Pension fraud in the spotlight

A new law, called the financial services laws general amendment bill which was presented to parliament's finance committee on Wednesday, will close a number of gaps in the present law, and will set up a system of administrative penalties to be imposed by the Financial Services Board (FSB) in case of violations.

"This bill is all about enforcement," Baron Furstenburg, director of financial markets at the Treasury, told members of the committee. "The amendment bill also gives effect to a number of technical and editorial amendments, but has enforcement as its core."

He said that abuses had indicated that there were a number of areas which could be strengthened and tightened. "They were not prompted by Fidentia, but Fidentia was a consideration," he said. He explained that minister of finance Trevor Manuel got a number of stakeholders round a table after the Fidentia scandal broke to see what needed to be done.

According to him there was now an agreement among bodies such as the national credit regulator, the pension funds adjudicator, the Fais ombud, the master of the High Court and the Reserve Bank to work together to identify weaknesses in financial regulation and methods to deal with them.

"A number of interventions can already be implemented," Furstenburg said. "The process does not have to be complete."

The bill considerably tightens up the pensions fund act by providing for establishing "beneficiary funds" into which payments normally made to trust funds for minors or other beneficiaries will be paid.

The idea of this is to increase protection for monies paid into trust - protection that was lacking in the Fidentia case.

Money at present invested in trust funds will have the option of transferring to a beneficiary fund, but from the beginning of next year new money will have to be paid into such a fund.

"This will be met with some resistance," Furstenburg forecast, "because of the administrative tasks involved."

The amendments will also strengthen the provisions relating to the fitness and 'properness' of principal officers of funds, their valuators and auditors. At present the registrar cannot remove a fund officer if it is determined he is not fit and proper. This will change under the new law.

But one of the biggest changes comes under amendments to the financial services board act. Although there is an enforcement mechanism available for abuse of markets and insider trading under the securities services act, there is no FSB-wide enforcement mechanism.

"The lack of ability to impose penalties or take strong action jeopardises the goal of a culture of compliance," Furstenburg told the committee. "People think they can get away with it."

An enforcement committee is to be set up which will have the power to impose administrative sanctions and order compensation to be paid to victims. The secrecy clause is to be amended to allow transgressors to be named and shamed, and to allow international exchange of information.

The FSB's appeal board is also to be extended because of the extra work brought on by the registration of 14 500 financial advisers under the Fais act.

Other changes in the law brought about by the bill will be an amendment to the national payment system act to bring the Postbank under the eye of the Reserve Bank, and to include other non-bank participants that are involved in payments.

- I-Net Bridge