Minimum skills and training requirements for board members of retirement funds

Introduction

The Financial Sector Conduct Authority (FSCA) recently published the final Conduct Standard prescribing the minimum skills and training requirements for board members of retirement funds.

Background

Section 7A(1) of the Pension Funds Act, 1956 (“the Act”) provides that members of funds have the right to elect, and employers have the right to appoint, their respective representatives to the board of the fund. It may, however, happen that board members so elected/appointed do not have the necessary and relevant retirement fund knowledge and/or expertise in order to perform their fiduciary duties or to make a positive contribution to the management of the fund in question. This can cause significant challenges for these board members in discharging their duties and responsibilities, given the complex nature of retirement funds.

The main purpose of this Conduct Standard is thus to prescribe the minimum skills and training that a board member must attain after appointment as contemplated in section 7A(3)(a) of the Act.

Section 7A(3)(a) of the Act - as inserted by the Financial Services Laws General Amendment Act No. 45 of 2013 – states the following:

“(3) (a) A board member appointed or elected in accordance with subsection (1), must attain such levels of skills and training as may be prescribed by the registrar by notice in the Gazette, within six months from the date of the board member’s appointment.”

Section 7A(3)(b) then goes on to state that board members must retain the prescribed levels of skills and training referred to in paragraph (a) throughout their term of appointment.

The purpose of section 7A(3) is to address the risks highlighted above. However, to date the FSCA has not prescribed any minimum levels of skills and training. Consequently, there is a need to prescribe a minimum set of criteria that board members must comply with in order to ensure that they have the appropriate knowledge and expertise to perform their functions as board members.

Summary

The Conduct Standard prescribes the certification of the Trustee Toolkit (as provided for by the FSCA on the website( www.trusteetoolkit.co.za) as the minimum skills and training requirement envisaged in section 7A(3)(A) of the Act. The Toolkit is currently not meant to be a form of qualification with a pass or fail outcome. Instead, it is meant to develop skills and provide training, and therefore should allow trustees to complete it within a reasonable period.

The said certification must be attained within a period of six months from the date of appointment, in addition to further skills and training from credible providers as deemed necessary by the board. It is further proposed that board members who have already attained the certification be required to complete additional modules as and when such additional modules are added to the Trustee Toolkit by the FSCA.

The Trustee Toolkit assessments

A board member must:

1. Complete the Trustee Toolkit tutorials, case studies and formative (initial) assessments available online on the Trustee Toolkit website; and

2. Complete the Trustee Toolkit summative (final) assessment under the supervision of the principal officer or chairperson of the board, who must issue a declaration that the assessment was so completed, except where such supervision is impractical. Where it is impractical the board member can do the assessment without supervision but must complete a declaration stating that the assessment was completed without assistance.

The declaration must also be provided to the FSCA on request.

The Conduct Standard also provides for a process in respect of how new modules may be determined by the FSCA.

The impact

As the Toolkit tutorials, case studies and formative (initial) assessments must be completed on-line on the website, it is anticipated that there will be no financial impact (i.e. these assessments can be done anywhere at negligible cost). The summative assessment is also important to enable verification of the trainee. There may however be a cost implication in terms of time spent by board members to undertake the summative assessment. However, the FSCA does not deem this cost as significant and regards it as justified in the context of the benefit derived from undergoing the training.

The Conduct Standard states that:

1. it took effect on 10 July 2020;

2. it applies to all board members;

3. a board member who was appointed before 10 July 2020 must complete the Trustee Toolkit by 10 January 2021;

4. a board member who successfully completed the Toolkit certification before 10 July 2020 is not required to complete the certification again; and

5. a person who has successfully completed the Toolkit certification and is subsequently appointed to a board of a fund is not required to complete the certification again.

When board members are unable to complete the Trustee Toolkit within the prescribed time, an application may be made to the FSCA requesting an extension of time to complete the Trustee Toolkit. In addition, where a board member’s circumstances make it impractical to complete the Trustee Toolkit (e.g. where the said member’s tenure will terminate soon after the effective date of the Conduct Standard and such board member will not make himself available for reappointment/election), the said board member may approach the FSCA to be exempted from the requirement.

To ensure and monitor compliance with these requirements, the FSCA will maintain a record of the successful completion of the Trustee Toolkit and additional modules.

Conclusion

It is envisaged that the Toolkit will train and provide board members with basic knowledge relating to legislative requirements and information on fund governance, their responsibilities and obligations towards the fund and its members, as well as guidance on what is deemed to be fit and proper conduct. The Toolkit will provide practical guidance on governance matters which will not only contribute to board members being able to meet their fiduciary responsibilities, but also ensure the fair treatment and protection of fund members.

ENDS