Key Functions
System of governance: key functions
Key functions: general provisions
The trustees of a scheme or trust RAC shall put in place the following key functions for that scheme or trust RAC:
- a risk management function;
- an internal audit function;
- where applicable, an actuarial function.
The trustees of a scheme or trust RAC shall enable the holders of key functions to undertake their duties effectively in an objective, fair and independent manner. They may allow a person or persons to carry out more than one of the key functions. This does not apply to the internal audit function which shall be independent from the other key functions and shall be carried out by a person who does not carry out another key function in respect of the scheme or trust RAC.
The trustees of a scheme or trust RAC shall not allow a person who carries out a key function for a scheme or trust RAC to carry out the same key function for the employer.
The trustees of a scheme or trust RAC may, considering the size, nature, scale and complexity of the activities of the scheme or trust RAC, allow the same person, or persons, to carry out the same key function in both the scheme or trust RAC and the employer.
The trustees shall not allow the same person, or persons, to carry out the same key function unless they have put in place a written protocol which explains how any conflicts of interest between the scheme or trust RAC and the employer are prevented or managed.
A person who carries out a key function shall report any material findings and recommendations in respect of the key function concerned to the trustees of the scheme or trust RAC concerned. Where a report is made the trustees of a scheme or trust RAC shall determine what action is to be taken in respect of that report.
Key function: risk management function
The trustees of a scheme or trust RAC shall establish and maintain an effective risk management function. It shall be proportionate to –
- the size of that scheme or trust RAC and its internal organisation, and
- the size, nature, scale and complexity of the activities of that scheme or trust RAC.
The trustees shall ensure that the risk management function is structured in such a way that facilitates the functioning of a risk management system for which those trustees shall adopt strategies, processes and reporting procedures necessary to ensure that the risks, at an individual and at an aggregated level, to which the scheme or trust RAC is or could be exposed and their interdependencies can be identified, measured, monitored, managed and be regularly reported on to those trustees.
The trustees referred shall ensure the risk management system is effective and well integrated into –
- the organisational structure, and
- the decision-making processes of the scheme or trust RAC.
Risk Management System Scope
The risk management system shall cover, in a manner that is proportionate to the size and internal organisation of the scheme or trust RAC concerned, as well as to the size, nature, scale and complexity of the activities of the scheme or trust RAC, risks which can occur in a scheme or trust RAC, or in undertakings to which tasks or activities of a scheme or trust RAC has been outsourced, at least in the following areas, where applicable:
- underwriting and reserving;
- asset-liability management;
- investment, in particular derivatives, securitisations, and similar commitments;
- liquidity and concentration risk management;
- operational risk management;
- insurance and other risk mitigation techniques; and
- environmental, social and governance risks relating to the investment portfolio and the management thereof.
Where in accordance with the rules of the scheme or trust RAC, the members and beneficiaries of the scheme or trust RAC bear risks, the risk management system shall also assess those risks from the perspective of the members and beneficiaries.
Where the person carrying out the risk management key function makes a report or recommendation to the trustees, the trustees shall have regard to that report or recommendation. The trustees shall, as a general principle, have regard to the objective of having an equitable spread of risks and benefits between generations in their activities.
Internal Audit function
The trustees of a scheme or trust RAC shall establish and maintain an effective internal audit function which shall comply with the following requirements. It shall include an evaluation of the adequacy and effectiveness of the internal control system and other elements of systems of governance including, where relevant, outsourced activities.
Where the person carrying out the internal audit key function provides a report or makes a recommendation to the trustees of a scheme or trust RAC, the trustees shall have regard to that report or recommendation.
The scope and detail of the internal audit function shall be proportionate to –
- the size and internal organisation of the scheme or trust RAC, and
- the size, nature, scale and complexity of the activities of the scheme or the trust RAC.
Key function: actuarial function for regulatory own funds scheme and regulatory own funds trust RAC
Risks with Actuarial Requirement
The IORPs Regulations applies to a regulatory own funds scheme and a a regulatory own funds trust RAC which provides cover for biometric risk, or guarantees an investment performance or a given level of benefits.
The trustees , shall establish and maintain an effective actuarial function to –
- co-ordinate and oversee the calculation of technical provisions,
- assess the appropriateness of methodologies and underlying models used in the calculation of the technical provisions referred to in paragraph (a) and the assumptions made for that purpose,
- assess the sufficiency and quality of the data used in the calculation of the technical provisions
- compare the assumptions underlying the calculation of the technical provisions referred to in paragraph (b) with the experience,
- report to the trustees of that regulatory own funds scheme or regulatory own funds trust RAC on the reliability and adequacy of the calculation of technical provisions
- express an opinion on the overall underwriting policy in the event of that regulatory own funds scheme or regulatory own funds trust RAC having such a policy,
- express an opinion on the adequacy of insurance arrangements in the event of that regulatory own funds scheme or regulatory own funds trust RAC having such arrangements, and
- contribute to the effective implementation of the risk management system.
The trustees of a regulatory own funds scheme or regulatory own funds trust RAC shall appoint at least one independent person, who satisfies the requirements, as an actuary to carry out the actuarial function).
For the purpose of making an appointment), the trustees of the regulatory own funds scheme or regulatory own funds trust RAC may appoint an independent person who has been appointed to perform certain other specified functions.
The trustees must have regard to such reports and opinions.
Outsourcing and investment management
The trustees of a scheme or trust RAC may enter into an arrangement to entrust any activity, including –
- a key function, and
the management of that scheme or trust RAC,
whether in whole or in part, to a service provider operating on behalf of the scheme or trust RAC concerned in respect of such activity, key function and management.
Where the trustees) enter into an arrangement in respect of a key function or any other activity, the trustees of the scheme or trust RAC concerned shall, notwithstanding that arrangement, be fully responsible for compliance with their obligations under the Pensions Act in respect of any such key function or such activity.
The trustees of that scheme or trust RAC shall satisfy themselves that the arrangement entered into by them shall not be undertaken in a manner that would lead to any of the following:
- impairing the quality of the system of governance of the scheme or trust RAC concerned;
unduly increasing the operational risk to the scheme or trust RAC concerned;
impairing the ability of the Pensions Authority to monitor the compliance of the scheme or trust RAC with its obligations under the Pensions Act;
undermining the continuous and satisfactory service to members and beneficiaries of the scheme or trust RAC.
The trustees shall ensure the proper functioning of any key function or activity, and shall –
in the process of selecting a service provider, have regard to the requirements of this subsection when selecting the service provider, and
monitor, during the course of the period of the arrangement, the activities of that service provider.
The trustees shall when outsourcing a key function, an activity or the management enter into a written agreement with the service provider in respect of the arrangement. They shall provide that the agreement clearly defines the rights and obligations of the scheme or trust RAC concerned, and the rights and obligations of the service provider,
The trustees shall notify the Pensions Authority of the making of an arrangement not later than 4 weeks from the making of that arrangement.
Where an arrangement concerns the outsourcing of a key function or the management of a scheme or trust RAC, the trustees of that scheme or trust RAC shall notify the Pensions Authority before the agreement in respect of that arrangement enters into force.
The trustees shall, as soon as practicable, notify the Pensions Authority of any subsequent important developments with respect to any outsourced activities.
Investment Manager in EU
Nothing shall operate to restrict the trustees of a scheme or trust RAC from appointing, for the management of the investment portfolio of the scheme or trust RAC concerned, an investment manager established in another Member State which is duly authorised for carrying out such management in accordance with –
Directive 2009/65/EC,
Directive 2009/138/EC,
Directive 2011/61/EU,
Directive 2013/36/EU, and
Directive 2014/65/EU.
The trustees of a scheme or trust RAC may appoint for the management of the investment portfolio of the scheme or trust RAC concerned, an authorised entity referred to IORPS Directive of 2016.
Appointment of depositary
Where the trustees of a scheme or trust RAC appoint a depositary, any such appointment may be made in respect of a depositary established in another Member State and duly authorised.
Where the trustees of a scheme or trust RAC appoint a depositary –
the trustees shall appoint the depositary by means of a written contract, and
the contract) shall state that the trustees shall furnish the depositary with all the information that is necessary for the depositary to perform its functions provided for.
Where the trustees of a scheme or trust RAC appoint a depositary, the trustees and the depositary appointed shall act honestly, fairly, professionally, independently and in the interests of the members and beneficiaries of the scheme or trust RAC.
A depositary shall not carry out activities with regard to the scheme or trust RAC which may create conflicts of interest between the trustees of that scheme or trust RAC, the members and beneficiaries of that scheme or trust RAC and itself, unless –
the depositary has functionally and hierarchically separated the performance of its depositary tasks from its other potentially conflicting tasks, and
the potential conflicts of interest are properly identified, managed, monitored and disclosed), to the members and beneficiaries of that scheme or trust RAC and to the trustees of the scheme or trust RAC concerned.
The trustees shall disclose that conflict of interest to the members and beneficiaries as soon as practicable after it is made to them, and as soon as practicable, notify the depositary, in writing, that it has made the disclosure to the members and beneficiaries.
Depositary: safekeeping of assets and depositary liability
Where the assets of a scheme or trust RAC consisting of financial instruments that can be held in custody are entrusted to a depositary for safekeeping, the depositary shall –
hold in custody all financial instruments which can be registered in a financial instruments account opened in the depositary’s books and all financial instruments that can be physically delivered to the depositary, and
ensure that the financial instruments which can be registered in a financial instruments account opened in the depositary’s books are registered in the depositary’s books within segregated accounts in accordance with the rules laid down in Directive 2014/65/EU, opened in the name of the trustees of the scheme or trust RAC, so that they can be clearly identified as vested in those trustees on behalf of the members and beneficiaries of that scheme or trust RAC at all times.
Where the assets of a scheme or trust RAC consist of other assets, the depositary shall –
verify, that the trustees of the scheme or trust RAC are the owners, on behalf of the members and beneficiaries of the scheme or trust RAC, of the assets,
maintain a record of those assets, and
keep its records up to date.
The verification required shall be carried out on the basis of information or documents provided by the trustees of the scheme or trust RAC and, where available, on the basis of external evidence.
A depositary shall be liable to the trustees of the scheme or trust RAC and the members and beneficiaries for any loss suffered by them as a result of its unjustifiable failure to perform its obligations or its improper performance of them. The liability of a depositary shall not be affected by the fact that the depositary has entrusted to a third party all or some of the assets in its safe-keeping.
Depositary: oversight duties
Where the trustees of a scheme or trust RAC have appointed a depositary for oversight duties, the depositary appointed for those duties, shall –
carry out instructions of the trustees of the scheme or trust RAC, unless those instructions conflict with any requirement under any enactment or rule of law or the rules of the scheme or trust RAC,
ensure that in any transaction involving the assets of the scheme or trust RAC any consideration is remitted to the scheme or trust RAC within the usual time limits, and
ensure that income produced by assets is applied in accordance with the rules of the scheme or trust RAC.
Where no depositary appointed
Where no depositary is appointed by the trustees of a scheme or trust RAC, for the purpose of the safe-keeping of assets of the scheme or trust RAC and oversight duties or, as the case may be, the safe-keeping of assets, the trustees of that scheme or trust RAC shall make arrangements to prevent or resolve (or both) any conflict of interest in the course of performing tasks that are otherwise performed by a depositary and an asset manager
The safe-keeping of assets the trustees of that scheme or trust RAC shall –
- ensure that financial instruments are subject to due care and protection,
- keep records that enable them to identify all assets of the scheme or trust RAC at all times and without delay,
- take the necessary measures to avoid conflicts of interest in relation to the safekeeping of assets of that scheme or trust RAC, and
- inform the Pensions Authority, on request, about the manner in which assets are being kept, and oversight duties
The trustees of the scheme or trust RAC shall implement procedures which ensure that tasks, otherwise subject to oversight by a depositary, are being duly performed within the scheme or trust RAC concerned.
Pension Benefit Statement: registered administrator
For the purposes of facilitating the discharge by the trustees of a scheme or trust RAC of their obligations under the regulations, the trustees shall appoint a registered administrator to prepare on their behalf the Pension Benefit Statement. The appointment of a registered administrator does not relieve the trustees) of their obligations under the Regulations.
Where a registered administrator is appointed by the trustees of a scheme or trust RAC the registered administrator shall prepare the Pension Benefit Statement, and provide the Pension Benefit Statement to the trustees not later than one month prior to the date by which the Pension Benefit Statement is to be made available, by law by the trustees of the scheme or trust RAC to the members of the scheme or trust RAC.