ARTICLE · 15 JUNE 2020

Draft Conditions For Pension Funds' Use Of Derivatives Published For Comment

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The Draft Conditions are an improvement over the first attempt at this regulation, which was released by then Financial Services Board in 2010.

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On 8 June 2020, the Financial Sector Conduct Authority ("FSCA") published a draft conduct standard titled "Conditions for Investment in Derivative Instruments for Pension Funds" (the "Draft Conditions"), by which the FSCA would regulate the parameters for pension funds to enter into derivative transactions. The Draft Conditions are an improvement over the first attempt at this regulation, which was released by then Financial Services Board in 2010.

The Draft Conditions apply to pension funds registered under the Pension Funds Act, 1956. In summary, they outline the ways in which pension funds may use derivatives. As to be expected, pension funds may only use derivatives for hedging and effective portfolio management, but not for speculative or leveraging purposes. In using derivatives for hedging and portfolio management, pension funds must, among other things:

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