Civil Society organisations take Financial Sector Regulator to court
In December 2021, Open Secrets and the Unpaid Benefits Campaign (UBC), represented by the Centre for Applied Legal Studies (CALS), brought an application in the Gauteng High Court against the Financial Sector Conduct Authority (FSCA). In the spirit of greater transparency and responsiveness to the plight of pensioners, the application asks the Court to remedy the unlawful cancellation of pension funds. The FSCA has undertaken to file their response to our application by 16 May 2022.
The unlawful cancellation of pension funds saw fund administrators, enabled by the Financial Services Board (the FSCA’s predecessor), deregister thousands of funds, some of which owed pensioners and beneficiaries money. This occurred despite the fact that a deregistered pension fund cannot pay people what is owed to them. In order to remedy this, in 2019 the FSCA published Circular 1/2019, which requires private fund administrators to apply to court to reinstate all funds that were unlawfully cancelled. So far, out of potentially thousands of affected funds, only 48 have been reinstated over a period of more than a decade since their cancellation. Despite the apparent lack of compliance with the Circular, the FSCA has seemingly done little to enforce it.
Our application therefore seeks to ensure that the FSCA enforces its own obligations in an open and transparent manner and with the urgency required. Beneficiaries do not know what is happening and are prevented from accessing their benefits, resulting in financial harm that impacts entire families. The fact of the matter is that we also do not know who the beneficiaries of these cancelled funds are because of the lack of transparency and slow pace of the reinstatement process. What we do know is that there are over 4 million people who are owed their benefits, some of whom could be beneficiaries of unlawfully cancelled pension funds. Each year of delay also means more money accrues to fund administrators and asset managers, who sometimes derive fees from the unpaid benefits.
Through this court case, Open Secrets and the UBC hope that the reinstatements of funds happens expeditiously and transparently. This is the only way that affected beneficiaries will know what is happening to their hard earned pensions, and that the public can be assured that the FSCA is acting independently. We are asking the court to monitor the FSCA’s implementation of Circular 1/2019 to ensure that funds are identified and reinstated as a priority and not merely a relegated “special project”.
The FSCA is the oversight body for the financial sector, and its conduct has far-reaching consequences for all people in South Africa. A central responsibility of the FSCA is to protect the public interest and ensure that everyone is treated fairly by financial sector companies. Given the pervasive role of the financial sector in state capture and corporate fraud, South Africa needs a regulator that will stand up for and serve the public as well as regulate corporations without fear or favour. If it does not do so openly and transparently, as it is legally obliged to, there is no way of knowing what it is doing and whether it is acting in the public interest.
Since 2018, Open Secrets and the UBC have sought to avoid legal action by trying to engage with the FSCA and fund administrators. We published an investigative report –The Bottom Line: Who Profits from Unpaid Pensions? – in 2019, in order to find out what is being done to remedy the situation. We have also written many letters, to which the FSCA has responded by essentially saying that it is engaging in behind closed doors discussions with private fund administrators.
In its last letter to us, the FSCA baldly stated that it is not required to be transparent, as it “is accountable to Parliament and the National Treasury”, in addition to being “accountable before the Judiciary”. While we understand that legislatively, the FSCA is accountable to Parliament and the National Treasury, we strongly maintain that it must be transparent and accountable to the public it serves. Like many others before us, we had hoped there would be no need to approach a court to ensure regulatory and oversight bodies carry out the most democratic of duties.
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