Regulatory Reform in the Non-Banking Financial Sector
NAMFISA’s primary role is to regulate and supervise non-bank financial institutions to ensure soundness of institutions and integrity of the financial contracts between these organisations and their clients or members. NAMFISA has a critical role to play in ensuring that the non-banking financial sector is honest and transparent. In order to do that, NAMFISA also has to ensure that the manner in which it regulates and supervises these entities is in line with international best practices.
Ongoing Legislative Reform
Over the past two years, NAMFISA has been actively engaged in reviewing legislation that governs the regulation and supervision of the financial institutions under its ambit. There is therefore a reform process underway at NAMFISA, which started with the review of laws, the drafting of a new law to redress the historical anomalies that were presented by the old pieces of legislation. In large measure, the old laws hampered the effective regulation of the financial industry.
Updating the Pension Funds Act
Included in that regulatory reform process is the review of the Pension Funds Act 24 of 1956. It has been repeatedly observed and stated that the current Pension Fund Act of 1956 is outdated and had many loopholes that the industry exploits or takes advantage of. In order to address this, NAMFISA took the initiative of drafting the Financial Institutions and Markets Bill (FIM Bill), which is at its final stages of consultation before it is taken through the promulgation process.
Why the Reform?
The legislative reform, along with other internal transformational processes within NAMFISA, is to ensure that laws address today’s needs. For the benefit of the public, the following are the main reasons for the legislative reform in the financial industry:
• Current laws are outdated with some dating back to the 1950s and 1960s;
• Current laws are fragmented and inconsistent;
• Limited mandate (no consumer protection, financial stability);
• Enforcement difficult due to low penalties and enforcement procedures;
• Limited powers to act against non-compliance and intrusion; and
• These laws are irrelevant to socio-economic imperatives of Namibia today.
• Current laws are outdated with some dating back to the 1950s and 1960s;
• Current laws are fragmented and inconsistent;
• Limited mandate (no consumer protection, financial stability);
• Enforcement difficult due to low penalties and enforcement procedures;
• Limited powers to act against non-compliance and intrusion; and
• These laws are irrelevant to socio-economic imperatives of Namibia today.
Building Supervisory Capacity
In addition, the reform is further necessitated by the need to improve capacity, enhance skills, and technology to effectively supervise the industry and the need to shift from a compliance-based to risk-based supervisory approach.
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What is Risk-Based Supervision?
Risk-based supervision entails the Regulator prioritising and organising activities and resources to efficiently and effectively meet objectives. Keep in mind that the overall objective of a Regulator remains to protect the public from undue financial loss and, in doing so, maintain financial system stability and promote public and investor confidence in the financial system.
Trustees’ Fiduciary Responsibilities
The new FIM Bill places fiduciary responsibility squarely on the laps of the Boards of Trustees of these pension funds. Therefore, decisions made when hiring advisers or sponsors and ensuring that there is adequate disclosures on the part of the advisers should be made in such a manner that it ensures that they do not violate their duty to administer the fund.
Corporate Governance and Due Diligence
The duties and responsibilities of Trustees are to uphold principles of good corporate governance, amongst others, whilst ensuring that proper due diligence is carried out on the service providers. These responsibilities apply to Trustees of stand-alone and/or closed funds and umbrella funds alike. Some views expressed in the past questioned the existence and legality of umbrella funds, with the fundamental concerns relating to the concept of the establishment of umbrella funds in general. Umbrella funds are recognised and registered by NAMFISA with the legal status as stand-alone funds. As per the provisions in the FIM Bill, NAMFISA can, in future, remove trustees from office if there are sufficient reasons to believe that those trustees have abused their positions of trust and power.
The Role of Fund Members
Members of the funds also have a role to play in ensuring that their pension savings are managed and schemes are administered in a manner that provides for a good balance between the adequacy of future benefits and affordable premiums. It is therefore the responsibility of pension fund members to appoint knowledgeable and accountable individuals to represent their interests on the Board of Trustees – a body responsible for directing the activities of the fund. Members are further required to ensure that personal data required to contribute to the efficient and effective administration of these funds are updated in their files with the employer and/or the administrator. This includes information relating to dependants and/or beneficiaries.
Improving Compliance and Reporting
NAMFISA has been faced with the challenge of effectively supervising registered pension funds mainly due to the non-compliance of funds that failed to submit statutory returns as prescribed in the Act. Annual information submitted by those compliant to the provisions of the Act has not been sufficient to enable NAMFISA to executing its mandate effectively. As a result, a decision was taken to introduce quarterly submissions of information to NAMFISA by pension funds. The Provident Institutions Division started the process of reviewing the reporting requirements for pension funds to ensure that current pension fund operation data are available. The Division has engaged with different stakeholders to source input to ensure that meaningful data will be collected in a relatively cost-effective manner. The success of implementing this new reporting requirement lies with both the Trustees and the members of the funds, who also have a part to play in providing information as requested by NAMFISA through the Principal Officer of the fund.
Shared Responsibility in the Regulatory Framework
NAMFISA has been faced with the challenge of effectively supervising registered pension funds mainly due to the non-compliance of funds that failed to submit statutory returns as prescribed in the Act. Annual information submitted by those compliant to the provisions of the Act has not been sufficient to enable NAMFISA to executing its mandate effectively. As a result, a decision was taken to introduce quarterly submissions of information to NAMFISA by pension funds. The Provident Institutions Division started the process of reviewing the reporting requirements for pension funds to ensure that current pension fund operation data are available. The Division has engaged with different stakeholders to source input to ensure that meaningful data will be collected in a relatively cost-effective manner. The success of implementing this new reporting requirement lies with both the Trustees and the members of the funds, who also have a part to play in providing information as requested by NAMFISA through the Principal Officer of the fund.
Summary
Regulatory Reform in the Non-Banking Financial Sector
Therefore, whilst NAMFISA has the responsibility of ensuring a safe and sound financial system – one that protects the interests of the consumers by being alert and addressing the challenges that prevents it from carrying out its mandate effectively -, the members of the funds and the Trustees of these funds also have the role to play in supporting the Regulator in executing its mandate effectively.
To address these shortcomings, the FIM Bill aims to empower NAMFISA to act more decisively and adopt a risk-based supervisory approach. This shift will ensure that regulatory efforts are focused on areas of highest risk to the financial system and consumer protection.
Enhancing Fiduciary Responsibility
The FIM Bill places significant fiduciary responsibility on the Boards of Trustees managing pension funds. Trustees are expected to:
NAMFISA will have the authority to remove Trustees from office where there is evidence of abuse of power or failure to act in the best interest of fund members.
It is important to note that umbrella funds are recognised by NAMFISA as legal stand-alone entities. These funds operate under the same regulatory framework as traditional pension funds and are subject to the same governance and disclosure requirements.
It is important to note that umbrella funds are recognised by NAMFISA as legal stand-alone entities. These funds operate under the same regulatory framework as traditional pension funds and are subject to the same governance and disclosure requirements.
The Role of Pension Fund Members
Members of pension funds also play a crucial role in safeguarding their retirement savings. This includes:
Improving Reporting and Compliance
NAMFISA has historically struggled with the effective supervision of pension funds due to non-compliance with statutory return submissions. Annual submissions have proven insufficient for effective oversight.
To improve this, NAMFISA, through the Provident Institutions Division, has initiated a shift toward quarterly reporting. This will provide timely data to improve regulatory decisions and market monitoring. The Division has consulted widely with industry stakeholders to ensure the new reporting framework is practical and cost-effective.
To improve this, NAMFISA, through the Provident Institutions Division, has initiated a shift toward quarterly reporting. This will provide timely data to improve regulatory decisions and market monitoring. The Division has consulted widely with industry stakeholders to ensure the new reporting framework is practical and cost-effective.
A Shared Responsibility
While NAMFISA is responsible for ensuring a safe and sound financial sector, the success of this mandate also depends on:
The regulatory reform process is ultimately about building a resilient financial sector that protects consumers, encourages savings and investment, and supports Namibia’s broader socio-economic goals.