The Regulator has issued a consultation on revised Internal Controls guidance. The original guidance was issued in February 2007 to support the Internal Controls Code of practice (which is not being revised). Consultation on the draft guidance runs until 1 March 2010.
It is primarily aimed at trustees of smaller DB schemes and trust-based DC schemes (though “smaller” is not defined), as the Regulator notes that many large schemes are well-run and have good systems in place already. The revised guidance is proposed to be web-based with links to other relevant materials (such as the conflicts guidance). It is essentially a complete rewrite, increasing from 12 pages to 46, but much of it covers compliance with areas covered by the Regulator’s existing codes of practice and guidance.
Seven key risk areas have been identified, for which suggested control procedures are set out:
- lack of knowledge and understanding;
- conflicts of interest;
- ineffective relations with advisers;
- poor record-keeping;
- deterioration in employer covenant;
- investment risk;
- ineffective retirement processes.
The revised guidance also sets out principles for developing an adequate internal controls framework:
- understanding the importance of adequate internal controls;
- identifying, evaluating and managing risk;
- effective monitoring of controls.
The Regulator expects trustees to maintain a Risk Register to assist in identifying, evaluating and managing risk. Trustees should identify risks in order of priority - split between routine risk and event-specific risk.
This draft revised guidance is the first step in the Regulator’s newly announced campaign aimed at improving scheme governance administration and management of pension scheme risks. “Over the next few months” it will also be focusing on the following key areas:
- revised scope and guidance for trustee knowledge and understanding;
- bite-sized e-learning for trustees on risk management;
- new proposals for record keeping; and
- updated guidance on winding up pension schemes.