Compliance House

Compliance & Pension Funds

Initially, compliance for pension funds according to the Model Code of Conduct of the pension organizations meant ‘monitoring compliance with legal rules and rules that the pension fund itself has drawn up with the aim of preventing reputational damage’. Nowadays, however, the emphasis for pension funds in the context of compliance is no longer only on monitoring and compliance with laws and regulations in the strict sense, but also and especially on ensuring ethical and integer business operations within their organization. As a rule, compliance for pension funds is defined as the set of measures aimed at the implementation, enforcement and compliance with external laws and regulations, as well as internal procedures and rules of conduct to prevent the reputation and integrity of the pension fund from being damaged. Although the definition of compliance is not anchored as such in the laws and regulations applicable to pension funds, it is evident that it is consistent with the integrity and ethical operational management of pension funds.

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Legal framework

For pension funds, the legal framework in the field of compliance consists to a large extent of the provisions that do not impose any requirements on the compliance function or the compliance officer, but in particular relate to the management of integrity risks and the way in which ethical business operations are carried out and must be set up within the pension funds. More specifically, the following important provisions apply to pension funds on this point.

Art. 143 Pensions Act. This article focuses on the concepts of controlled and ethical operational management. Control encompasses the entire process of planning, managing, monitoring and adjusting objectives and processes.

In this context the pension fund must, for example, have a clear organizational structure and clear reporting lines. It is also important that pension funds analyse the risks themselves and organize their task performance accordingly. In doing so, they can determine for themselves which measures must be taken in view of the risks that the pension funds run. Ultimately, controlled and ethical business operations also contribute to the efficient implementation of supervision.

Art. 18 to 22 of the Financial Assessment Framework (Pension Funds) Decree. These articles include the elaboration of Art. 143 Pensions Act. For example, it examines in more detail integrity risks and their analysis, as well as the specific risks such as conflicts of interest and remuneration policy that pension funds must take into account and the specific measures they must take in this context. More generally, integrity risk refers to any “risk of damage to the reputation or existing or future threat to the assets or results of a pension fund as a result of inadequate compliance with what is prescribed by or pursuant to any statutory regulation”.

Art. 14 Decree implementing the Pension Act and the Obligatory Occupational Pension Scheme Act. There are risks associated with outsourcing activities and business processes. As a result, according to this article, pension funds must make a risk analysis, both at the level of its organization and at the level of the various business units. Risk analysis is a continuous process in which the pension fund must systematically take into account the risks of existing outsourcing, as well as changes therein and new forms of outsourcing. In addition, the pension fund must pursue an adequate policy in this context and have procedures and measures with regard to the outsourcing of its activities. This policy must also be established and evaluated and updated every three years.

Responsibility for Compliance

The responsibility for compliance, in other words meeting the requirements of legislation and regulations, usually rests with the board of pension funds. In this context, it applies to pension funds based on art. 33 Pensions Act and art. 42 Decree on the implementation of the Pension Act and the Obligatory Occupational Pension Scheme Act stipulates that further rules can be laid down regarding, among other things, principles for good pension management, in order to guarantee good pension fund management. Under such principles, according to art. 11 Decree implementing the Pension Act and the Obligatory Occupational Pension Scheme Act understand the principles in the Pension Funds Code.

With regard to the responsibilities of the pension fund board with regard to compliance, principles 82 and 83 specifically stipulate the following:

“The board is aware of the laws and regulations and their consequences for the pension fund. The board is also aware of the way in which legislation and regulations are implemented in fund documents, decision-making processes, procedures and implementation.”

“The board ensures that the pension fund complies with laws and regulations and internal rules.”

The pension funds, including their board, are obliged to adhere to this Pension Fund Code. If they do not do so, they must explain in the management report why a particular principle has not or will not be followed by the pension fund or its board. After all, with regard to the Pension Funds Code, a ‘comply or explain’ principle applies, i.e., pension funds are obliged to state reasons in the management report and to record why a particular principle is (will) be disregarded.

Compliance Officer

When it comes to compliance with the laws and regulations applicable to pension funds, the board of pension funds can be assisted by a Compliance Officer. The Compliance Officer can help the board by explaining rules and monitoring whether these rules are being complied with. More specifically, the Compliance Officer may be charged with supervising the code of conduct of pension funds as a whole and private investment transactions in particular. In the context of enforcement, the Compliance Officer may also be empowered to advise the board on possible sanctions (including warning, reprimand, suspension or dismissal) in the event of non-compliance with the applicable (internal) laws and regulations. A Compliance Officer can be appointed both internally and externally by the pension fund. It is, of course, wise to record the duties and powers of the Compliance Officer in writing in order to prevent mutual disputes in the future. The Compliance House team is happy to assist your pension fund with this.

Supervision

In the context of the Financial Assessment Framework, De Nederlandsche Bank (DNB) supervises compliance by pension funds with pension regulations. DNB’s supervisors do this by, among other things, testing the reliability of directors, granting permits and tackling financial and economic crime. On the one hand, supervision by DNB is prudential, i.e., it focuses on the financial soundness of pension funds and contributing to the financial stability of the pension fund sector. On the other hand, DNB’s supervision is material and concerns the supervision of compliance with all standards that are not part of the prudential supervision or the supervision of conduct for which the Netherlands Authority for the Financial Markets (AFM) is charged. Since 2015, according to the new legislation and regulations (nFTK), pension funds must also report to DNB.

At Compliance House we understand that the risks can differ per pension fund and therefore that setting up controlled and ethical business operations involves customization. That is why Compliance House takes a personal approach. Our team is an expert in the field of compliance and is happy to provide your pension fund with advice. Whether you want to know whether your pension fund complies with the applicable laws and regulations for pension funds, which steps it needs to take for controlled and ethical business operations, how to determine the duties and powers of a Compliance Officer, at Compliance House you are on the right track. correct address. If you have any other questions about compliance & pension fund, please contact Compliance House.