Consultation Report on Draft Prudential Standard for Regulation 28 Quarterly Reporting Requirements for Pension Funds

CONSULTATION REPORT
PRUDENTIAL STANDARD [-] OF 2026 (RF) – REGULATION 28 QUARTERLY REPORTING REQUIREMENTS FOR PENSION FUNDS FINANCIAL SECTOR REGULATION ACT, 2017 (ACT NO. 9 OF 2017) PENSION FUNDS ACT, 1956 (ACT NO. 24 OF 1956)

1. Purpose
   1.1 Section 104 of the Financial Sector Regulation Act, 2017 (Act No. 9 of 2017) (FSR Act) states
   that with each regulatory instrument, the maker must publish a consultation report which must include a:
   (a) general account of the issues raised in the submissions made during the consultation; and (b) response to the issues raised in the submissions.
   1.2 The purpose of this document is to set out, as required in terms of section 104 of the FSR Act, a
   report on the consultation process undertaken in respect of the Draft Prudential Standard – Regulation 28 Quarterly Reporting Requirements for Pension Funds.
2. Summary of public consultation process
   2.1 On 14 November 2023, the Financial Sector Conduct Authority (Authority) published the following
   documents for public comment:
   (a) Notice regarding the publication of the Draft Prudential Standard – Regulation 28 Quarterly Reporting Requirements for Pension Funds (draft Prudential Standard); (b) Notice regarding the publication of the Draft Determination of Format and Manner of Regulation 28 Quarterly Reports (draft Determination); and (c) Statement supporting the draft Prudential Standard.
   2.2 The Authority received approximately 19 comments from 4 different commentators. The
   comments received through the public consultation process resulted in changes being made to the draft Prudential Standard, as explained below.
   2.3 All comments received as part of the public consultation process were considered and are set out
   in the table as per the Schedule below, together with the Authority’s responses to the comments received.
   2.4 To the extent that the Authority agreed with commentary received, amendments were made to
   the draft Prudential Standard accommodating such comments.
   2.5 A general account of some of the main issues raised during the consultation process and the
   responses of the Authority are tabulated below:

No. Issue FSCA’s Response

1. Commentators were concerned about the frequency
   of the quarterly reports, which would create timing and capacity issues due to the time it takes to collate the information as the information is not readily available. This is exacerbated where the data required to complete the reports must be provided by other service providers. In addition, where reliance is placed on external providers to provide the information, commentators requested that the Authority places an obligation on all investment management service providers to provide the data required to complete the reports to the compilers within a reasonable time. The commentator further suggested that the finalisation of the Prudential Standard be delayed until such obligation is imposed on investment management service providers. The Authority noted the perceived/potential timing and capacity issues. However, the commentator provided very limited information on the extent of this perceived/potential problem. In our view this is not an insurmountable problem. It is also unclear to the Authority how a fund is able to report non￾compliance on a quarterly basis (which is a current requirement) without having sight of its “Regulation 28 positions”. In other words, in the current environment, funds should already have some view of its “positions” on a quarterly basis. If they don’t, they won’t be able to report non￾compliance as currently required. In our view the timing and capacity issued raised are therefore (potentially) overstated. Further, timing and capacity can to a large extent be resolved by system development. Appropriate system development will go a far way in streamlining the receipt and processing of information informing the required reports. We acknowledge that this will have cost implications, but this will largely entail a once-off cost and no substantial recurring costs. Although third-party dependencies are a reality, these dependencies can be managed through proper arrangements as well as system development (as explained above). The Authority further referred the commentators back to the Statement of Need. In short, the current reactive approach to supervising compliance with Regulation 28 is very problematic. The fact that only annual “positional reporting” is required contributes to funds adopting this reactive approach. This approach is ineffective, misaligned with how prudential reporting is typically approached, and needs to be improved to support a more proactive and risk-mitigation based approach, both from a fund perspective as well as from a regulatory/FSCA perspective. Therefore, in the Authorities view, a more structural focused reform is necessary. With regard to placing a concomitant obligation on e.g. investment services providers, the Authority agreed that a concomitant obligation on to distribute data in a timely manner could support the approach. However, the Authority strongly disagreed that the Standard should be subject to such an obligation. Put differently, the Authority does not agree that the Standard
   cannot proceed without such a concomitant obligation. The potential implementation problems that the commentator raised are all very theoretical in nature, and they do not raise a sufficiently significant concern to justify pending the Standard. In addition, it is also not possible to, at this stage, advise on whether any general

exemptions would be necessary based on the concerns raised. Notwithstanding, if, after the Standard becomes effective, there are material implementation problems that arise, exemptions can be considered on a case-by-case basis. Further, if there are specific universal problems that arise as part of the implementation process, such as the example the commentator mentioned (e.g. where the underlying assets cannot be identified due to the structure of the agreement or policy), the Authority will consider whether it is necessary to issue a general exemption.
2. Clause 2(3) contains a list of exceptions, i.e. instances
where a fund is not required to submit a quarterly report. Some commentators requested that the list of exceptions contained in clause 2(3) be augmented with two additional matters, i.e.:

• Where funds are in the process of terminating,
  e.g. all assets are in cash; and
• where a retirement fund is invested in a policy
  where the underlying assets cannot be identified due to the structure of the agreement or policy, consideration be given to providing a general exception based on representation by the retirement fund and/or the insurance companies providing the investment. As regard the request for exceptions where funds are in the process of terminating, the Authority agrees that terminating funds should be excluded from the quarterly reporting requirements. Amendments were made to Prudential Standard, which include the addition of a definitions for “terminating funds” and Notice 9 of 2012, as well as amendments to section 2(3) of the Prudential Standard. It should be noted that this exclusion only means that the mentioned pension funds do not have to report in accordance with this Prudential Standard. Such funds are still required to comply with Regulation 28 and must still report on Regulation 28 in the annual financial statements. As regards the second matter in respect of which the Authority was requested to consider an exception, it was explained that it is not possible to, at this stage, advise on whether any general exemptions would be necessary based on the concerns raised. Notwithstanding, if, after the Standard becomes effective, there are material implementation problems that arise, exemptions can be considered on a case-by￾case basis. Further, if there are specific universal problems that arise as part of the implementation process, such as the example the commentator mentions (e.g. where the underlying assets cannot be identified due to the structure of the agreement or policy), the Authority will consider whether it is necessary to issue a general exemption. However, a further exception to reporting has been included where a fund has been granted an exemption from any requirement in Regulation 28 (in terms of either a general or a specific exemption), but only to the extent of that exemption.

3. The commentators were concerned that the wording
   of the Prudential Standard does not require consultation or advance notice of changes to the format in which reporting must take place, which would deprive the industry the opportunity to consider new requirements and make the necessary preparations. The concern is noted. However, note that the requirements of the Promotion of Administrative Justice Act are relevant in this regard, which requires that administrative actions are lawful, reasonable and procedurally fair. Considering the technical nature, complexity and impact of the Determination, it is very unlikely that the FSCA will make any material changes to the Determination without undertaking a public consultation process.
   2.6 Details of commentators and the full set of comments and responses are detailed below.

SCHEDULE
PUBLIC COMMENTS AND RESPONSES:
PRUDENTIAL STANDARD – REGULATION 28 QUARTERLY REPORTING REQUIREMENTS FOR PENSION FUNDS INDEX Draft Prudential Standard Page
Section A List of Commentators – draft Prudential Standard 5
Section B Comments on the draft Prudential Standard 6
Section C Questions relating to the anticipated impact of the Prudential Standard 11
Section D General Comments 12
SECTION A – LIST OF COMMENTATORS
No Commentator Acronym

1. The Association for Savings and Investment in South Africa ASISA
2. Institute of Retirement Funds Africa NPC IRFA
3. Marriott Asset Management (Pty) Ltd MAM
4. Willis Towers Watson WTW

SECTION 1 – DEFINITIONS

1. IRFA Section 1 Noted. Noted.
   SECTION 2 – SUBMISSIONS OF QUARTERLY REPORTS
2. ASISA Section 2(1) This quarterly reporting requirement (previously annual) will
   require additional manual intervention as this information is not readily available and there is reliance on key information from external parties (i.e. management companies, stockbrokers, and life insurers). Requiring the same level of reporting on a quarterly basis will create timing and capacity pressures. In addition, development in internal systems and processes to enable the collation of the asset exposures on a quarterly basis and monitoring to ensure compliance will increase operational, system and human costs. The perceived/potential timing and capacity issues are noted. However, the commentator has provided very limited information on the extent of this perceived/potential problem. In our view this is not an insurmountable problem. It is also unclear to the Authority how a fund is able to report non-compliance on a quarterly basis (which is a current requirement) without having sight of its “Regulation 28 positions”. In other words, in the current environment, funds should already have some view of its “positions” on a quarterly basis. If they don’t, they won’t be able to report non￾compliance as currently required. In our view the timing and capacity issued raised are therefore (potentially) overstated. Further, timing and capacity can to a large extent be resolved by system development. Appropriate system development will go a far way in streamlining the receipt and processing of information informing the required reports. The Authority acknowledges that this will have cost implications, but this will largely entail a once-off cost and no substantial recurring costs. Although third￾party dependencies are a reality, these dependencies can be managed through proper arrangements as well as system development (as explained above). The Authority wishes to refer the commentator back to the Statement of Need. In short, the current reactive approach to supervising compliance with Regulation 28 is very problematic. The fact that only annual “positional reporting” is required contributes to funds adopting this reactive approach. This approach is ineffective, misaligned with how prudential reporting is typically

approached, and needs to be improved to support a more proactive and risk-mitigation based approach, both from a fund perspective as well as from a regulatory/FSCA perspective. Therefore, in the Authority’s view, a more structural focused reform is necessary.
3. IRFA Section 2(1) Noted, with the request that an obligation be placed on all
investment management service providers to provide the data required to complete the reports to the compilers within a reasonable time, e.g. 60 days from the quarter end. We realise that this request may not be possible in an instrument that is issued under the Pension Funds Act. However, this obligation has in the past and is very likely, with the increased reporting requirements, to place the board of retirement funds in an inenviable position where service providers fail to provide the data required on time. For this reason, we would request that the implementation of the Conduct Standard be delayed until such time as the concomitant obligation is placed on the investment service providers to distribute the data in the same format as the compilers of the reports are required to use. A further request is that in instances where there are difficulties in how the data should be reported, such as where a retirement fund is invested in a policy where the underlying assets cannot be identified due to the structure of the agreement or policy, consideration be given to providing a general exemption based on representation by the retirement fund and/or the insurance companies providing the investment. It may not be practical in some or most instances to rely on an exemption application in terms of regulation 28(9). See response above where the Authority acknowledges third party dependencies. As stated above, third party dependencies can be managed with proper arrangements as well as system development. The Authority agrees that a concomitant obligation on e.g. investment services providers to distribute data in a timely manner could support the approach. However, the Authority strongly disagrees that the Standard should be subject to such an obligation. Put differently, the Authority does not agree that the Standard cannot proceed without such a concomitant obligation. The potential implementation problems that the commentator raises are all very theoretical in nature, and they do not raise a sufficiently significant concern to justify pending the Standard. In addition, it is also not possible to, at this stage, advise on whether any general exemptions would be necessary based on the concerns raised. Notwithstanding, if, after the Standard becomes effective, there are material implementation problems that arise, exemptions can be considered on a case-by￾case basis. Further, if there are specific universal problems that arise as part of the implementation process, such as the example the commentator mentions (e.g. where the underlying assets cannot be identified due to the structure of the agreement or policy), the Authority will consider whether it is necessary to issue a general exemption.

However, a further exception to reporting has been included where a fund has been granted an exemption from any requirement in Regulation 28 (in terms of either a general or a specific exemption), but only to the extent of that exemption.
4. MAM Section 2(1) The term “dual report” is used and accompanied by a footnote
which does not explain the term. Please provide a definition for dual report. The purpose of the footnote is not to define the term, but to indicate that the report need not be audited. However, we agree that the reference to “dual” is not necessary. As such, we have deleted that word.
5. WTW Section 2(1) We suggest that, as an introductory measure, the Authority
requires submission of these reports twice (or even once) per year, with a view to increasing the frequency to quarterly when the usefulness or otherwise of this reporting is clearer. (An initial yearly submission should coincide with the retirement fund’s financial year end, as the fund-level information requested appears to be largely the same as for Schedule IB to the financial statements in any case, and so the additional work required for the new reports would be less significant. Note that what the Authority would be receiving in addition to the material already contained in the fund’s financial statements is confirmation as to whether the fund also complies with the various Regulation 28 limits at member level, which is relevant in the case of funds offering member investment choice.) The Authority disagrees for various reasons. The need for this reporting is elaborated on in the Statement of Need supporting the draft Prudential Standard. The FSCA remains of the view that the current “exception reporting/ non-compliance” approach is problematic in the sense that it does not allow for or enable proactive and preemptive supervision in the context of Regulation 28. It also results in boards of pension funds not proactively and effectively managing compliance with Regulation 28. Therefore, the proposed quarterly positional reporting is not merely aimed at showing the FSCA whether a fund (in a narrow sense) complies with regulation 28, as you seem to contend. It is also to enable the FSCA to identify red flags and proactively monitor and manage potential or imminent Regulation 28 breaches. It will also compel boards of pension funds to proactively monitor compliance with Regulation 28 and take timely corrective action, even before a potential or imminent breach occurs. You proposed that such reporting should be required twice a year. Firstly, note Regulation 28 positional reporting already occurs once a year, and such reports must be audited. If we introduced biannual positional reporting as proposed, it would essentially mean that we are only introducing one additional report. Further,

the frequency of biannual reporting is not sufficient as too much can change within a period of 6 months, and it will not establish a sufficiently proactive approach. It would also not be aligned to how reporting for other prudentially regulated institutions works (e.g. banks and insurers). As such, we are proposing to retain the quarterly based reporting approach.
6. IRFA Section 2(2) Please refer to the comments under point 2, as retirement funds
are dependent on their investment service providers to provide the data required to compile these reports and detail the instances of breaches See response to items 2 and 3 above.
7. WTW Section 2(2) The wording here is not very clear. We understand that the
intention is that funds report (a) total asset structure, with largest exposure per category, in a similar manner to the current Schedule IB; (b) details of any breaches of the Reg.28 limits at fund level; and (c) details of any breaches of the Reg.28 limits at member level. We suggest that 2(2) be re-worded to make this clearer. Please see amendments made to draft Prudential Standard to clarify.
8. ASISA Section 2(3) Can exemption also be given to funds that are in the process of
terminating, e.g. all assets are in cash (as for notice 9 of 2012). The Authority agrees that terminating funds should be excluded from the quarterly reporting requirements. See amendments made to Prudential Standard, which include the addition of definitions for “terminating funds” and Notice 9 of 2012, as well as amendments to section 2(3) of the Prudential Standard. It should be noted that this exclusion only means that the mentioned pension funds do not have to report in accordance with this Prudential Standard. Such funds are still required to comply with Regulation 28 and must still report on Regulation 28 in the annual financial statements.
9. IRFA Section 2(3) Noted and supported.
Another proposal is to consider providing an exemption for retirement funds where all contracts are policies of insurance, as the reporting and liability are all linked to the insurer or insurers that issue the policies. There is extensive regulatory reporting by insurers on their liability. The Authority disagrees that it is necessary to include the provided scenario from the reporting requirements. Whilst the Authority understands that there is already an obligation on insurers to report, there is a need for the supervising regulator, i.e. the Authority, to have all the reports with regard to the underlying policies held by funds for the reasons elaborated on in the Statement

of Need supporting the draft Prudential Standard, i.e proactive and pre-emptive supervision. A fund can submit a written application for exemption in terms of Regulation 28(9) and each submitted application will be considered on its own merits.
SECTION 3 – MANNER AND FREQUENCY OF REPORTING
10. ASISA Section 3(1) The current wording does not seem to require consultation or
advance notice of changes to the format. This would deprive the industry the opportunity to consider new requirements and make the necessary preparations. It would be more ideal if there are more detail as to the process of how and when changes will be made. The concern is noted. Please note that the requirements of the Promotion of Administrative Justice Act are relevant in this regard, which requires that administrative actions are lawful, reasonable and procedurally fair. Considering the technical nature, complexity and impact of the Determination, it is very unlikely that the FSCA will make any material changes to the Determination without undertaking a public consultation process.
11. IRFA Section 3(1) Noted and a request to consider the comments under point 2
above related to the concomitant obligation on investment service providers and exemption for retirement funds where all contracts are policies of insurance where the insurers are already obliged to provide regulatory reporting. An extension of the reporting requirements for the insurer to confirm compliance with regulation 28 where policies are issued in respect of investments for retirement funds. As well as consideration for an exemption where a guaranteed investment policy is issued. See response above.
12. IRFA Section 3(2) Noted. Noted.
13. MAM Section 3(2) As funds and administrators should already have a view around
the state of compliance and non-compliance of funds, of what benefit is reporting on the state of compliance to the FSCA? See response to item 5 above.
SECTION 4 – SHORT TITLE, COMMENCEMENT AND REPEALS
14. IFRA Section 4(1) Noted. Noted.
15. IFRA Section 4(1) Noted. Noted.

SECTION C - QUESTIONS RELATING TO THE ANTICIPATED IMPACT OF THE PRUDENTIAL STANDARD
Entity Question Comment FSCA Response IFRA Will the Prudential Standard impose additional compliance costs on the business? If yes, please provide details including the expected costs. Yes, quantification of the costs is difficult to determine at present. There is the cost of increased compliance reporting by the funds, which is likely to be levied by the compilers, as well as possible increases from investment service providers. It would be preferable to be able to canvass the various service providers on the exact cost once the final format is determined, as well as the possibility of the concomitant obligation on investment service providers. Noted. Please refer to the revised Statement of Need and Impact. MAM The cost has not as yet been quantified, however, additional resources will be required to meet reporting obligations and this would include human capital and potential system costs. Noted. Please refer to the revised Statement of Need and Impact.. IFRA How do you anticipate the Prudential Standard affecting the operational cost of the business, if at all? Increased operational capacity will need to be developed to compile the reports. Noted. Please refer to the revised Statement of Need and Impact. MAM The cost has not as yet been quantified, however, additional resources will be required to meet reporting obligations and this would include human capital and potential system costs. Noted. Please refer to the revised Statement of Need and Impact. IFRA Will the Prudential Standard result in termination of existing arrangements? If yes, please be specific and make reference to specific aspects of the draft Prudential Standard that will lead to such a termination. Yes, where the investment service provider is unable or unwilling to provide the data in a suitable format. It is for this reason that we are requesting a concomitant obligation on investment service providers to provide the data to the compilers of the reports. See response to item 3 under Section B above. MAM We do not expect there to be any termination. Noted. IFRA If the answer to question 3 is yes, how many arrangements will be impacted and what is the expected cost implication thereof? The full impact can only be determined once the final format is published. Again, a request is made that the conduct standard be issued after the reporting template, with a possible concomitant obligation on investment service providers to provide the data in a prescribed format. We will be prepared to survey investment service providers where a specific obligation is placed on them. At present, the feedback received is that the cost impact can only be determined once the final format is provided. Noted. See response to item 3 under Section B above. MAM N/A Noted.

SECTION C - QUESTIONS RELATING TO THE ANTICIPATED IMPACT OF THE PRUDENTIAL STANDARD
Entity Question Comment FSCA Response IFRA Are any other transitional arrangements necessary to implement the Prudential Standard? If yes, what transitional arrangements do you propose and for which section of the Prudential Standard? (Please provide a justification for your response and details on timeframes to comply with the relevant section) We would request that the Authority consider placing a concomitant obligation on investment service providers to provide the data in the prescribed format. Most of these service providers should have the data available; however, not all have been providing the data in the prescribed format. Based on this, we would request that the Authority consider the implementation date of the revised reporting format to be such a date that all related parties bear the same obligations. See response to item 3 under Section B above. MAM This would be dependent on the time period between the regulations being finalised and the effective date as a shorter implementation period may require transitional arrangements. Noted.
SECTION D - GENERAL COMMENTS
Entity Question Response FSCA Response FORMAT OF THE PRUDENTIAL STANDARD IFRA Do you find the format of the draft Prudential Standard user friendly and simple to understand? If no, please provide suggestions for improvement. Yes. Noted. MAM Please see comments and suggestions above. Noted.

SECTION D – GENERAL COMMENTS
No Issue Comment/Recommendation FSCA Response ANY OTHER GENERAL COMMENTS

1. Concomitant obligation on
   investment service providers
   The Authority’s consideration of placing a concomitant obligation on the investment service providers would increase the ability of retirement funds to comply with the regulation, increase overall efficiency in the system, and reduce overall costs as there would be less intervention required by the compilers. See response to item 3 under Section B above.
2. Definition of infrastructure The definition of infrastructure is one area where further guidance may
   be required to ease the reporting burden on both retirement funds and investment service providers. Noted. For purposes of the draft Prudential Standard, reporting on infrastructure has been removed - only annual reporting on infrastructure will be required.