FSCA under fire for dragging its feet on unclaimed assets

It has taken a decade for the FSCA to launch a seminal discussion paper on the unclaimed assets across the financial sector, the bulk of which, about R47bn, are in retirement funds.

WHERE the culpability lies between life companies and the regulator, depends on whom you ask, but the fact that a combined R90 billion has been owed to thousands of beneficiaries of deregistered and dormant pension funds for more than 10 years, is nothing less than a travesty.

This week, the Financial Sector Conduct Authority (FSCA) finally launched a seminal discussion paper on the unclaimed assets across the financial sector, the bulk of which, about R47bn, are in retirement funds.

But it has taken a decade for the authority to reach this point, with the FSCA under fire for dragging its feet.

Stakeholders say efforts to trace the estimated 4.8 million people owed the staggering amount in benefits are proceeding far too slowly, if at all.

Advocacy group Open Secrets and the Unpaid Benefits Campaign (UBC) have questioned why the numbers remain so stubbornly high, accusing the FSCA of making little to no effort to address the problem, until now.

Late last year, Open Secrets and the UBC, represented by the Centre for Applied Legal Studies, took matters into their own hands and brought an application in the Gauteng High Court against the FSCA.

“In the spirit of greater transparency and responsiveness to the plight of pensioners,” Open Secrets states in a recent press release, “the application asked the court to ensure that the FSCA takes clear steps towards remedying the unlawful cancellation of pension funds.”

Based on the FSCA’s answering affidavit filed in the Open Secrets/UBC litigation, the illegal cancellation of pension funds saw fund administrators, like Alexander Forbes, Liberty and Momentum, 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 a deregistered pension fund cannot pay people what is owed to them. And despite the FSCA publishing Circular 1/2019 in that year, which required private fund administrators to apply to court to reinstate all funds that were illegally cancelled, less than 100 funds’ deregistration has been reversed.

By December last year, out of potentially thousands of affected funds, only 48 had been reinstated more than a decade since their cancellation, Open Secrets stated in its report.

“Despite the apparent lack of compliance by pension fund administrators with the circular, the FSCA had seemingly done little to enforce it. Our application therefore sought to ensure that the FSCA enforces its own obligations in an open and transparent manner and with the urgency required.”

The FSCA filed its answering papers to the application only in early July, almost seven months after the application, but Dale McKinely, a member of the steering committee at UBC, told Business Report that the matter has since been settled out of court, as the regulator has shown to be more open to resolution than the executive of the previous regime.

However, Business Report is dissecting all the details of the first to the fifth respondents’ answering affidavit to the motion filed in the Pretoria High Court, which includes the current executive of the FSCA and the minister of finance, and also awaits the answers to questions posed to the regulator in this regard, which means this remains an evolving story. It has also reached out to Liberty, the largest pension fund administrator in the country.

In the meantime, McKinley says it seems apparent that some significant progress had been made by the regulator to ensure that fund administrators take active steps to remedy unlawfully cancelled pension funds.

“These steps demonstrate a recognition, after years of delay, that the matter cannot be ignored; unpaid beneficiaries

and victims of the unlawful cancellation of pension funds deserve redress and cannot achieve this without the assistance of the regulator enforcing its obligations against fund administrators.”

In February 2017, the FSCA established an unclaimed benefit search engine on its website, to start identifying the unknown beneficiaries of the cancelled funds. It was supported by SMS function, and a walk-in client service option. However, the unclaimed benefit funds total has accumulated, from just over R40bn, to almost R50bn.

In a media briefing this week, FSCA commissioner Unathi Kamlana revealed that the total value of unclaimed assets in South Africa is about R90bn, with collective investment schemes and life insurers holding a further 38% of unclaimed benefits.

The FSCA stated that central securities depository participants had

unclaimed assets of R4.5bn belonging to 391 000 beneficiaries in 2019, and the five banks canvassed by the regulator had 5.7bn dormant accounts amounting to R3.36bn.

Kamlana said the quantum of funds across all financial sectors remained a concern, though good progress had been made in tracing beneficiaries in recent years. Meanwhile, Open Secrets says it will continue to monitor the steps taken by the FSCA, and the compliance by the fund administrators, where unclaimed funds in deregistered retirement funds are concerned.

As part of efforts to give voice to the experience of millions of people who have not been paid pensions across southern Africa, Open Secrets and the UBC organised a one-day People’s Hearing on the matter on September 13 at the Woman’s Jail at Constitution Hill in Braamfontein, Johannesburg. An esteemed panel heard the testimonies

of people affected by this injustice in an ongoing manner, the press release states, but McKinely says only two Liberty representatives were sent to the hearings, and one left after the first session.

“The FSCA was also present at the organised event, but met with the UBC in private the previous day.

“We’ve been asking for a meeting for close to three years and sent the agenda for this encounter over a month ago, to talk about the irregular cancellations, regulatory oversight, tracing efforts and the FSCA search engine, to name a few.

“But on the day, the executive insisted that they would only respond to these issues in writing, and due course, which caused a lot of frustration and tension at the proceedings,” McKinely said.

The UBC intends to follow up on the matter this week.