their position hinged on what could be done with this one-third amount. In the end, all parties want preservation.

Mr Roy Harichunder, Chief Risk Officer, FSB, addressed the question about holding meetings. He explained that it was necessary to capture targets in a numerical form. The Auditor General needed the format to be in a numerical form to meet the ‘SMART’ criteria. Regarding executive remuneration, the criticism of the Auditor General had arisen in those two areas because the targets had not been set by following the ‘SMART’ principles.

Ms Da Silva responded to the question about language and the third economy. The FSB did have a languages unit and a language policy. It had adopted all eleven official languages and it now provided education formally in seven of the official languages. Education was targeted in line with the national consumer education strategy. The FSB educated those that were already accessing financial services as well as those who were not yet exposed, especially in vulnerable areas such as basic planning and saving. The most vulnerable consumers were rural women and youth, which had been its focus. The FSB educated the youth through the schools, drafting the education modules for teachers.

In terms the FSB’s performance over the year, the FSB supervises 11 000 entities, 10 300 financial service providers, as well as insurers and others. When doing so, it adopts a risk-based approach. This approach drives an on-site visit plan based on particular cases where there are issues in the industry. More specifically regarding unlicensed entities, she assumed that the Member (Mr Topham) had been referring to one of the many reported Ponzi-schemes that have arisen recently. It should be remembered that Ponzi-schemes could never be licensed, as they were always illegal. Because of this, these questions often raised questions of jurisdiction, which were often dealt with by the nomination of someone else by the FSB to provide financial services. In the case that was presumably being alluded to, the FSB had conducted the initial investigations. It had been referred to the National Consumer Commission which had direct jurisdiction over pyramid schemes. Although the FSB did not have jurisdiction itself, it did work with its fellow regulators in trying to close these operations down.

In answer to the question of which sectors the FSB regulated, she said that the FSB was divided into five executive offices: insurance, financial service providers, investment schemes, retirement and capital markets.

Mr Maynier had follow up questions. Although he accepted Mr Sithole’s explanation, he was not convinced on the question of conflict of interest. On the issue of remuneration, it was not clear what benchmark had been used to determine the remuneration. It appeared that the benchmark was the private sector, but the FSB was not in the private sector – it was a regulator, and surely the benchmark should be the remuneration of the other regulators. He therefore stood by his view that the remuneration was excessive.

On the question of orphan funds, Mr Maynier noted the FSB’s statements that processes were under way, and wanted to know when it expected these processes and the reports to be completed. He stressed that when those reports were made public, the FSB should immediately furnish the Committee with copies of those reports.

He said the biggest issue of all was the question of the FSB’s role in regulating the PIC. This question had not been answered.

Mr Buthelezi pointed out that neither of his previous questions had been answered, and restated them.

Ms Mogkosi questioned the FSB’s response about the legislative constraints that they faced in terms of enacting reform and transformation in the industry. She would therefore like to see a proposal, probably one involving a legislative dispensation that was enabling. It was no use for one to say that there were legislative constraints -- one needed to do something about it. She also expressed concern that the activities of the FSB may be taking away business from the previously disadvantaged, pointing to the given example of funeral schemes, a business which was exclusively required by black African women. There was a need to identify the effect that the FSB’s involvement had on community initiatives – what was the FSB’s opinion on this?

Lastly, she sought clarity on the matter of orphan funds. She wanted to know how it could arise that a fund became an orphan. Funds must have tracing units. This was money for workers –not money for fund managers to get their bonuses. Enough should be done to trace the beneficiaries of these funds. She also wanted to know there were disclosures from pension fund administrators as to how much they had as unclaimed benefits? What was being done to find the people who deserved these funds?

With the GEPF, it should not be that difficult to trace the beneficiaries, as they were government employees that would have records. The system should be more transparent, and more attention should be paid to understanding better what was happening to the beneficiaries. Perhaps some members became difficult to trace because they were from other countries. Often these people needed the money to support families in Lesotho, Zimbabwe or Botswana, for example. It was critical that enough was done to make sure it reached them. Many people lived in abject poverty and were unaware of the benefits that existed to help them. She found it wrong that plans were being made for what should be done with ‘unclaimed benefits.’ There should rather be a system that delivered money to the correct recipient. The FSB needed to be more sensitive to the communities it was serving.

Mr Tshidi responded that there were a number of ways that unclaimed benefits could arise. There were a lot of foreign records which existed but which were incorrect. One searched at the address but could not find anyone. A postal address for a rural area often applied to many people living there with a communal address, making it very difficult to find these people.

To deal with this, a change in legislation was needed -- provisional legislation to create a central fund for all unclaimed benefits. The central fund could have an independent board of trustees. A function of this board would be to locate all members. At present the inability of the FSB to trace the members of a fund was often due to the sheer laziness or incompetence of the trustees. For example, a list of names may have incomplete information about an entry on the list.

He said that the variance present in the strategy report was due to Twin Peaks. There had also been change management planning for the change to Twin Peaks and the question of staff movement.

Regarding the supervision of the PIC, the PIC was regulated in the class of an asset manager, like any other asset manager. The regulation of the asset was done to protect the members. The issue the FSB had looked into was the issue in the media involving the R40 million. The FSB had looked into that matter and could not find any evidential support for the accusations being made.

Ms Da Silva responded to the question about the Financial Sector Charter (FSC). The FSC did not supervise or regulate financial institutions’ compliance with the FSC. The FSC formed part of the FSB’s inclusion strategy in the same way as the NDP and the National Treasury drafted inclusion strategy. The FSB’s inclusion strategy went to supply and demand, in terms of access.

While the financial sector charter drives transformation, the FSB understood that as a regulator it was potentially inhibiting the entry of smaller firms. It applied proportionality and had initiatives to drive down these barriers and provide support for small and medium enterprises (SMEs). It also had an initiative where the FSB went into particular areas to ask questions about compliance and assistance. Another potential innovation was crowd funding. The FSB looked at dispensations and remuneration in the entry-level market to ensure that SMEs never lost access to advice. On the demand side, the FSB used consumer education. The conclusion about its success as educators had been measured and would be made available in documentation.

Mr Tshiti discussed the “Mostert court order matter”. As far as the Cadac Pension Fund was concerned, it would be recalled that Mr Nash had challenged the appointment of Mr Mostert as the curator of the Fund. Mr Nash had not succeeded in court, however. The court had noted that the costs were high, and that Mr Mostert had a tendency to over-react. Mr Nash had taken the matter further and the parties had been forced to reach an agreement. Firstly, the appointment of Mr Mostert was to be finalized, and secondly, two more curators were to be appointed to assist in bringing the matter to closure. As a regulator, the FSB had opposed that decision because it was inconsistent of the court to complain about the high costs of curatorship, but then appoint two more curators. This issue had been raised, but the bench had been adamant. Subsequently, one of the curators had withdrawn, saying that they could not work given the fees being paid.        

Mr Sithole answered the questions about benchmarking. The FSB did not benchmark against the private sector, nor did it invent the remuneration figures. The private sector had been mentioned just to explain the level of skills necessary to do the FSB’s work, not to indicate that it used the private sector as a benchmark. Their skills were just comparable.

He said that the FSB was hoping to have the reports done in two months’ time, but it was not a precise estimate at present. It was trying to collect as much information as possible, but there were limits and difficulties in collecting information, especially in the information that government entities were allowed share amongst themselves.

The Chairperson said that it was crucial that the Committee found ways to encourage the sharing of information.

Ms Kekana said that the Committee would like to see how the transformation agenda and public hearings would be rolled out. This included the legislation. It would also like to see the financial inclusion initiatives that the FSB was coming up with, as it wanted to see the marginalised gain access.

Mr Maynier wanted an assurance form the board that the Committee would be furnished with copies of the reports.

The Chairperson responding negatively to this request, saying that it was obvious and insulting to the delegates. He suggested that Mr Maynier was seeking to appear as the only Member of the Committee who was seriously concerned with ensuring accountability.

Ms Mokgosi added that it had already been said that the reports would be public, implying that the Committee would have access.

Mr Maynier responded that he felt his question had not been answered.

Mr Topham wanted know how the administration of orphan funds was charged, at least in part, for the tracing of the members. However, if they were tracing, then how could the funds be orphaned?

Mr Carrim closed the meeting, saying again that the Committee would furnish the FSB with the most important question within ten days.

The meeting was adjourned.


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