At no time has Standard Bank had any knowledge of — or “to the best of its knowledge” been party to — any unlawful actions of a fund administrator that has engaged the bank to provide the benefits of bulking by means of its cash-management service, MPs were told on Tuesday.
However, it has acknowledged that “in some instances” a fund administrator instructs that some of the interest held in a nominated account is apportioned to the benefit of the administrator as fees or commission.
In a written submission to the National Assembly finance portfolio committee — which is holding hearings on bulking — Standard Bank’s head of legal risk of the corporate and investment banking division Ian Sinton said Standard Bank carried on the business of a bank in terms of the Banks Act.
Sinton said as a bank, Standard Bank took deposits from the public “and typically pays interest on the credit balances of such deposits at a rate determined by — among other things — the stability and quantum thereof, the greater the stability and quantum the higher the interest rate payable”.
“It happens that as a matter of convenience a customer of Standard Bank will open two or more accounts with Standard Bank into which it deposits money. To avoid each such account being regarded as a separate account and therefore earning interest based upon its own credit balance, Standard Bank offers a cash-management service whereby it agrees to notionally aggregate the credit balances of all such accounts so that they each can earn the higher interest rate payable based upon the higher aggregated sum.”
All pension-fund administrators were obliged by the Pension Funds Act to deposit any pension fund monies they received into a bank account opened in the name of the pension fund concerned and “may in terms of the Act, deposit benefits payable to beneficiaries from the pension fund they administer into a trust account [with a bank] to enable them to make use of electronic bank transfer facilities”.
Despite it being implicit that the credit balances in bank accounts opened by pension-fund administrators in the name of pension funds represented money “belonging” to the pension funds, as opposed to the administrators themselves, Standard Bank nevertheless provides its cash-management service to the administrators of such accounts for the benefit of the pension funds concerned.
“Standard Bank understands this to be the bulking mentioned in the portfolio committee’s invitation,” acknowledged Sinton.
He said in a letter to the portfolio committee: “In some instances the administrator instructs that some of the interest held in a nominated account is apportioned to the benefit of the administrator or that the interest earned be abated by an amount to be paid to the administrator as a fee or commission.”
Standard Bank assumed such instructions to be lawful as the administrator was authorised to conduct its business by the Financial Services Board (FSB) in terms of the Pension Funds Act. Each administrator opening an account with Standard Bank “expressly or impliedly warrants its power and authority to deal with all monies paid into and out of such account”.
Standard Bank presumed that its customers conducted their affairs “in a proper and lawful manner unless and until there is evidence to the contrary”.
The hearings on bulking follows the example of Alexander Forbes — a major insurance broking and pension-fund consulting group — being found to have bulked funds of some 1Â 700 retirement funds. This involved the practice of aggregating on a notional basis the total value of all retirement funds’ current accounts in order to negotiate better interest rates with a bank. Alexander Forbes earned a rebate from the bank for negotiating the facility but did not pass on the benefit to pension-fund holders.
After an investigation by the Financial Services Board, Forbes had to repay retirement funds of R368-million. It also had to make a R12-million contribution to the FSB’s education trust and it has made a provision for another R100-million payment to retirement funds.
Alexander Forbes is expected to address the committee on Wednesday morning. — I-Net Bridge