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Namfisa recently circulated further draft industry regulations under the FIM Act for comment.



Note: pension funds are ‘financial institutions’ as contemplated by the FIM Act and all reference below to ‘financial institutions’ should be read to be relevant to pension funds, their trustees and their service providers.
 

  • RF.S 5.8 Early withdrawal from a retirement fund
    For members of funds this standard should be of particular interest as it proposes compulsory preservation of 75% of the member’s retirement capital, something the SA regulator has been trying to enforce for many years, without success so far. This standard also sets awfully complex conditions for funds to be allowed to ‘house’ preservation capital and, in respect of funds that prefer not to house preserved retirement capital, for their rules to direct that preserved retirement capital is to be moved to another qualifying fund.
  • RF.S 5.10 Exemption from actuarial valuation
    A link to the following specific and general standards and regulations relevant to the retirement funds industry was provided in the Benchtest Newsletter of 12.2014. It may be of interest that regulations are issue by the Minister of Finance while standards are issued by Namfisa.

Draft Regulations RF.R

  • RF.R 5.1 Funds and classes of funds in the definition of ‘funds’
  • RF.R 5.4 Funds that may be exempted from requirement to have active members and pensioners elect trustees

Draft Standards RF.S

  • RF.S 5.1 Calculation of ‘actuarial surplus’
  • RF.S 5.3 Payment of contributions - minimum information
  • RF.S 5.4 Rules requirements
    Detailed exposition of what fund rules should contain. Funds may wish to ascertain that future rule amendments or revisions comply with the anticipated new requirements. Funds will have 6 months after the promulgation of the Act and the issuing of the standard to comply.
  • RF.S 5.6 Termination & dissolution requirements
    Detailed exposition of requirements and onerous conditions before a fund, or its participation in an umbrella fund, can be terminated.
  • RF.S 5.9 Beneficiary nomination form
    Prescribed forms funds will have to use and description of processes funds will have to employ to obtain beneficiary nomination forms from its members annually.

Draft General Standards GEN.S

  • GEN.S 9.2 Fit & proper
    Detailed exposition of ‘fit and proper’ requirements based on education and experience; competence and capability; honesty integrity fairness and ethical behaviour; and financial soundness with regard to all persons and institutions required to register under the FIM Act
  • GEN.S 9.8 Independence
    Detailed exposition of requirements regarding the independence of individuals who are required to be independent in terms of the FIM act.
  • GEN.S 9.9 Code of conduct
    Every financial institution and financial intermediary must have a code of conduct in place.
  • GEN.S 9.10 Outsourcing
    Detailed exposition of requirements relating to a financial institution or financial intermediary outsourcing of a ‘material business activity’ and prohibits the outsourcing of any ‘primary function’ for which the entity has been registered by Namfisa. It is to be noted that privately administered or ‘stand-alone’ pension funds mostly outsource all their key business activities, such as fund administration and asset management to which this statement will presumably apply.
  • GEN.S 9.11 Investment policy statement
    Detailed exposition of the content of an investment policy that every retirement fund must have in place and the matters that must be considered in its investment process.
  • GEN.S 9.12 Investment mandate
    Detailed exposition of the content of an investment mandate that every retirement fund must have in place with its investment manager.
  • GEN.S 9.13 Payment of contributions

General observations:

  • These standards appear to have been copied from text books teaching the ideal world.
  • They impose extensive requirements and excessively onerous obligations and responsibilities on funds, their officials and service providers.
  • They inhibit the free market mechanism.
  • No distinction is made on the basis of size of fund or the risk a fund poses to the financial system of Namibia.
  • It will raise the costs to funds significantly and will result in many small and medium sized funds no longer being viable.
  • The regulator will also be challenged to supervise the financial services industry and will have to expand its resources substantially unless the industry shrinks substantially, which it will.
  • These standards defeat the stated objective to move from rule based to risk based supervision and will require stakeholders to be totally rule focused.
  • Although never stated publicly, unlike the FSB in SA has, it appears that Namfisa too is on a drive to consolidate the industry, but since the Namibian industry (100 funds) and the average fund size is very small (10 funds with more than 1,000 members), in our case there will not be much left of this industry once all these requirements become law.

We have prepared a more detailed analysis that will be made available at request.

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