Madam Deputy Speaker, there is no doubt that the regulatory gaps in the financial sector have been exploited to the detriment of South African consumers. In 2001, Prof John Murphy, the first Pension Funds Adjudicator, speaking on the subject of pension fund conversions from defined benefit to defined contribution structures, stated:
Unfortunately, this has happened with inadequate supervision under legislation conceptualised and enacted in 1956 and updated minimally on a piece-meal basis. With the wisdom of hindsight, it is fair to say that the regulatory framework has not been up to the task.
South African pension fund conversion saw a significant deviation from international practice in determining the value of the surplus in the fund. This stripped members of investments risk protection without adequate compensation. The regulator did not act until legislation was required to redress the wrongs perpetrated against fund members, to the tune of billions of rand.
This expensive lesson suggests that the regulator needs to know what is happening in the industry and needs to be proactive in identifying practices that should not be tolerated. The regulator needs to be able to alert consumers to practices detrimental to their interests and needs to have sufficient sanction available to be taken seriously.
The Financial Services Laws General Amendment Bill forms part of the process to improve the regulatory framework and to further empower the Financial Services Board to protect the public. During the course of public hearings, it was clear that stakeholders had not engaged in meaningful dialogue from the outset. An ongoing conversation between the regulator and the regulated should be a feature of our financial services landscape.
This will permit those industry players who are actually committed to good governance in the industry to work with the regulator in sharpening the regulatory environment. It is far too easy for the industry not to co- operate with the regulator and to subsequently criticise legislation as flawed. This is not helpful or in the public interest. The Bill establishes an enforcement committee across the Financial Services Board with powers to impose administrative sanctions and grant compensatory orders. It permits the Financial Services Board to disclose information to the public and other regulators.
The Bill protects pension fund beneficiaries by bringing payments to them under the protection of the Pension Funds Act via beneficiary funds. Principle officers are now required to be fit and proper and must act when they become aware of undesirable practices.
The Bill enables the Financial Services Board to conduct on-site visits to providers and intermediaries. Names of those whose licences are suspended can be publicised and compliance officers can be removed if they are not fit and proper. When membership of a retirement annuity fund is transferred from an underwritten fund to a non-underwritten fund, ongoing trailer fees for advice must be agreed in writing, and on an ongoing basis.
Much remains to be done in terms of consumer education, which is the ultimate key to consumer protection and good governance. Asymmetrical information disempowers investors and works to their detriment. Despite the improvement to the regulatory environment as set out in this Bill, much work remains to be done. As at 31 March 2008, 10 602 complaints were outstanding for resolution at the Office of the Pension Fund Adjudicator.
The Board of Trustees of the Pension Fund, assisted by the principal officer, is responsible for governance of the fund. Too many examples exist where trustees have not acted in line with the principles of good governance, the rules of the fund or the law. Pension Fund circular 130 has set out guidance on good governance for trustees, but it is not formally enforceable. This needs to be written into law. The DA supports this Bill. Thank you. [Applause.]