The Pensions Regulator issues draft guidance on conflicts of interest

30 April 2008

The Pensions Regulator has published its long-awaited draft guidance on conflicts of interest.  This is the first time that it has issued specific guidance on conflicts. Previously, the Regulator chose to deal with conflict management by passing reference in other guidance.  The guidance focuses on the role of trustees, pension managers and fund secretaries in managing conflicts.  It sets out the Regulator's view of good scheme governance and highlights the actions needed by these individuals to identify and manage conflicts. 

The guidance will be helpful to trustees of arrangements where there are only skeletal governance frameworks in place.

The Regulator expects trustees, pension managers and fund secretaries to follow five principles when managing conflicts of interest

  • Understanding the importance of conflicts

    All trustees, especially new ones, should receive training in conflicts of interest. 

    The chair of the trustee board must take a leading role in setting up robust conflict management arrangements, in particular in ensuring that trustees know what their role requires, understand the need to declare conflicts and to document and oversee declared conflicts.

    Where a conflict arises, trustees must consider appointing an independent trustee as chair of the trustee body.
  • Having a conflicts of interest policy in place

    The policy should include the procedures to identify and manage conflicts.  Trustees need to be familiar with the policy and must monitor its compliance. 

    As a trustee's legal duties are often complex, it is essential the fund's legal adviser reviews and advises on the conflicts policy adopted by the trustee board. 
  • Identifying conflicts

    Trustees must have in place mechanisms for identifying potential new conflicts.  They must also keep a register of all declared interests and potential conflicts. 
  • Evaluating, managing and avoiding conflicts

    After taking legal advice, trustees must put in place procedures for managing identified conflicts so conflicted trustees do not compromise decisions.  These include setting up sub-committees and conflicted trustees abstaining from decision making.

    It is important to minute conflicts and, where substantial conflicts arise, trustees should get legal advice.

    Trustees also need to accept that some conflicts cannot be managed. Where this is the case, they will need to consider the possibility of the conflicted trustee resigning and appointing an independent trustee in his place.

  • Managing adviser conflicts

    The importance of advisers being able to provide independent advice is addressed.  The guidance reaffirms the need for advisers to disclose conflicts which arise in relation to their appointments.  Particular mention is made of the trustee's need to understand reporting lines of the in-house pension manager and the secretariat and the conflicts they may face.

The Regulator wants to hear your views on the draft guidance

The industry has until 30 May 2008 to respond to the draft guidance.  The guidance does not consider confidentiality in detail. This is disappointing, as issues about confidentiality frequently occur and can prove difficult to manage.

You have the opportunity to raise this and other issues by writing to the Regulator at: Napier House, Trafalgar Place, Brighton BN1 4DW or emailing to conflictsguidance@thepensionsregulator.gov.uk

Conflicts of interest- consultation document – February 2008

 

Contacts

If you would like further information on this subject please get in touch with your usual contact or:

Karen Prince,
Senior Professional Support Lawyer, Pensions T: +44 (0)20 7246 7471


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