Draft amendments to the Federal Law of 07.05.1998 № 75-FZ "On Non-State Pension Funds"
The Ministry of Finance of the Russian Federation has developed and submitted the draft Federal Law "On amendments to the Federal Law "On Non-State Pension Funds" (hereinafter – Draft Law) intended to improve the regulation of control and supervision over the activity of non-state pension funds. At the time when this review was being prepared the Draft Law had not yet been introduced to the State Duma of the Russian Federation.
The Draft Law suggests a variety of amendments to be inserted into the Federal Law of 07.05.1998. № 75-FZ "On Non-State Pension Funds" (hereinafter – Federal Law "On Non-State Pension Funds") intending to raise demands to non-state pension funds, as well as to improve control over the activity of nonstate pension funds performed by authorised federal agencies.
Obligatory membership in a self-regulatory organisation
The Draft Law provides an obligatory membership of non-state pension funds in self-regulatory organisations (hereinafter – self-regulatory organisation or SRO). According to the Draft Law an organisation in treated as self-regulatory if it is a non-commercial organisation based on the membership of funds and/or organisations which operate pension accounts under agreements with funds, and has a proper approval from a federal executive body dealing with securities markets and performs its activity in accordance with the Federal Law “On Non-State Pension Funds”. The main difference from the existing legislation is that selfregulatory organisations consisting of non -state pension funds shall become mandatory (at the moment such associations are voluntary) and it will be necessary to obtain FFMS’ approval to create them.
According to the Draft Law an SRO shall be established by not less than ten funds. Only in this case such organisation is entitled to apply to an authorized federal body to be granted the status of a selfregulatory organisation, together with documents listed in the Draft Law. The approval regarding the activity of a selfregulatory organisation may be revoked if it breaches Russian legislation, internal regulations and rules of the organisation or if it provides misleading or inaccurate information to the regulator.
The Draft Law grants broader rights to self-regulatory organisations consisting of non-state pension funds, meaning that in addition to standard rights they will be granted a right to:
- obtain information on results of their members’ activity reviews which shall be carried out in the manner established by an authorised federal body;
- request the provision of reports by their members in the manner and as often as it is provided in the Charter and other documents of the SRO, and also to carry out their members’ activity reviews to control their compliance with rules and standards established by a self-regulatory organisation;
- to train people in the area of professional activity on the securities market, as well as, if a self-regulatory company is accredited by a federal executive body for securities market, to give qualification examinations and to issue qualification certificates.
In addition, the Draft Law sets new obligations of self-regulatory organisations consisting of non-state pension funds:
- obligations to manage united warranty funds, to define the size and creation, management and operation procedure in relation to warranty funds in accordance with requirements of an authorised federal body;
duties of self-regulatory organisations regarding establishment of warranty funds are being specified in the following way:
- SROs are now bound by an obligation to secure the establishment of such funds for the purposes of financing direct actual damage indemnity caused by the SRO members – participant funds, in the course of their -state pension activity;
- an obligation has been set, according to which SROs shall manage the funds’ monetary funds and use them as it is required by an authorised federal body.
- SRO shall be obliged to disclose, on a mandatory basis, such information which is listed in the Draft Law.
Demands towards non-state pension funds have been raised
The Draft Law provides that some general demands to all non-state pension funds shall be raised, and raised demands provided by the legislation towards funds performing activity connected with mandatory pension insurance shall be partially modified.
The modification of general demands includes:
- specification of demands towards the executive bodies’ management of the funds related to the establishment of a mandatory nature of the compliance by their regulated authorised body with qualification requirements;
- a mandatory nature of compliance by a fund’s employees monitoring, assessing and controlling investment and biometrical risks with the requirements of an authorised federal body;
- higher minimum monetary value of a fund’s property to secure its charter activity, which according to the Draft Law shall be equal to: starting from the 1st January, 2012 - not less than 60 mln roubles, starting from the 1st January, 2018 – not less than 80 mln roubles, and starting from the 1st January, 2012 – not less than 100 mln roubles.
The Draft Law also suggests providing additional duties of funds in the Federal Law “On Non-State Pension Funds”, including the following:
- organising the constant monitoring of investment risks and their assessment, as well as controlling investment and biometrical (connected with age/sex structure of members and insured individuals) risks arising in the course of activity;
- notifying an authorised federal body on the change of a controller, head of internal control service in time and manner set by an authorised federal body;
- registering pensions reserve and pension accruals funds;
- mandatory membership in a selfregulatory organisation established in accordance with the Federal Law “On Non-State Pension Funds”;
- compliance with requirements and terms applicable to the performance by a fund of obligations under pension agreements and defined by a fund’s pension rules;
- compliance with regulations on provision of documents and remedy of defaults set by an authorised federal body, in time and manner specified by the authorised federal body;
- mandatory creation of united warranty funds to ensure the performance of a fund’s obligations to the members (according to the current version of the Federal Law “On Non-State Pension Funds” the creation of united warranty funds is voluntary).
Demands to funds performing mandatory pension insurance activity are specified in the following way: as of the date when an application to an authorised federal body is being submitted for the performance of mandatory pension insurance activity as an insurer the fund shall:
- have experience on non-state pension activity of not less than the last two years;
- starting from the 1st January, 2004 - have experience of operating (on a simultaneous basis) not less than five thousand name-bearing pension accounts of the members during not less than the last year, starting from the 1st July, 2009 – not less than 20 thousand namebearing pension accounts;
- not have any fact confirming prohibition on some operations during not less than the last two years of activity (this provision supersedes the correspondent requirement in the current version of the Federal Law “On Non-State Pension Funds” “not to have any facts confirming the suspension of the license during the last two years of activity”).
The Draft Law also suggests increasing the minimum monetary value of the property to secure the charter activity of a non-state pension fund performing mandatory pension insurance activity: starting from the 1st January, 2015– up to 120 mln roubles, starting from the 1st January, 2018 - up to 150 mln roubles, starting from the 1st of January, 2021 – up to 200 mln roubles.
Fund’s obligations performance guarantee
The current version of the Federal Law Law “On Non-State Pension Funds” provides, as one of the guarantees of the performance by a fund of its obligations to its members and to insured individuals, the formation by funds of insurance reserves and mandatory pension insurance reserves.
The Draft Law suggests providing broader lists of sources of formation of mandatory pension insurance reserves of a fund. In particular, it suggests providing an opportunity to form such reserves out of pension accruals funds attributable to deceased insured individuals who do not have any successors (the same is provided in the current version), as well as out of part of property designated to secure the charter activity of a fund and out of directed receipts.
The Draft Law also provides including a fund’s mandatory pension insurance reserves into pension accruals, specifying that a fund’s mandatory pension insurance reserves are to be used in circumstances when pension accruals funds are not enough to cover the fund’s obligations to insured individuals (their successors).
In addition, the Draft Law specifies that a fund’s mandatory pension insurance reserves shall be invested in the manner defined in relation to the placement of pension accruals.
Funds shall be obliged to comply with the following requirements of an authorised federal body: i) regulatory balance between a fund’s mandatory pension insurance reserves and undertaken obligations to insured individuals (applicable to a fund’s mandatory pension insurance reserves), and ii) regulatory balance between a fund’s insurance reserves and obligations to its members (applicable to insurance reserves).
Placement of funds from pension reserves and investment of pension accruals funds
The Draft Law suggests specifying the current and rather strict rules of placement of funds from pension reserves and investment of pension accruals funds.
In particular, it suggests providing an opportunity to accept the possibility of having negative financial results on a short-term basis while funds from pension reserves are being placed and pension accruals funds are being invested to provide the sustainable level of revenue from their placement (investment) on a long-term basis.
It is also specified that a fund performing mandatory pension insurance activity shall not, acting independently, invest pension accruals funds.
According to Clause 36.13 of the Federal Law “On Non-State Pension Funds” at the moment such investment are made by managing companies which meet the relevant requirements of the Federal Law dated 24th July, 2002 № 111-FZ “On Investment of Funds to Finance the Accumulative Portion of Pensions in the Russian Federation” and act under trust deeds with funds.