Feedback form: Consultation on draft minimum standards and licence conditions

Transcription

1 Feedback form: Consultation on draft minimum standards and licence conditions Please submit this feedback form electronically in both PDF and MS Word formats and it to us at with Feedback {insert title of consultation paper} standards and conditions in the subject line. Thank you. Submissions close on 12 December Date: 13 December 2013 Number of pages: 5 Name of submitter: Company or entity: Organisation type: Contact name (if different): Contact and Phone: Bruce Kerr Workplace Savings NZ Inc. Industry Body bruce.kerr@workplacesavings.org.nz (04) Part# Section# Paragraph# Comment Recommendation You don t need to quote from the consultation document if you use part & paragraph numbers. You may attach extra pages - please label each page with your name & organisation. 2 1 Para 1 The intent is to license individuals. License would enable a given Independent Trustee to act in that capacity for more than one KiwiSaver scheme, Superannuation scheme or Workplace scheme. 2 Draft Minimum Standards Bullet Point 1 The framework is not unreasonable and is in keeping with standards for a person to be a Company Director(Companies Act 1993 S.151(2)) 3 1 Para 1 The FMA has explained that it is about demonstrating that the applicant has the knowledge of how to effectively perform; versus a performance demonstration (e.g. can the applicant evidence past relevant experiences and issues that demonstrate the requisite professional competencies and capability to deliver at board or trustee level). We have reservations that the current wording expresses elements of chicken & egg (i.e. having to That the FMA adds to its assessment criteria information available as a result of the applicant being on the Financial Service Providers Register. We suggest that Part 3 needs to clearly define the application pathway and requirements for existing independent trustees, and for aspiring new independent trustees. Page 1

2 demonstrate proven performance in the role to become eligible to obtain a license). Where do aspiring new independent trustees stand? 4 DMS BP 1 The draft framework requires a Licensed Independent Trustees to have PI insurance, at all times, for each scheme he or she is an independent trustee for. This is counter intuitive with the fact that the person may be the LIT on multiple boards or trustee groups. 4 DMS BP1 We understand the policy Intent of requiring the LIT to have PI Insurance is to afford protection for members and stewardship of assets under the trustee s responsibility. Specifically what risks is the Regulator attempting to mitigate in wanting LIT s to have (potentially separate and additional) professional indemnity insurance? 4 DMS BP1 The current risk mitigation for trustees is that the scheme s trust deeds generally contain a Trustee Indemnity clause (e.g. extract from a large Corporate scheme s deed):- Without prejudice to the right to indemnity by law given to trustees the Trustees shall be entitled to be indemnified out of the Scheme in respect of all liabilities and expenses incurred by the Trustees in the execution or purported execution of the trusts or in the exercise of any powers authorities or discretions vested in the Trustees by the Trust Deed or by the Rules and against all actions proceedings costs expenses claims and demands in respect of any matter or thing done or omitted in any way relating to the Trust Deed or to the Rules unless done or omitted through their own dishonestly wilful default or wilful negligence and the Trustees may retain and pay out of the Scheme all sums necessary to give effect to such indemnity. See below Could the draft standard lead to an escalation in member costs if an independent trustee is required by the regulator to have P&I Insurance would that lead all the other trustees to want similar protection at the expense of scheme members? Equally, the cost of P&I (if worn by a LIT, and at individual scheme level) could act as a significant disincentive to acting as an Independent Trustee The framework should encourage the LIT to ask the question what protection do I need Page 2

3 Additionally we are aware that it is quite common for trustee groups of corporate super schemes to be covered over and above the trust deed indemnity clause under the sponsoring employer s professional liability insurance. If that is not the case, the trustees may elect to mitigate potential costs to scheme members by taking out Trustee Liability insurance (or in the case of a corporate trustee; Directors & Officers Liability insurance) and paying the associated premium from the scheme s assets. We remind the Regulator of the fact that trustees act collectively, not in their personal capacity or in an advisory/consulting role, when administering the requirements of a Scheme s trust deed. Hence any losses that result from general trustees decisions, of which the LIT will be a part, will fall on all trustees and not just the LIT. personally in my capacity as a LIT? Is the regulator trying to fit an advisory/consulting model to what is actually a fiduciary roles, because we are advised that PI insurance is inappropriate for a fiduciary. The additional obligations being placed on an LIT (as compared with a normal trustees) would seem to lend itself more to Statutory Liability insurance rather than PI or Trustee Liability. Or, is the regulator attempting to differentiate between the trust deed indemnity and the risk to the LIT personally (and to his or her personal assets) acting in this capacity? 5 DMS BP1 Reporting is a fiduciary responsibility of all trustees (joint & severally) and is not the sole domain of the independent. 5 Note 1 There is a need to take care in any Guidance Note that an LIT can differentiate between matters where it is not unreasonable for different views to be held around the trustee table (and that are subject to normal robust debate) and those that in the view of the independent trustee create material risks to members, are potentially disadvantageous for members (or a group of members) or are inconsistent with the Trust Deed or other operating framework for the We strongly urge the Regulator to use clear examples of reportable situations. Workplace Savings NZ is happy to work with you on this task. Page 3

4 scheme. For example, It may be entirely appropriate, when the trustees are appointing an investment manager from a short list of acceptable managers, for the independent to vote against the remainder of the trustees is this necessarily a good example of a reportable incident? Over-emphasis in the document on investment issues also potentially obscures the need for a LIT (& all Trustees) to ensure processes & procedures are also in place to identify/manage issues and risks with liability management, administration, accounting, service provider oversight etc. Other Issues We are also concerned that there may be an unintended behavioural consequences would it be alright in the situation of a small scheme with trustees who are deemed not to demonstrate best practice, to simply defer to the LIT s decision making? Umbrella Trusts (Super Scheme with a KiwiSaver Scheme) - Can one LIT be on both boards of trustees or would that mean that the LIT is no-longer independent? What is the Regulator s expectation of the impact on Trust Deeds current Rules governing Trustee appointments/removals (rights and responsibilities) and those Rules which will need to be introduced to accommodate mandatory LITs. What would be the best practice pathway (and the Regulator s expectations) around ongoing LIT transition management (i.e. periodic resignation/replacement)? What would happen if a suitable LIT cannot immediately be found to replace the resigning LIT? Page 4

5 Feedback Summary if you wish to highlight anything in particular Workplace Savings NZ acknowledges that the Financial Markets Conduct Act has generously taken a light-touch approach to the legislation covering existing workplace superannuation schemes. In the main, we suggest that governance of these schemes is not broken, and we strongly encourage the Regulator to also use a light-touch approach to the framework for the licencing of independent trustees. We would suggest further dialogue on the issue of requirements for insurance and member protection, and suggest liaison between the FMA, Insurance industry experts, and ourselves. Please note: Feedback received is subject to the Official Information Act We may make submissions available on our website, compile a summary of submissions, or draw attention to individual submissions in internal or external reports. If you want us to withhold any commercially sensitive or proprietary information in your submission, please clearly state this and note the specific section. We will consider your request in line with our obligations under the Official Information Act. Thank you for your feedback we appreciate your time and input. Page 5