PIC Crisis is Deeper Than the Figures of the Participants

According to a new study by the Bureau of Economic Research (BER), the difficulties faced by South African municipalities are due to weak governance and inefficient financial management, rather than a lack of funds. The report asserts that significant reforms at the municipal level are necessary to achieve faster economic growth.

Financial Status of Municipalities

BER found that municipalities continue to receive about 75% of their operating income from their own tax bases, but they are increasingly unable to collect funds owed by residents and businesses. By December 2025, municipalities were owed R234.7 billion in unpaid consumer debt. Furthermore, municipalities had debts to Eskom amounting to R70.1 billion and to water utilities amounting to R25.9 billion, creating serious pressure on cash flow and hindering infrastructure investment.

Government Reaction and Recommendations

This report was published two weeks after Finance Minister Enoch Godongwana suspended national government transfers to 69 municipalities due to governance and financial administration failures, signaling a tougher stance from the National Treasury. BER welcomed Godongwana's decision to freeze transfers to underperforming municipalities, noting that it demonstrates the National Treasury's willingness to use its constitutional powers to improve governance, despite political tensions ahead of next year's local government elections.

The report also supported reforms within Operation Vukhelindela 2.0 and the current review of the White Paper on Local Government, but warned of risks associated with attempting to implement too many changes simultaneously, deeming that 'a shorter, clearly prioritized list of high-impact changes is likely better than a long list.'

Proposed Improvement Measures

Key recommendations from BER include strengthening intervention powers under Section 139 of the Constitution, as current interventions have become a 'revolving door rather than a recovery mechanism.' It also suggests granting appointed administrators greater authority, including the ability to assume the functions of municipal managers and financial directors, to revive non-functioning municipalities. BER called for isolating municipal electricity and water services within financially sustainable models, professionalizing the appointment of senior municipal officials, reviewing the local government funding model, and completely overhauling the municipality classification system.

The report noted that nearly 70% of municipalities in the Free State, including Mangaung, faced transfer delays, followed by 57% of municipalities in the North West, while only three municipalities in the Western Cape were affected. BER concluded that South African municipalities are 'too important to fail,' as this is where economic growth occurs and where citizens interact most closely with the state, but warned that without clear reform priorities and stronger governance, implementation could be undermined by its own ambition.

Financial institutions in South Africa are forced to cope with an increasingly hostile cybersecurity landscape and must take urgent measures to protect their operations before new regulations come into effect.

Preparing for New Requirements

As South African financial institutions prepare to implement the Conduct of Financial Institutions Bill (COFI Bill), concerns arise regarding their readiness not only to meet compliance requirements but also to counter the constantly evolving spectrum of cyber threats. This upcoming bill, awaiting Parliament's approval, aims to improve operational protocols in the sector, yet the pace of cyber threat development significantly outstrips the speed of legislative progress.

The Financial Sector Conduct Authority (FSCA) has strongly urged institutions to prepare well in advance for this major transformation, anticipating a transition period of about three years after the law is enacted.

Scale of Cyber Threats

Cybersecurity is under intense scrutiny, especially given a report from the South African Banking Risk Information Centre, which recorded an alarming 86% year-on-year increase in digital fraud within the banking sector. This led to nearly 100,000 incidents, with losses reaching a substantial amount of 1.888 billion rand. The emergence of AI-based attack tools allows vulnerabilities to be exploited at unprecedented speeds.

Expert Opinion on Challenges

Rynier Schuman, a cybersecurity architect at Palo Alto Networks, emphasizes that threats remain pressing and acute, even as the regulatory framework is being finalized. He asserts that 'trust is the foundation of every financial institution' and notes that the information needed by criminals is often already publicly available, making it critical for institutions to recognize how convincingly attackers can impersonate legitimate clients.

Five Key Sector Issues

Schuman lists five critical issues currently facing the financial sector:

• Social Engineering: Research by Unit 42 showed that 36% of cyber incidents last year originated from social engineering, where attackers quickly escalate their privileges. Financial institutions are particularly vulnerable due to personal data leaks from unrelated breaches.
• Technological Complexity: Both legacy systems and modern platforms carry unique risks. Outdated banking environments combined with the rapid development of fintech innovations create vast attack surfaces that criminals readily exploit.
• Systemic Risks: The consequences of a major breach extend beyond individual organizations. South Africa's highly interconnected financial ecosystem means that a failure could simultaneously affect multiple structures, jeopardizing customer service and undermining economic confidence.
• Compliance Deficiencies: Although COFI aims to enhance governance, institutions must review their technological systems to ensure they can withstand today's threats, rather than merely fulfilling compliance formalities.
• Tool Fragmentation: Many financial institutions already use advanced security tools; however, disparate workflows and fragmented systems limit their effectiveness. A holistic approach is necessary to minimize surveillance blind spots.

Call for Proactive Action

Schuman warns that 'resilience cannot be tied to a single regulatory date.' He adds that institutions viewing readiness for COFI merely as a legal exercise may inadvertently overlook broader obligations related to technology and operations.

As the cyber threat environment continues to change rapidly, institutions must act decisively, integrating robust cybersecurity practices into their operational culture instead of passively waiting for legislative changes. Schuman concludes that institutions best prepared for the future will view compliance as a foundation for building dynamic and forward-looking security strategies.

In light of the Financial Sector Conduct Authority's (FSCA) investigation into the Public Investment Corporation (PIC), attention is now focused on the critically important governance mechanism surrounding South Africa's largest asset manager.

The FSCA's decision to probe recent events at PIC, driven by concerns over governance, whistleblower statements, and the suspension of senior executives, represents a significant regulatory intervention. The FSCA rightly emphasized that PIC holds a unique position in South Africa's financial system as the country's largest asset manager and custodian of a substantial portion of public sector pension savings, making trust in its governance systemically important.

Beyond the Current Investigation

While public discourse has undoubtedly centered on recent governance issues, relatively little attention has been paid to the institutional links between PIC, the Government Employees Pension Fund (GEPF), and the State. PIC manages assets exceeding R3 trillion, with GEPF comprising the vast majority of those assets. These funds primarily originate from mandatory pension contributions made by public servants throughout their careers, representing deferred remuneration held in trust to meet future pension obligations.

The Question of Beneficiary Governance

This raises an important governance question: how should the interests of the ultimate beneficiaries of these assets be reflected in the governance structure of the institution responsible for managing them? This issue arises not only from the current investigation but is also a political matter requiring careful consideration irrespective of any individual matters before the FSCA.

It is often argued that since GEPF functions as a defined benefit fund, members should not worry about investment returns or governance structures. However, this approach does not diminish the fiduciary duty of those responsible for managing pension assets to act in the best interests of the beneficiaries. Nor does it reduce the importance of transparency, sound management, and rigorous oversight. Strong investment governance ultimately benefits all stakeholders, including pensioners, taxpayers, and the state itself.

The Link Between Governance and Trust

PIC has become one of Africa's most crucial institutional investors. Its investment decisions influence capital markets, infrastructure development, public companies, and state-owned enterprises. For this reason, governance at PIC is not merely an internal corporate matter; it has implications for investor confidence, financial stability, and the broader South African investment landscape. Thus, the current regulatory investigation offers an opportunity not only to resolve any issues identified by the FSCA but also to strengthen governance mechanisms for the future.

The Need to Review Governance Architecture

PSCU believes it is appropriate to examine whether the existing governance structure aligns with international best practices for large pension investment institutions. Questions to be discussed include: should beneficiary representation in governance structures be strengthened; are existing accountability mechanisms adequate; how can the transparency of investment decisions be improved; is further whistleblower protection necessary; and how optimally aligned are the relationships between PIC, its shareholder, and its key clients. These are political questions, not accusations, and they deserve thorough examination through evidence-based analysis involving the National Treasury, Parliament, organized labour, regulators, investment professionals, and governance experts.

Building Long-Term Trust

South Africa's pension savings system is one of the nation's most valuable national assets. Maintaining trust in this system requires more than just compliance with minimum legal standards. It demands governance mechanisms that demonstrate transparency, professional independence, and accountability to those whose pension savings are entrusted to institutional investors. Therefore, the FSCA investigation should be viewed not only as a regulatory process but also as a chance to bolster public confidence in South Africa's pension investment system. Constructive reform, based on evidence and international best practices, will ultimately benefit pensioners, financial markets, and the South African economy.