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The Dutch Federation of Pension Funds: the importance of integrating compliance
Date:August 9, 2022
Dutch pension laws and regulations do not currently compel pension funds to have a compliance function. Although compliance is most certainly an important aspect of pension fund governance, pension funds are still questioning what it should look like. What are the minimum expectations? Is it enough to monitor legislation and compliance with the code of conduct? Or should compliance officers perform other activities and assume a more expansive role like their colleagues at banks and insurers?
In its service document on compliance, published on 25 July 2022, the Dutch Federation of Pension Funds offers guidelines for structuring the compliance function and emphasises the importance of properly integrating it within an organisation.
Structure of the compliance function
‘A compliance function that works properly is of great importance for sound, controlled business operations’, says the Dutch Federation of Pension Funds. However, compliance receives less attention, particularly at small and medium-sized pension funds, than it does at other financial undertakings. But that’s not surprising, because pension funds and the composition of their boards are somewhat different. A pension fund often has a governance structure that, in the interest of its participants, primarily emphasises cost containment. A pension fund’s compliance function must therefore be in line with its governance role and be carried out efficiently.
In practice, there is often a link with risk management and, especially, the containment of risk related to integrity and the code of conduct. The compliance function also tends to be integral when it comes to conducting the required systematic integrity risk analysis (SIRA). Such an analysis goes beyond violations regarding money laundering, terrorist financing and circumvention of the Sanctions Act in internal or outsourced asset management activities. It also includes conflicts of interest, cybercrime and socially improper conduct as potential risks that can result in financial and reputational damage.
Outsourcing
The Dutch Federation of Pension Funds advises pension funds to investigate the maturity level of their compliance function. In most cases, large pension funds have their own compliance officer, but this is often not financially feasible for smaller pension funds where the required knowledge and capacity may be unavailable. To overcome this, the Dutch Federation of Pension Funds suggests that these smaller funds appoint an external compliance officer.
As an external compliance officer, Projective Group fulfils the compliance function for more than 75 financial institutions, including various pension funds. We do not take a “one size fits all” approach but instead consider the scope, maturity and structure of the relevant organisation.
More than a checklist
In its service document on compliance, the Dutch Federation of Pension Funds emphasises the importance of ensuring sound business operations and an ethical culture. The goal here must be to achieve a corporate ethos that values social norms and contributes to long-term objectives, reliability, stakeholder trust and an organisation’s reputation.
We agree with the Dutch Federation of Pension Funds: compliance is more than just ticking off items on a checklist. Projective Group, in its capacity as a pension fund compliance officer, ensures it is visible and accessible to all parties involved in the fund and its executive agencies. We provide advice — both solicited and unsolicited — and, where necessary, increase awareness of internal and external rules, including the code of conduct.
Moreover, we think that in addition to monitoring compliance with the code of conduct and integrity requirements, there is a need to periodically highlight other important risk-based topics — particularly those that pose a significant risk of reputational damage in the event of non-compliance, such as information disclosure and outsourcing.
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