OAK BV, the Swiss occupational pension supervisor, is set to further strengthen the oversight and governance of multi-employer pension funds as assets under management and member numbers increase significantly.
Both factors can affect the stability of the country’s second pillar pension system, which includes company pension funds, OAK BV said in a statement.
The move will see supervisory policy shift towards an “even more risk-oriented and data-driven” approach, the regulator said, adding that the increasing size and complexity of multi-employer schemes had led to governance-related issues.
Conflicts of interest can arise, for instance, between short-term growth plans and long-term financial stability as well as between the interests of operating companies and those of the insured members, OAK BV noted, citing how complex organisational and management structures can hinder transparency as well as the clear allocation of responsibilities.
The new measures will help to counter these factors, the regulator said.
On 1 May, OAK BV issued a directive establishing the minimum requirements for the transactions of pension funds with related parties to prevent conflicts of interest to the detriment of pension institutions or their members.
Related parties can include members of the board of trustees, individuals with the relevant decision-making authority or legal entities entrusted with the internal or external asset management of a pension fund, according to the directive, which enters into force on 1 January next year.
Industry consensus
The Swiss Pension Fund Association (ASIP) welcomed the supervisor’s risk-based oversight.
“A risk-based approach, generally speaking – and provided it is implemented correctly – leads to more targeted supervision and consequently to fewer unnecessary or, at the very least, more effective, supervisory actions,” said ASIP director Lukas Müller-Brunner.
In the association’s view, OAK BV has significantly revised and improved the directive on transactions with related parties compared to the draft version submitted for consultation.
The new provisions require most pension institutions to more clearly identify such transactions – based on their internal regulations – and maintain an inventory of contracts that is justifiable in light of the fiduciary duty involved in managing members’ assets, Müller-Brunner added.
Nico Fiore, the managing director of inter-pension, the organisation representing the interests of Swiss multi-employer pension schemes, said a risk-orientated supervision was the right approach.
A supervisory framework that does not treat all pension institutions in the same way is “appropriate, proportionate and, from a regulatory policy perspective, more sensible than blanket regulation”, he added.
Fiore acknowledged conflicts of interest could pose a problem, but added that greater transparency on transactions with related parties had benefits. He called for proportionality, warning that OAK BV’s directive applies equally to all institutions, including those that are organised independently and have no ties to profit-orientated operating entities.
The increasing trend toward regulation, on the other hand, warrants critical scrutiny, Fiore added.
Targeted measures
André Tapernoux, board member of the Schweizerische Kammer der Pensionskassen-Experten, said that OAK BV’s goal to mitigate conflicts of interest through targeted measures was “right”.
Multi-employer schemes often lack a strong sponsor capable of stepping in during an emergency, he noted.
A look at past losses incurred by pension funds shows they were typically the result of unclear governance combined with conflicts of interest, Tapernoux said. “Particular importance must be attached to these aspects during the supervisory process.”
The directive on minimum requirements for transactions with related parties is a step in the right direction Tapernoux said, adding that it demands transparency from pension institutions.
It will hopefully ensure that those holding positions of responsibility clearly identify any potential conflicts of interest, he said.
“However, I am sceptical as to the extent to which these rather extensive and detailed regulations will actually improve operational processes,” Tapernoux added.
