Johannesburg - The brittle credibility of the Financial Services Board has suffered further damage after it emerged that it quietly dropped an investigation into alleged secret profiteering by pension fund administrators.
In late July, the industry watchdog said it had started a probe into the business practices of the administrators. This to ascertain whether they were earning secret profits from their home loans subsidiaries, which provide pension-backed credit to homeowners belonging to the pension funds they administer.
The probe, which had the blessing of FSB chief executive Dube Tshidi, was sparked by a number of complaints from pension fund trustees and a damning article published by City Press Business on June 8 that alleged that the administrators were helping themselves to millions of rands in undisclosed profits accumulated through their home loans divisions.
The FSB's mandate is to oversee the non-banking financial services industry in the public's interest.
The biggest subsidiaries alleged to be involved in this practice are HomePlan, owned by Alexander Forbes and NBC Home Loans, whose parent is NBC Holdings.
It emerged this week that Jurgen Boyd, the registrar of pension funds and the man who was supposedly leading the investigation, has dropped the probe and has no intention of investigating the malpractice.
The inaction by the FSB has reinforced a long-held industry view that it is a "toothless" regulator that does little, even when whistleblowers have supplied it with incriminating forensic reports.
Another practice, on which the FSB failed to bring culprits to justice, is the profiteering from so-called scrip lending or the lending out of assets - usually bond and share certificates - belonging to pension fund members at fees that are never disclosed or passed on to the members, the rightful owners of the assets.
After boasting in April last year that it had tons of evidence to shred into pieces any argument in defence of scrip lenders - mainly asset managers and pension fund administrators - the regulator has not acted.
Scrip lending involves the speculative sale of borrowed share and bond certificates - also known as scrip - with the intention of buying them back at a cheaper price after the market has fallen. The borrower would pay a fee of between 2% and 3% of the value of the scrip for the period that the scrip is being borrowed.
A letter leaked to City Press Business shows how Boyd backtracked on the comments he made to the newspaper in the June 8 and July 27 articles after being confronted by Max Maisela, the executive chairperson of NBC Holdings, one of the alleged secret profiteers.
In a letter, dated August 18 and addressed to Maisela, Boyd denies the existence of an investigation and argues that any probe into the subsidiaries of the pension fund administrators, NBC HomeLoans and HomePlan, should be carried out by the National Credit Regulator (NCR).
"I can confirm that no mention was made of any investigation by the FSB into pension-backed lending companies. I trust this clarifies the registrar's position on this matter," Boyd writes in the letter, denying the statements he had made to City Press Business when he hinted at a possible probe.
In the June 8 article, Boyd said: "I am aware that there have been complaints by pension funds that the administrators have set up arrangements with the banks, in which they earn secret profits without the knowledge of the pension fund trustees. If this is an industry-wide practice, a full investigation is needed."
In the July 27 article, Boyd said: "We will look into the whole aspect of non-disclosure. We want to look into the conduct of the administrators and establish whether they earned secret income from their mortgage finance subsidiaries."
Maisela used the letter from Boyd in his public relations campaign to fend off the allegations made by City Press Business about the secret profiteering by his company.
Boyd's letter was attached to a letter Maisela sent in August to the trustees of the pension funds administered by NBC Holdings, some of who had been asking tough questions.
"We refer to recent articles published by City Press about NBC HomeLoans. This letter deals with and corrects false assertions contained in the articles so that you are able to deal with questions arising from any member with an outstanding NBC home loan.
"We also attach a letter addressed to NBC from the registrar of pension funds dealing with the false allegations made by City Press about the registrar investigating NBC or NBC HomeLoans," says Maisela.
When City Press Business contacted Boyd this week to find out how far he was with his probe, he said: "It is still a work in progress," adding that the matter had also been referred to the NCR as it was supposed to be investigating the matter.
But it has transpired that there is no "work in progress" and that the FSB never referred the matter to the NCR.
If the FSB was to refer the case to the NCR, its actions would be tantamount to passing the buck.
"The FSB has not referred this matter to us or sent any formal documentation to us.
"It would be silly to refer this to us because we deal with issues pertaining to loan terms and conditions and fees. The stuff about secret profits does not fall under our mandate, it falls under FSB's mandate," said Gabriel Davel, chief executive of the NCR.
The FSB"s dilly-dallying or inaction has enraged the labour federation Cosatu, as 90% of its 1.8 million members belong to pension funds.
"They should explain to the public why they are not investigating and why they are passing the buck to the NCR," said Jan Mahlangu, Cosatu's retirement funds coordinator.
"We are calling on Tshidi to investigate the allegations. If the FSB is not investigating, who should investigate? We are disgusted, but not shocked, at the secret profiteering."
Tshidi said he would take up the matter with Boyd tomorrow.
- City Press