Raising The Bar For Pension Fund Benefit Administrators

Section 13B(1) of the Pension Funds Act, 1956 permits the Financial Sector Conduct Authority ("FSCA") to prescribe conditions for persons who administer the receipt of contributions or the disposition of benefits on behalf of retirement funds. Following at least four years of preparation, which included an opportunity for industry engagement, a number of significant conditions were prescribed by the publication of the FSCA Conduct Standard 2 of 2025 (RF) ("Conduct Standard 2") on 6 August 2025.

Conduct Standard 2 serves to enhance and bolster the existing regulatory framework applicable to administrators, as well as address existing shortcomings. Since 2002, conditions in respect of administrators have been prescribed by Board Notice 24 of 2002 ("BN 24"), which falls short of adequately addressing the significant policy and regulatory developments impacting the financial sector regulation, including the Treating Customers Fairly ("TCF") initiative, the 2014 Retail Distribution Review and the creation of the Twin Peaks architecture.

The Conduct Standard has a significant impact on the regulation of administrators, including in relation the following matters:

• Administration Agreements – Existing administration agreements must be revised to comply with new detailed requirements and incorporate enhanced contractual provisions covering a number of matters, including communication and disclosure duties to fund members, detailed remuneration structures, remedies and procedures for breach, termination and handovers, compliance monitoring, requirements for outsourcing and specific duties and responsibilities of the administrator.
• Governance and accountability - Under BN 24, governance and accountability were implied through compliance and reporting requirements. Now, administrators must adopt, document, implement and monitor and review the effectiveness of governance arrangements, which must align with TCF outcomes. This may require changes in internal policies and procedures to meet new standards.
• Notification of changes - Administrators are now required to establish processes to ensure timely notification of any changes in business information to the FSCA.
• Key persons - Under Conduct Standard 2, administrators must implement procedures for notifying the FSCA of changes in key persons (directors, senior managers and heads of control functions) and ensure that they meet the fit and proper requirements.
• Fit and proper requirements - Administrators must ensure that all key persons comply with detailed fit and proper requirements, potentially requiring additional training or changes in personnel.
• Outsourcing - Administrators must implement appropriate processes and procedures to manage, oversee, and regularly review the provision of outsourced services by a service provider and must conduct regular assessments (at least annually).
• Complaints management - Administrators must establish, maintain, and operate an adequate and effective complaints management framework to ensure the effective resolution of complaints and the fair treatment of complainants, proportionate to the nature, scale and complexity of the administrator's business.
• Data management and record-keeping - Administrators are required to enhance their data management practices to ensure that they have an effective data management framework that includes appropriate strategies, policies, systems, processes, and controls relating to the processing of any data, ensuring compliance with privacy laws and secure record-keeping.
• Financial Matters: Accounting and auditing - Administrators must ensure timely notification of auditor changes and submit detailed financial reports to the FSCA.
• Trust accounts and fund monies – Enhancements include that trust accounts must be interest-bearing, reconciliations are required, unallocated amounts reported and strict timelines for allocation and reporting.
• Indemnity and fidelity insurance - Administrators are required to review their insurance policies to ensure that adequate coverage is maintained and disclose relevant details to retirement funds (including self-payment gaps and material exclusions, limitations, or restrictions).
• Operational ability and controls - Administrators must have adequate and appropriate human, technical, and technological resources, contingency plans, and operational procedures. Administration systems must support rendering administration services, communication, and reporting, which potentially requires system upgrades or changes.
• Mergers and acquisitions and termination or cessation of business - Administrators must conduct a thorough due diligence for mergers and acquisitions and obtain approval from the relevant authorities. On cessation, dissolution or liquidation, an administrator must notify the retirement fund, transfer records, and report to the FSCA within 90 days.
• Suspension or withdrawal of approval – The FSCA has enhanced rights to suspend or withdraw approval, in which case the administrator must notify the funds under its administration.
• Removal of capital adequacy requirement – Notably, the previously proposed R3m capital adequacy requirement has been omitted from Conduct Standard 2, to address concerns raised by smaller administrators.

Timing

Under Conduct Standard 2, key parts of BN 24 are repealed with effect from the date of publication (6 August 2025) while other parts will be repealed twelve months thereafter.

The implementation of Conduct Standard 2 will take a staggered approach with the effective date of most parts being the date of its publication and other parts (notably, those relating to governance, administration agreements and outsourcing) taking effect six or twelve months later.

These amendments introduce comprehensive changes that require administrators to revise their administration agreements, enhance governance and operational practices, establish robust complaints and data management systems, and ensure compliance with new regulatory requirements. These amendments aim to promote transparency, accountability, and fair treatment of customers – including retirement fund members - aligning with the current regulatory framework.

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.