Responses to the Professional Trustee Standards Working Group's consultation have flooded in. While the industry mostly welcomes the proposals, there is disagreement on some areas, writes Kim Kaveh.
Last December, the industry-led Professional Trustee Standards Working Group (PTSWG) announced professional trustees will need to comply with six areas of standards under plans to bolster pension scheme governance.
The PTSWG launched a consultation on its proposal at the end of last year until 2 March, to which a total of 41 firms responded.
Having analysed the responses, while the industry is mostly welcoming of the proposals, there is disagreement on some areas.
Pensions Management Institute (PMI) technical consultant Tim Middleton, who contributed to writing the standards and sits on the PTSWG, says although they were planned to come into effect from April/May, a formal response is not expected to be published until late spring or early summer "provided everything goes to plan."
Also, it is not expected to get regulatory approval until sometime later in the year.
Under the proposals, chairmen or chairwomen and sole trustees will also be expected to meet additional standards.
Comply or explain
So far it has been agreed the standards will be set on a 'comply or explain' basis, which will provide a good stepping stone until the regulatory requirements can be further developed.
Middleton reiterates this, and adds: "Generally, people have been fairly sympathetic with the idea, but it has not been universally accepted."
Independent Trustee Services' (ITS) response argued that the comply or explain approach is sensible in the interim period as its flexibility would be helpful given the wide variety of backgrounds of professional trustees, and of the business models of professional trustee firms.
Meanwhile, BESTrustees chairman and trustee to a number of pension schemes Alan Pickering says: "I wholeheartedly support the desire to ensure that those who make a living from being a professional trustee behave in a truly professional fashion.
"This applies to us as individuals and to the companies for which we work. A code of practice based on 'comply or explain' is a useful first step."
However, Law Debenture's response to the consultation said comply or explain may present particular difficulties. It argued: "An individual professional trustee might be compliant in relation to one scheme but not another, and hence could be faced with explaining 'why not?' for each exception."
According to Sackers partner Ian Pittaway, the idea is to gently pressure professional trustees and persuade them to comply.
"A trustee can still practice if they don't comply - but must be prepared to have the regulator on their back if they don't."
Middleton echoes this, and adds: "We thought this approach would be sufficiently flexible to cope with a range of different professional trusteeship models, ranging from large firms down to all of the sole traders.
"What we will do now is collate all responses and put together formal response to summarise opinions and propose some changes to what has been originally proposed."
He also confirms there is a possibility for "a different regulatory approach to be enforced in the future."
The working group is also developing an accreditation framework that professional trustees will be expected to achieve, details of which will be published later this year.
Pickering says the industry must aspire to a form of rigorous accreditation that, wherever possible, takes account of softer skills as well as measurable knowledge.
"As a firm, we look forward to playing our part in shaping a system of accreditation that is both cost-effective for our companies and of real value to the pension scheme members who depend on our professionalism."
In ITS's response to the consultation, it recommended trustee accreditation should recognise the varied backgrounds of professional trustees, and preferred an entry level application process in which an individual is required to demonstrate the existence of core technical knowledge and 'soft skills' relevant to the professional trustee role on an annual basis. Also, it called for a more detailed CPD requirement of an overall minimum number of 25 hours, within the 25 hours total a requirement for a minimum number of hours in each of a number of categories.
However, it did not support introducing exams as it is not an appropriate means of testing the ability of an individual to carry out a professional trustee role, "much of which is carried out in meetings and in 'real time' and is reliant on 'soft skills'."
Arguably, the most challenging part is reaching agreement on accreditation standards.
Middleton agrees, and adds: "We need to establish what the barriers are to entry for those who want to become a professional trustee, and how we measure their ongoing suitability.
"It will be extremely difficult to divise a system that is acceptable. You'd appreciate trustees come from diverse range of backgrounds, and for some people the orthodox compliance model will be easier for some people to comply with than others."
He also says it is unlikely the working group will create a new qualification or exam standard, because "there's not enough people working as professional trustees to make this a viable option."
He adds: "But we are going to have to work hard to find a way to get university-recognised standards and monitor them on an ongoing basis."
Name and shame
Separately, The Pensions Regulator (TPR) updated its definition of professional trustee in August, to "any person, whether or not incorporated, who acts as a trustee of the scheme in the course of the business of being a trustee".
Trustees who meet this definition will need to comply with the PTSWG's standards when they are finalised and an accreditation framework has been set up.
Last month the watchdog's quarterly compliance and enforcement bulletin revealed three professional trustees were fined for failing to produce a defined contribution (DC) annual chair's statement between October and December 2017. Another professional trustee was fined in the same quarter for not producing a compliant chair's statement.
Middleton adds: "TPR made it clear that if people hold themselves out as a professional trustee, it will expect higher standards - and if they fail to meet those standards they can expect to be fined.
"So the regulator isn't doing anything it didn't warn people it was going to be doing; it's something we all knew would happen."
Pittaway says naming and shaming a professional trustee who is late in providing their DC chair's statement, is justified as this is "very important."
However, he is ambivalent about fining chairs over what the regulator claims is non-compliant.
"An improvement notice would generally be better - which essentially means if a chair's statement is not good enough, you warn them to get it better next year.
"Fining people and making it public makes it a bit hostile and threatening when we're trying to work together."
Naming and shaming by the regulator can be justified in some circumstances where basic governance standards are clearly not met, but there is concern it is going a bit too far.
While the industry is generally welcoming of higher standards for professional standards, there is demand for a measured approach.
The PTSWG's proposed standards are unlikely to need to be significantly amended but some changes may be needed in its final response to ensure successful compliance for such a diverse professional trustee population.
A comply or explain approach could work, but as trustees come from diverse backgrounds this method may only work for the time being - until a more suitable approach is decided upon.
The same applies for the accreditation process. Professional trustee exams are not likely to be a legal requirement, and it is clear that reaching an agreement will not be an easy process.
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