Asking the tough questions

The Board of Trustees of today's pension funds have a tough job. In fact, the continued demands of the position mean it is increasingly unlikely that individuals accept such positions on the basis of favour or obligation. The modern trustee has to ensure

In light of this, FAnews Online thought it would be interesting to look at some of the questions included in the Financial Services Board (FSB) suggested annual performance assessment.  This standard questionnaire was published as part of PF 130, in Annexure C. It consists of a series of questions to cover performance in 11 areas of pension fund administration and operation, with a particular focus on Board responsibility.

Today's article includes brief comment on some of the questions contained in three of these sections.

Getting Board duties right

The FSB expects the Board of Trustees to continually monitor its environment and implement the changes required to ensure best practices. The annual review should include questions to determine if the Board is successful in performing its oversight duties.

One of the questions in this section poses whether the Board has implemented mechanisms designed to identify areas of potential problems in its operations? This question elicits a response to the effectiveness of the Boards monitoring of its own activities. If there are no mechanisms in place to spot administrative problems then the Board will be unable to assess the impact of these shortcomings and take remedial action.

Another important aspect is the Boards relationship with the various third party service providers. Too many Boardss allow service providers free reign. Regulators want the Board to pay more attention to their activities and ask: "Does the board ensure the proper monitoring of service providers and ensure remedial actions take place if necessary? The action component of this statement is important. It is not sufficient merely to record issues; the Board has to act on these issues too.

The importance of independence

Many of today's investment scandals stem from conflicts of interest which often stem from the range of positions held by trustees. Questions have been raised about various trustees on the Living Hands Trust who held senior management positions in companies in the Fidentia Holdings stable. And the Leaderguard Spot Forex dilemma raised questions about the appropriateness of an individual with interest in Leaderguard assisting in obtaining a temporary licence for the company to operate, a possible abuse of his membership of related industry bodies.

The question "Are the provisions of the Rules of the Fund relating to board eligibility criteria and board size effective?" calls for Board members to evaluate whether their selection process is free from possible conflicts as raised in regulation. It also stresses the requirement for all Board members to be familiar with fund rules.

The questions in this section give the board of trustees an idea of how appropriate the board of trustees is and whether any improvements can be made. "Could the composition and organisation of the board, including committee structure be improved?

Questions on ethics

The major emphasis in PF 130 (which many believe is an indication of where the regulatory environment will evolve to) is on fairness, integrity and good faith. It stresses the importance of ethics and morality in the governance of pension funds. In this section, the regulator asks the Board to "Rate the extent to which the Board communicates the proper ethical and legal requirements to the Board Members." It establishes the Board's responsibility in ensuring individual ethical and moral compliance.

There is an overlap between ethical requirements and sound corporate governance. The FSB is keen to emphasise the importance of leadership from the Board. It asks "To what extent the Board ensures ethical behaviour and proper compliance standards throughout the fund organisation and set the right 'tone at the top' for its own behaviour." It is clear the Board of Trustees is expected to lead by example to ensure proper corporate governance at pension funds.

Editor's thoughts:
Given the increasing demands on pension fund trustees it is difficult to imagine how high profile individuals will find time for these jobs in the future. Not only do these individuals have to find time for the management, administrative and oversight activities they are tasked with; but they must now also perform annual audits of their own performance. Will the increasing regulatory requirements on pension fund trustees eventually lead to the demise of the 'part time trustee? Send your comments to gareth@fanews.co.za