CBL tackles capital flight
PENSION funds are now compelled to have at least 30 percent of their assets in Lesotho to prevent capital flight.
This after the Central Bank of Lesotho (CBL) set out to implement a new law supported by the Pensions Act of 2019 and the Pension Funds (Registration and Licensing) Regulations of 2020.
THE Central Bank of Lesotho (CBL) is implementing a new legal requirement for pension funds to invest a minimum of 30 percent of their assets locally.
The new law is also aimed at protecting the local economy while formalising the previously largely unregulated industry.
In the past, pension fund players including the state-owned, Public Officers Defined Contribution Pension Fund (PODCPF) were free to invest the majority of their funds under their management outside the country.
In 2018, the PODCPF revealed that out of M5, 7 billion worth of assets under its management, only five percent were invested locally.
The new requirement means that the PODCFP must now invest at least M1, 8 billion of its assets locally.
“The bank is implementing the Pension Funds Regulations of 2020 to operationalise the Pensions Act of 2019,” the CBL said in an interview with the Lesotho Times.
“The Pensions Act is aimed at regulating the pensions and securities industry to protect the interests of members of pension funds, and to improve the economy by compelling pension funds to invest a certain portion of their assets in Lesotho.
“Section 8 (1) (c) of the Pension Funds Act, 2019 compels pension funds to be registered in Lesotho and prohibits repatriation of contributions to pension funds not registered in Lesotho. The law prescribes at least 30 percent of pension fund assets to be invested in the country.”
The lack of regulation prior to the enactment of the Pensions Act exposed pension funds’ members to the risk of incurring losses of their fund and assets invested outside the CBL’s jurisdiction.
“This was an unregulated industry which could have a negative impact on the overall economy if allowed to continue operating in an unregulated space. As such, the pension funds industry players adopted good practices from other jurisdictions.”
The bank noted, however, that there were inadequate investment opportunities to absorb all local pension funds’ assets.
“There are not enough investable instruments to absorb all pension funds’ assets and this can lead to high concentration risk which could affect fund members negatively. As a remedial action, increase in investable instruments is recommended.”
Some financial reforms should therefore, be introduced to improve the situation.
“The government has increased the frequency and size of its securities to avail more instruments for institutional investors such as pension funds. In addition to the Companies Act of 2011, Capital Markets Regulations of 2014 have also been promulgated. The Capital Markets Regulations of 2014, among others, provide for issuance of public securities and disclosure obligations. They also provide for an establishment of a stock exchange for listing of corporate securities.”
The bank said pension fund industry players were given until end of March 2021 to comply with the new legal requirements. The CBL has since urged members of the public to cease doing business with pension funds, pension fund administrators and intermediaries that are not registered or licensed by it.
The Pensions Act says anyone who fails to comply with its provisions may be liable to a fine by the CBL.
Meanwhile, the bank said part of the changes brought by the new laws include compelling pension funds to appoint local principal officers, which means empowerment and creation of employment for Basotho.
The PODCPF last month named former CBL head of market risk, ‘Mamotlohi Mochebelele, its new principal officer.