The Financial Institutions and Markets Act (FIMA), was gazetted on 30 September 2021 and replaces the outdated Pension Fund Act of 1956. FIMA is slated to come into effect on 1 October 2022 and has raised many eyebrows and provoked heated discussions in recent weeks.
For this reason, finance minister Iipumbu Shiimi last week confirmed the postponement of the implementation of the compulsory preservation of retirement funds, which forms part of FIMA. The postponement was to allow adequate time for broader consultations on the envisaged regulation of retirement funds.
This week New Era’s Inside Business (NE) had an opportunity to question Monique Cloete (MC) managing director of local life insurance company, Liberty Life Namibia, on FIMA and its implications for the financial services industry in the country.
NE: What are your first thoughts on the Financial Institutions and Markets Act?
MC: The initial draft of the Financial Institutions and Market Bill was issued in 2004, and since then, there has been a lot of work done to advance and improve this Act. The Financial Institutions and Markets Act 2021 (Act No. 2 of 2021) (commonly referred to as “FIMA”) was promulgated on 30 September 2021, but it is not yet operational. As we have it, the purpose of the regulatory reform is to consolidate and harmonise the laws regulating financial institutions, intermediaries and markets operating in the Namibian space.
This speaks to why this reform was necessary in the non-banking financial industry and we have listed the Namibia Financial Institutions Supervisory Authority (Namfisa)’s main reasons below:
Current laws are fragmented and inconsistent
The current laws are outdated with some dating back to the 1950s
In terms of the current laws, Namfisa has a limited mandate (no consumer protection financial stability)
Enforcement is 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.
NE: What are the principal changes in the new FIMA legislation?
MC: FIMA introduces increased capital requirements for insurers;
There are now specific fit & proper requirements for the board of directors & trustees which effectively authorises Namfisa to remove Directors and Trustees who do not meet the criteria.
Moreover, consumer protection is a core part of the FIMA legislation and this places additional obligations on accountable institutions, such as ours to deploy TCF (Treating Customers Fairly) principles throughout their critical business processes.
FIMA introduces the umbrella term “retirement fund” to the Pension Fund Act.
The board of a retirement fund now has an obligation to direct, control and oversee the operations of the retirement fund in accordance with FIMA and the rules of the fund.
FIMA places the fiduciary responsibility directly on the laps of the board of trustees of the retirement fund.
The duties and responsibilities of trustees are to uphold principles of good corporate governance, amongst others, whilst ensuring the board of trustees always acts with due care, diligence, prudence and good faith in pursuing its objectives.
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; and
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 stability and promote public and investor confidence in the financial system.
NE: What are the practical implications of FIMA for retirement funds?
MC: FIMA introduces stringent governance requirements;
The Increased registration process and the effect it will have on the costs of managing a fund.
FIMA will introduce numerous changes for retirement funds, their board of trustees, members, sponsors, and service providers. It is essential to be aware of these changes, understand their consequences, and prepare for their impact.
Within 12 months of FIMA’s commencement date (1 October 2022), all current retirement funds will have to re-apply for registration. To register, retirement funds must revise their rules, various policies and agreements to be in line with FIMA requirements.
Fund administrators and financial intermediaries will also be required to register under FIMA.
Active and retired members of a retirement fund have the right to elect at least half of the board members of the retirement fund; and
If an employer fails to pay retirement fund contributions by the 7th day (calendar day) of the following month, the late or non-payment of contributions is a criminal offence. The fine for the non-compliance could be up to N$2.5 million or sentenced to five years imprisonment or both. FIMA also now requires administrators to inform retirements fund members of any non or late payment of pension contributions.
FIMA introduces compulsory preservation of withdrawal benefits. Members will have to preserve 75% of the minimum withdrawal benefit or minimum individual reserve (as calculated according to a minimum benefits formula) until age 55.
Under the current Pension Funds Act Section 37D deduction from pension benefits are allowed for damage caused to the employer by reason of theft, dishonesty, fraud or misconduct by the member. FIMA does not have a provision that allows for the withholding of benefits for purpose of theft, dishonesty, fraud and misconduct.
FIMA places an obligation on retirement funds to send to its members at least twice a year a beneficiary nomination form, for completion by the members. Advance payments, as the board of the trustees considers prudent, can be made to the beneficiaries of deceased members.
Failure to comply with certain provisions will attract penalties, fines and in some instances, non-compliance is a criminal offence punishable upon conviction. Namfisa is empowered to take enforcement actions (i.e. remedial, punitive, and compensatory actions) against any person to whom FIMA applies. If convicted, a person can face a fine, a prison term, or both.
Overall, the expenses on a retirement fund are expected to increase under FIMA due to additional training, reporting, administration requirements and professional indemnity insurance requirements.
NE: What are the practical implications of FIMA for short and long-term insurers?
MC: The increased capital adequacy and financial reporting requirements will require insurers to redefine their existing processes to remain compliant. The independence standard will also have unintended ramifications, not only from a compliance perspective due to skills shortage in the industry, but from a cost perspective as well.
NE: How best can financial institutions prepare themselves for the FIMA?
MC: Financial Institutions must firstly conduct a comprehensive gap analysis on this legislation to determine the impact it would have on its business operations. With any gap analysis, the high impact areas must first be prioritised. Financial institutions should then develop an implementation plan with deliberate deadlines and action owners for tracking purposes.
NE: How best can consumers prepare themselves for FIMA?
MC: As alluded to earlier, consumer protection is a core part of FIMA so it is imperative that consumers gain an understanding of their rights as well as the various obligations imposed on accountable institutions from a consumer protection perspective. This can be achieved if consumers participate in the numerous awareness sessions that Namfisa has been undertaking using various platforms such as roadshows, radio, print media, etc.
NE: How would you describe the current insurance and retirement fund markets in Namibia?
MC: I would describe it as a very well developed market, which is quite sophisticated. There is a lot of work that need to be done to assist Namibians to understand these complex concepts. There are a few participants in the market since there are quite high barriers to entry in the insurance or administration environments. There is definitely a place for some additional regulation to ensure the quality of services being provided to Namibians looking for insurance or saving towards their retirement.
NE: How has the impact of Covid-19 and reduced economic activity affected Liberty Life Namibia?
MC: During 2020, we were affected by the retrenchments, which were prevalent in our market, and even though the economic slowdown occurred, it was not as broadly felt as when the Namibian third wave happened. During that period, we experienced the debilitating impact of Covid-19 through the claims that we honoured to assist so many Namibians during that dark period. It reminded us as a business, that this is the reason that we exist, to assist customers at the point of their most human vulnerability.
NE: As you operate in an ever-evolving market, what are some of the new products local consumers can expect from Liberty Life Namibia?
MC: We are allowing flexibility in our products for customers who are struggling financially to retain their covers during this trying period. We are also introducing more investment and saving products so that our customers have another tool in their arsenal for achieving their financial freedom.
Caption: , managing director of Liberty Life Namibia. Photo: Contributed