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Employer  >  Trustee Zone  >  OPS Matters  >  Conflicts of interest - TPR guidance released

Conflicts of interest - TPR guidance released

One of the Regulator’s key initiatives is to promote and improve standards of scheme governance. The Regulator’s July 2007 governance report highlighted that conflicts of interest was a subject that trustees accepted as important but in practice there was a mixed reaction to how they were managed.

So back in February, the Regulator published their consultation document. Aimed solely at occupational pension schemes it asked trustees to consider what arrangements they have or should put in place to manage conflicts of interest and improve standards of scheme governance.

The consultation closed on 30th May 2008 with the final guidance published on 1st October 2008.

Five key principles

The results of the consultation can be found in the Regulator’s five high level principles, where trustees are asked to:

Principle 1 - understand the importance of conflicts of interest
Principle 2 - identify conflicts of interest
Principle 3 - evaluate, manage or avoid conflicts
Principle 4 - manage advisor conflicts and
Principle 5 - create a clear conflicts of interest policy

Working their way through these principles trustees can put a conflicts of interest policy in place and make avoiding or dealing with such potentially damaging issues a simple, easy and transparent process.

Managing conflicts

Further suggestions made by the Regulator were to:

• Appoint an independent trustee, especially as a ‘chair of trustees’
  
• Create annual plans to highlight potential conflicts in advance
• Form sub committees for specific functions which can exclude any trustees with a potential conflict of interests
• Have a trustee register of interests.

The guidance is there to help trustees formulate a conflict of interest policy. However, the Regulator recognises that pensions schemes are different and there’s no one size fits all approach. As such, the processes that should be put in place should be proportionate to the size of the scheme.

So what now?

The guidance is exactly that, It’s not a regulatory requirement, although we think it would be good practice to follow it.

So, you will need to put in place a process to identify, document and resolve conflicts of interest and ensure the trustee board is aware of the process. Once established, policy should be regularly reviewed and if conflicts arise, for example at a trustee meeting, they should be minuted.

Conflicts by their very nature are scheme specific. If you are unsure of the approach to take to a conflict then there’s no substitute for legal advice.

The information provided is based upon our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice.