Prescribed assets a no-go area, top FSCA official says
Financial Sector Conduct Authority calls talk of prescribed assets ‘a bad idea’
14 August 2024 - 07:43
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The idea of reintroducing a prescribed assets regime in SA will offend market principles and is something the Financial Sector Conduct Authority (FSCA) will be firmly against, the regulator’s top official has assured the retirement industry.
Olano Makhubela, who heads the market integrity and decision sciences division at the FSCA, said talk of prescribed assets, a situation where a certain percentage of the assets of retirement funds and possibly other institutional holders of assets must be allocated to certain government-approved instruments, was a bad idea.
“As a regulator, we have always been clear that we are not in favour of prescribed assets for various reasons. We have been down that route before and we know what happened. Other countries have been down that route before and we know what happened in those jurisdictions,” Makhubela told the Old Mutual Thought Leader Forum in Johannesburg on Tuesday.
“Most of all, there is a clear fiduciary duty in the Pensions Fund Act in relation to trustees. We see that duty as sacrosanct. The moment you introduce prescribed assets, you start tampering with that fiduciary duty, and we will have a problem with that.”
Prescribed assets is not a new concept in SA. In 1956 the Pension Funds Act was promulgated and it introduced prescribed assets. The prescribed assets in question at that time were government bonds.
In the following two decades, the level of prescription rose to a peak in 1977 — before it then began to fall until it was scrapped in 1989. During most of this 30-year period, funds were required to invest more than half their assets in SA government and state-owned entities’ bonds.
The ANC in its manifesto ahead of May’s general election revived the concept of prescribed assets after making a similar commitment in its 2019 election manifesto.
For the idea to see the light of day, Regulation 28 will have to be altered, forcing asset managers with Regulation 28-compliant mandates across retirement assets to buy a certain amount of government institutional bonds.
The said regulation sets the maximum level that pension funds and life insurers can hold in asset classes such as property, government bonds and the equity market, but does not prescribe minimum investments in asset classes.
However, the DA, one of the key partners in the government of national unity (GNU), has always been opposed to the idea, essentially making it a non-starter in the seventh administration.
Business Day reported in July that the government is considering amending legislation to permit pension funds and other asset managers to finance SA’s industrial policy initiatives
The proposal to amend regulation 28 of the Pension Funds Act to finance industrialisation was tabled by the department of trade, industry & competition at a cabinet lekgotla in July.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Prescribed assets a no-go area, top FSCA official says
Financial Sector Conduct Authority calls talk of prescribed assets ‘a bad idea’
The idea of reintroducing a prescribed assets regime in SA will offend market principles and is something the Financial Sector Conduct Authority (FSCA) will be firmly against, the regulator’s top official has assured the retirement industry.
Olano Makhubela, who heads the market integrity and decision sciences division at the FSCA, said talk of prescribed assets, a situation where a certain percentage of the assets of retirement funds and possibly other institutional holders of assets must be allocated to certain government-approved instruments, was a bad idea.
“As a regulator, we have always been clear that we are not in favour of prescribed assets for various reasons. We have been down that route before and we know what happened. Other countries have been down that route before and we know what happened in those jurisdictions,” Makhubela told the Old Mutual Thought Leader Forum in Johannesburg on Tuesday.
“Most of all, there is a clear fiduciary duty in the Pensions Fund Act in relation to trustees. We see that duty as sacrosanct. The moment you introduce prescribed assets, you start tampering with that fiduciary duty, and we will have a problem with that.”
Prescribed assets is not a new concept in SA. In 1956 the Pension Funds Act was promulgated and it introduced prescribed assets. The prescribed assets in question at that time were government bonds.
In the following two decades, the level of prescription rose to a peak in 1977 — before it then began to fall until it was scrapped in 1989. During most of this 30-year period, funds were required to invest more than half their assets in SA government and state-owned entities’ bonds.
The ANC in its manifesto ahead of May’s general election revived the concept of prescribed assets after making a similar commitment in its 2019 election manifesto.
For the idea to see the light of day, Regulation 28 will have to be altered, forcing asset managers with Regulation 28-compliant mandates across retirement assets to buy a certain amount of government institutional bonds.
The said regulation sets the maximum level that pension funds and life insurers can hold in asset classes such as property, government bonds and the equity market, but does not prescribe minimum investments in asset classes.
However, the DA, one of the key partners in the government of national unity (GNU), has always been opposed to the idea, essentially making it a non-starter in the seventh administration.
Business Day reported in July that the government is considering amending legislation to permit pension funds and other asset managers to finance SA’s industrial policy initiatives
The proposal to amend regulation 28 of the Pension Funds Act to finance industrialisation was tabled by the department of trade, industry & competition at a cabinet lekgotla in July.
khumalok@businesslive.co.za
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