TRAINING TRUSTEES AND FIDUCIARIES

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SESSION III TRAINING TRUSTEES AND FIDUCIARIES
THE AUSTRALIAN EXPERIENCE Ross Jones Deputy
Chairman Australian Prudential Regulation
Authority President International
Organisation of Pensions Supervisors
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Outline

• Requirements of fit and proper.
• What we expect from trustees.
• Supervision how do trustees look after their
  funds?

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Trustee structure

• Trustees hold superannuation/pension fund assets
  on behalf of fund members by a trust structure
  and owe a fiduciary duty to members.
• Trustees have a duty to act in the best interests
  of those members.
• Except where the trustee is totally independent
  of the members and the employer, the trustees
  must comprise an equal number of trustees or
  directors nominated by employers and employees.

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Trustee skills

• Directors or trustees, especially the
  representatives of the employees are drawn from
  pools of people who may not have the expertise,
  knowledge or experience initially to oversee the
  operation of the fund.
• Consequently, APRAs supervision activities focus
  heavily on how trustees act in looking after the
  funds that they are responsible for.

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Licensing of trustees

• In 2004 Australia introduced licensing
  requirements for trustees and funds.
• New operating standards were introduced which
  covered trustee duties and obligations.
• Trustees must comply with a fit and proper
  operating standard which at its most basic level
  requires that trustees understand what they are
  doing and act honestly.

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Trustee core skills

• Understanding of legal environment.
• Investment, insurance and taxation requirements.

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APRAs approach to core skills

• No mandated tertiary education requirements.
• Expectation that trustee will identify skill
  needs and undertake training.
• Fitness can be met collectively.
• Trustee must identify, review and renew required
  skills to ensure fund is managed prudently.
• Trustee not APRA chooses method meeting of
  training requirements.

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Propriety

• Trustee must operate properly in the discharge of
  its obligations.
• While fitness can to some extent be considered on
  a collective basis, propriety must be met on an
  individual basis.

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Minimum standard of propriety

• Legislation provides a minimum statutory test.
• A disqualified person cannot be a trustee.
• A disqualified person is a person who has been
  convicted of an offence or has been subject to a
  penalty in relation to dishonest conduct or is
  insolvent or has been disqualified by APRA.

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APRAs approach to trustee propriety

• Trustee policy specifies standard of behaviour
  and conduct.
• Trustees then conduct tests against their
  standard.
• Trustees must have a process to deal with failure
  to meet their standard.
• Trustee must have a policy regarding conflict of
  interest.

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Outsourcing

• The Australian industry has a high level of
  outsourcing of key functions to third party
  service providers.
• Trustees often outsource investment consulting,
  investment management and fund administration.
• Each outsourced arrangement must be evidenced by
  a legally binding written contract.
• Trustees must show that the outsourcing
  arrangements are in the best interest of members
  as compared to performing the functions
  themselves eg. managing conflicts of interest.

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Risk management requirements

• Risk management strategy deals with risks at the
  trustee level and covers risks arising from
  governance and decision making, outsourcing
  risks, risks arising from changes to the law and
  risk of theft and fraud.

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Risk management requirements

• Risk management plan is required at the fund
  level and should deal at a minimum with the risks
  to the investment strategy and financial
  position, and the risks associated with
  outsourcing arrangements.
• Risks must be identified and evaluated in terms
  of both the likelihood and consequence of the
  risk.