Update on legal & regulatory changes – retirement funds

Standards for financial institutions (including retirement funds) on the management of cyber risks.

Objectives:
Sound, robust processes for managing cyber risks; Adoption of cybersecurity fundamental practices; Undertake systematic testing and assurance; Establish & maintain cyber resilience; and Provide notification of material cyber incidents.

When issued:
On 14 December 2022, a revised draft of the Joint Standard on Cybersecurity and Cyber Resilience Requirements Standard was published for a second round of public consultation.

Comment and expected next steps:
The FSCA has stated that cyber-resilience of financial institutions is a priority for it. Comments are now being considered and the Standard will be revised if necessary.  The Standard will then be tabled in Parliament this year.

Fund boards are required to establish an annuity strategy. This Standard establishes the criteria for living annuities forming part of a fund’s annuity strategy.

When issued:
The FSCA first published this draft Conduct Standard in November 2018.

Comment and expected next steps:
Comments received through the public consultation process have been processed and a revised version of the Conduct Standard was shared with industry associations that commented on the draft Conduct Standard for “fatal flaw” input before it is finalised for submission to Treasury (to forward on to Parliament). These comments are being processed by the FSCA.

Deals with the communication of benefit projections to members to standardise the provision of minimum information to them and to ensure that benefit projections are communicated to members through the various stages of fund membership.

When issued:
The FSCA, published this draft Conduct Standard on 8 June 2020.

Comment and expected next steps:
Comments received through the public consultation process have been processed and the Conduct Standard underwent refinement. The FSCA will finalise the Conduct Standard and share it with commentators who submitted comments on the Conduct Standard during the consultation process for “fatal flaw” input only. Thereafter, it will be finalised for submission to Treasury (and then Parliament).

The Conduct Standard sets overarching principles for the use of derivative instruments by funds.

When issued:
On 8 June 2020, the FSCA published this draft Conduct Standard for comment.

Comment and expected next steps:
The Parliamentary period for comment has elapsed and the Standard will be made final within the next two months.

According to the FSCA, fund assets represent a significant portion of investable assets of financial institutions and such assets form a large base of the securities lending in the financial industry. In addition, securities lending enables a fund to earn additional income to the benefit of the fund and its members. Thus, to balance the benefit with the possible risks associated with securities lending, the FSCA will prescribe conditions by providing general principles and requirements pertaining to service providers, agents, counterparties, lending limits and collateral etc.

When issued:
The draft Conduct Standard was issued on 7 October 2020.

Comment and expected next steps:
Due to the broader regulatory developments in respect of Securities Financing Transactions, this Conduct Standard has been pended until further notice.

This Standard includes important new financial statements and audit requirements for retirement funds. This will lead to substantial changes in the financial reporting and audit requirements of funds. In addition, the proposals include that the financial statements of all retirement funds will be required to be audited, irrespective of the asset size of a fund.

When issued:
This Prudential Standard was published for public consultation on 9 November 2022.

Comment and expected next steps:
The draft of the revised format and requirements resulted in an extensive commentary. The comment period closed on 18 January 2023 and submissions are currently being considered by the FSCA. The Prudential Standard will be revised if necessary.

The current Regulation 28 quarterly reporting requirements for retirement funds are to be brought in line with the recent amendments to Regulation 28, including the requirement to report on infrastructure investments.

The timing to revise reporting is tight for retirement funds, and their service providers, including to implement the processes and system changes required to produce accurate and complete quarterly reporting. Thus, the first quarterly report due in 2023 will be given an extended time for submission (that is, submission on or before 30 September 2023).

When issued:
The FSCA published the draft Prudential Standard for public consultation on 4 November 2022.

Comment and expected next steps:
The FSCA is currently considering comments from the industry. The next version will be a final version to send to Treasury to table in Parliament. No further consultation will be done by the FSCA. The FSCA has stated that if the Prudential Standard is not finalised in time for the reporting at the end of September 2023, the FSCA will issue a request for information (which is mandatory) in order to ensure it receives the specified information.

The FSCA recently stated that it will be revising the draft format such that Table 2 (Infrastructure) and Table 3 (ESG) will be removed from the quarterly Regulation 28 report (as revised) and will be required only annually instead. This is because the infrastructure and ESG information is unlikely to change on a quarterly basis.

The FSCA is not yet sure in what format it will require the annual report from funds.

The FSCA stated that the broader definition of infrastructure recently included in Regulation 28 of the Pension Funds Act could lead to possible inconsistent classification of infrastructure assets and it is considering issuing an Interpretation Notice / Guidance Notice.

This Standard will apply to retirement funds as well as their service providers (in addition to other financial institutions).

When issued:
This Joint Standard is in the process of being developed by the FSCA and the Prudential Authority (PA). The industry has not yet seen a draft. The FSCA expects that the draft Joint Standard will be published for public consultation during the latter half of 2023.

Comment and expected next steps:
A Joint Governance Work Group (JGWG) consisting of various representatives from the FSCA and PA has been established to develop the governance framework.

The section 13B conditions applicable to administrators of retirement funds (a replacement of the current conditions)

When issued:
The FSCA made a decision to pend this Standard because of the work it is doing around transitioning to COFI. However, recently it has been said that it has urgent reasons for wanting to proceed with a watered-down version of this Standard. Watered-down in the sense that it will remove issues that could misalign with COFI.

Comment and expected next steps:
There is unlikely to be any further consultation by the FSCA on the Standard, except that it may be issued to industry bodies for a final “fatal flaw” check.