The Financial Institutions and Market Act (aka ‘FIMA’) has finally arrived! The long-awaited legislation will replace the existing legislation for non-banking institutions regulated by the Namibia Financial Institutions Supervisory Authority (NAMFISA). The institutions that FIMA will govern include retirement and medical aid funds and their administrators, short- and long-term insurers, collective investment schemes, and asset managers.

When will FIMA come into force?

FIMA was promulgated on the 30th of September 2021 but is not yet operational because the “critical” regulations and standards needed to operationalise FIMA must still be finalised. During an industry information session held on 8 November 2021, the NAMFISA CEO, Mr Kenneth Matomola, indicated that FIMA is expected to come into force on 1 October 2022.

NAMFISA has activated a FIMAimplementation plan that includes formal consultations with stakeholders on the draft of critical regulations and standards. The regulations and standards have been issued by means of a notice in the Government Gazette and are available on the NAMFISA website: https://www.namfisa.com.na/legislative-instruments/. Regulated entities and industry associations have until 28 February 2022 to comment in writing on the draft standards and regulations. NAMFISA will consider all submissions and, where necessary, will hold formal consultation sessions before finalising the standards and regulations. The final standards and regulations will be gazetted on 1 October 2022 when FIMA becomes operational.

What are the principal changes in legislation?

Retirement funds are currently governed by the Pension Funds Act 24 of 1956 (‘the PFA’). The principal differences between the PFA and FIMA are as follows:

  • Compliance vs risk-based supervision
  • Backwards-looking (penalises past infractions) vs forward-looking (addresses emerging problems)
  • Performance-based vs outcomes-based

These changes are in keeping with worldwide trends concerning amendments to retirement fund legislation. FIMA provides NAMFISA with significantly broader powers than the regulator currently holds under the PFA.

What are the practical implications of FIMA for retirement funds?

The introduction of FIMA will result in numerous changes for retirement funds, their management boards, members, sponsors, and service providers. It is essential to be aware of these changes, understand their consequences, and prepare for their impact. We highlight a few of the key changes below:

1.     All existing retirement funds will have to re-apply for registration under FIMA. To register, retirement funds must amend their rules to ensure that they are FIMA compliant. Retirement fund administrators and financial intermediaries will also be required to register under FIMA. Every person or entity required to register under FIMA must do so within 12 months of FIMA coming into force (i.e. by 30 September 2023).

2.     Compliance costs are expected to increase under FIMA due to additional training, reporting, administration, and professional indemnity insurance requirements.

3.     Under FIMA, failure to comply with or contravention of certain FIMA provisions or NAMFISA directives is a criminal offence. 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.

4.     One of the potential infractions that could result in enforcement action by NAMFISA is an employer failing to pay retirement fund contributions due for a month by the 7th day of the following month. Late or non-payment of contributions is a criminal offence. A convicted employer could be fined up to N$ 2.5m, sentenced to up to five years in prison, or both. The Fund must charge the employer interest as prescribed by Regulation RF.R. 5.8 on all outstanding contributionsThis interest is allocated to members’ retirement savings. If the employer becomes insolvent, goes into liquidation, or is put under judicial management, outstanding contributions are the first charge on the employer’s asset or estate.

5.     Another change that FIMA introduces is the 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.

6.     Under FIMA, completing a beneficiary nomination form will no longer be optional.Determining if there is a valid beneficiary nomination form will be the starting point for retirement fund management boards regarding the payment of death benefits. The management board will also be able to make interim payments to the beneficiaries of deceased members, thereby alleviating financial hardship for the deceased’s dependants in the immediate aftermath of a member’s death.

How can we prepare ourselves for FIMA?

The adage Forewarned, forearmed; to be prepared is half the victory” is undoubtedly true of FIMA. Retirement fund stakeholders need to ensure that they understand the implications of FIMA and prepare accordingly. There have been some excellent FIMA training initiatives already. Equally, we must take advantage of the opportunity to review the FIMA regulations and standards and provide input on these. They will affect our future!

One need not be a ‘lone ranger’ – and as such, the Retirement Funds Institute of Namibia accommodates a collaborative approach. FIMA could provide the opportunity to implement adjustments that will benefit retirement fund members as we start to question the status quo and look for innovative solutions for the requirements that we need to meet under FIMA.

Carmen Forster Head of Production Development & Client Retention (Corporate Segment), Old Mutual Namibia