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NAMFISA directives: Protecting your fund and its trustees

NAMFISA directives: Protecting your fund and its trustees
 
The Financial Institutions and Markets Act (FIMA) has substantially changed the regulatory environment in which retirement funds operate. As funds adjust to the new legislation, trustees may increasingly encounter instructions, directives and interpretations from NAMFISA requiring changes to their rules, governance arrangements and operating procedures.

While NAMFISA is entrusted with supervising compliance with FIMA, its decisions are not necessarily infallible. A directive may be based on an incorrect interpretation of the law or may have unintended consequences for the fund or its beneficiaries.

A fund's compliance with a NAMFISA directive does not necessarily protect it against legal challenges or financial losses arising from implementing that directive.

Consider a fund directed by NAMFISA to amend its rules. The trustees comply, only for a member or beneficiary subsequently to challenge the amendment successfully in court. If the fund suffers a substantial financial loss, can it recover that loss from NAMFISA?

Not necessarily. Although a claim against NAMFISA may be possible, establishing liability is legally demanding. An unlawful directive does not automatically create an entitlement to compensation.

This exposes retirement funds and their trustees to an important regulatory risk that must be actively managed.

What should trustees do?
  1. Verify the legal basis of the directive. Establish whether the communication is a legally binding directive, a regulatory interpretation, a recommendation or informal guidance. Request the statutory authority and reasons supporting any material instruction.
  2. Assess the consequences before implementation. Consider whether the proposed action could affect accrued benefits, member rights, employer obligations, fund assets or the interests of beneficiaries. Obtain independent legal advice where material legal uncertainty exists.
  3. Raise concerns formally. If the directive appears inconsistent with FIMA or may prejudice members, explain the concerns to NAMFISA in writing and request reconsideration or clarification. Maintain a complete record of the correspondence and the board's deliberations.
  4. Use the available legal remedies. Where necessary, consider an appeal to the statutory Appeal Board or judicial review. An appeal does not automatically suspend a directive; suspension must be obtained where appropriate.
  5. Avoid irreversible action where possible. Where implementation could cause permanent financial consequences, seek a lawful postponement or suspension pending clarification or resolution of the dispute.
  6. Review insurance protection. Ensure that the fund's trustees' liability and other relevant insurance policies are reviewed for regulatory decisions, legal defence costs, wrongful acts and potential fund losses. Do not assume that ordinary trustees' liability insurance covers losses suffered by the fund itself.
  7. Document the board's decisions. Trustees should be able to demonstrate that they acted diligently, independently, in good faith and with proper regard for the interests of members and beneficiaries.
Who ultimately bears the risk?
NAMFISA's statutory supervisory responsibilities do not relieve trustees of their duties. Conversely, trustees' continued responsibility for the fund does not necessarily absolve NAMFISA of liability for unlawful regulatory conduct.

The legal position is therefore not a simple choice between responsibility resting with NAMFISA or with the trustees. Both may have responsibilities, while the circumstances in which compensation can be recovered from the regulator remain restricted.

RFS's recommendation
Retirement fund boards should adopt a formal procedure for assessing and responding to material NAMFISA directives. The procedure should distinguish routine compliance matters from instructions carrying significant legal, financial or member-benefit risks.

Where a directive presents material uncertainty, the board should obtain appropriate professional advice, engage constructively with NAMFISA and preserve its legal remedies before implementing potentially irreversible changes.

Responsible regulatory compliance means more than following instructions. It means ensuring that the fund complies with the law while safeguarding the interests of those whose retirement savings have been entrusted to it.

An RFS advisory to retirement fund boards and principal officers

Read the full advisory here          
 
 



 
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