This month the Regulator published its guidance on conflicts of interest. The guidance is similar to the February 2008 draft issued for consultation (with its five high-level principles for analysing conflicts all surviving the consultation). The guidance sets out the Regulator's view that conflict management is central to good scheme governance.
The guidance aims to provide educational support and will be especially helpful to trustees of smaller schemes.
Key messages for trustees
- Understand why conflicts are important: All trustees should exercise independent judgement. They should understand the circumstances which may result in conflicts and must take legal advice as necessary. The Chair of the trustee board must take a leading role in setting up robust conflict management arrangements. Trustees therefore need to think seriously about their methods for managing or avoiding conflicts that involve the Chair, who may be a senior employee of the sponsoring employer.
- Identifying conflicts: All trustees should identify potential and existing conflicts and report them to other trustees as soon as practicable. Disclosure procedures, register of interests and a means of recording conflicts should all be in place. Planning is encouraged – trustees should establish whether any conflicts are likely to arise in the next year.
- Evaluate, manage and avoid conflicts: Trustees must have in place procedures for evaluating and managing conflicts. The following non-exhaustive list shows possible ways of managing non-trivial conflicts:
- withdrawing conflicted trustees from discussions and decision making;
- setting up sub-committees;
- appointing an independent trustee;
- resignation of trustee;
- conflict risk management by the employer; and
- applying to the courts.
Trustees should obtain independent legal advice for non-trivial conflicts especially where conflicts have the potential to be damaging to the trustees' conduct or decisions.
- Manage adviser conflicts: It is important that advisers are able to provide independent advice. Trustees should require their advisers to declare any conflicts and decide on a suitable way for dealing with them. They also need to understand the reporting lines and conflicts of the in-house pensions manager and of any in-house administration and secretariat involved with a scheme.
- Have a conflicts policy in place: Trustees should agree and document a policy for identifying, overseeing and managing conflicts. Regular review of this policy is important, as too is training.
Conflicts of interest guidance and summary – October 2008