Greg Preston, Manager Training and Development, and Bruce Kokkinn, General Manager, at FQ Financial Skills
In South Africa, trustees of retirement funds are subject to various ethical and legal requirements. These requirements are governed by the Pension Funds Act, 1956 and by the Financial Sector Conduct Authority (FSCA). It is universally acknowledged that ethics play a vital role in the responsibilities of trustees.
Boards of Management are elected and nominated from a variety of backgrounds, experience and education. Training in expected ethical behaviour is essential for all trustees. Their behaviour can only be measured by behaviour during meetings and their actions. The group’s ethical behaviour is manifested in the governance of the board. The chairperson or principal officer should monitor all board members and schedule training and education.
A Code of Conduct aligns regulatory frameworks, general principles of good governance and fiduciary duty. Trustees must uphold the highest standards of honesty, integrity, and fairness in the executing their duties. They have a fiduciary duty to act in the interest of fund members and beneficiaries, placing their needs above all personal or external interests.
Fiduciary duties compel trustees to always act in the best interests of members. This duty requires trustees to prioritise the financial well-being of members above their own interests or those of other stakeholders.
Trustees should demonstrate honesty, transparency, and integrity in all their dealings. This includes being truthful in communications with members, fellow trustees, and other stakeholders.
Trustees must identify, disclose, and manage conflicts of interest appropriately. This involves abstaining from decision-making where a conflict exists, disclosing conflicts to the board, and seeking independent advice when necessary.
Trustees have a duty to exercise care, skill, and diligence in managing the fund’s investments. This includes adhering to sound investment principles, avoiding speculative or high-risk investments, and ensuring that investment decisions are based on thorough analysis and research.
Trustees should ensure that the fund operates in compliance with legislation, regulations, and industry standards. This includes staying informed about changes in regulatory requirements and taking action to address any compliance issues.
Trustees must maintain the confidentiality of sensitive information related to the fund, including member data, investment strategies, and board discussions. Breaching confidentiality could undermine trust and compromise the fund’s interests.
Trustees should actively seek opportunities to enhance their knowledge and skills related to fund governance, investment management, and regulatory compliance. This may include attending training programs, seminars, and industry conferences.
Avoiding Self-Dealing means Trustees must refrain from using their position for personal gain or benefiting themselves or their associates at the expense of the fund. This includes avoiding self-dealing transactions, nepotism, and favouritism.
Unethical behaviour by trustees is fortunately unusual, but can have serious legal, financial, and reputational consequences.
Legal consequences that can be experienced for unethical actions may include personal liability, due to their misconduct or negligence. Members or the fund may sue trustees for breach of fiduciary duties or the FSCA or courts can remove trustees found guilty of misconduct or who are unfit to hold office. Further, trustees can face criminal prosecution, which may lead to fines or imprisonment.
Reputational damage to trustees who are guilty of unethical conduct may suffer reputational harm, which can affect their professional standing, impact other directorships or professional roles or lead to loss of trust by fund members.
Where any of the above occur, there can be an be an impact on fund members which can lead to reduced returns on benefits, delays in benefit payments or a loss of confidence in the fund.
Examples of unethical behaviour include accepting bribes from service providers, failing to disclose conflicts of interest, investing fund assets for personal gain and not acting in the best interests of members.
Experience has shown that the reputation of South African trustees is generally high when measured against world standards. By adhering to ethical principles, pension fund trustees have maintained the trust and confidence of members, promoted the financial security of the fund, and contributed to the overall stability of the pension system. The trusteeship model has been tested over many decades and has been found to be sound.
ENDS
