Many pension funds are finding it difficult to stay abreast of
the reporting requirements imposed on them by Regulation 28.
Inability to source the required information
The level of detail required by the Financial Services Board
(FSB) for reporting is not always readily available from asset
managers. This is caused by a myriad of problems
ranging from system constraints at asset manager level to asset
managers refusing to provide their clients with the underlying
detail, as this could result in their competitors potentially being
able to source this information.
The responsibility for monitoring has been misunderstood
We have noted that many pension funds believe that their benefit
administrator is responsible for monitoring compliance with
Regulation 28. A closer look at many service level agreements has
indicated that in many cases, the administration agreement does not
include a compliance monitoring function.
Lack of expertise
The board does not necessarily have the required expertise to
assess and analyse the reports that they receive from asset
managers. The board is thus extremely reliant on what is presented
to them. Paragraph 3 of Regulation 28 has various additional
requirements that a board needs to consider. These include:
promoting the education of the board with respect to pension
fund investment, governance and other related matters
considering the need to promote Broad-based Black Economic
Empowerment of those providing services
ensuring that the pension fund's assets are appropriate for
performing reasonable due diligence prior to making a
contractual commitment to invest in a third party managed
understanding the changing risk profile of assets of the
contemplating any factors which may materially affect the
sustainable long term performance of the asset ahead of making an
This would give the impression that a pension fund should have a
rigorous investment committee that is able to evaluate these
Complex investment products available on the market
Investment product offerings are becoming more complex,
resulting in structures that are often misunderstood, unclear and
potentially high risk. Pension funds run the risk of investing in
structures that are not appropriate for the pension fund.
It is always important to bear in mind that trustees are
appointed in a fiduciary capacity. They need to ensure that they
are empowered and have the requisite knowledge or resources at
their disposal to exercise these duties. Trustees need to:
understand fully the investment products they are investing in
or engage trusted independent advisors to assist with this
have a robust compliance monitoring structure in place
and clearly define what this responsibility entails
define service level agreements with asset managers to clarify
reporting requirements, as agreements need to take into account
additional conditions imposed by the Regulation on the
appoint board members who have the imperative skills.
Finally, it is not what you know but what you do not know that
poses the greatest risk. Boards need to make certain they receive
the necessary training to fully understand the implications of
Regulation 28 and the investment choices they take on behalf of the
Accordingly, see to it that you have clear agreements,
understand your responsibility and also have sufficient
resources/advisors that empower you to clearly understand your
pension fund's ability to comply and identify the gaps that you
need to address.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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