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  2. Point in time
    2018-12-14

COBS 19.5 1Independent governance committees (IGCs)

Application

COBS 19.5.1RRP

This section applies to a firm which operates a relevant scheme in which there are at least two relevant policyholders.

Requirement to establish an IGC

COBS 19.5.2RRP
  1. (1)

    Subject to COBS 19.5.3 R, a firm must establish an IGC.

  2. (2)

    This rule does not apply to a firm ('Firm A') if another firm in Firm A's group has made arrangements under this section for an IGC to cover relevant schemes operated by Firm A.

Governance advisory arrangements

COBS 19.5.3RRP
  1. (1)

    If a firm considers it appropriate, having regard to the size, nature and complexity of the relevant schemes it operates, it may establish a governance advisory arrangement instead of an IGC.

  2. (2)

    If a firm has decided to establish a governance advisory arrangement rather than an IGC, this section (other than COBS 19.5.9R (2), COBS 19.5.9R (3), COBS 19.5.10 G, COBS 19.5.11 R and COBS 19.5.12 G) apply to the firm by reading references to the IGC as references to the governance advisory arrangement.

  3. (3)

    A firm must establish a governance advisory arrangement on terms that secure the independence of the governance advisory arrangement and its Chair from the firm.

COBS 19.5.4GRP
  1. (1)

    Firms with large or complex relevant schemes should establish an IGC. For the purposes of this section, a firm may determine whether it has large relevant schemes by reference to:

    1. (a)

      the number of relevant policyholders in relevant schemes;

    2. (b)

      the funds under management in relevant schemes; and

    3. (c)

      the number of employers contributing to relevant schemes.

  2. (2)

    Examples of features that might indicate complex schemes include:

    1. (a)

      schemes that are operated on multiple information technology systems;

    2. (b)

      schemes that have multiple charging structures;

    3. (c)

      schemes that offer a with-profits fund; and

    4. (d)

      the firm offers relevant policyholders access to investment funds it operates or which are operated by an entity with the same ownership.

Terms of reference for an IGC

COBS 19.5.5RRP

A firm must include, as a minimum, the following requirements in its terms of reference for an IGC:

  1. (1)

    the IGC will act solely in the interests of relevant policyholders;

  2. (2)

    the IGC will assess the ongoing value for money for relevant policyholders delivered by relevant schemes particularly, though not exclusively, through assessing:

    1. (a)

      whether default investment strategies within those schemes:

      1. (i)

        are designed and executed in the interests of relevant policyholders;

      2. (ii)

        have clear statements of aims and objectives;

    2. (b)

      whether the characteristics and net performance of investment strategies are regularly reviewed by the firm to ensure alignment with the interests of relevant policyholders and that the firm takes action to make any necessary changes;

    3. (c)

      whether core scheme financial transactions are processed promptly and accurately;

    4. (d)

      the levels of charges borne by relevant policyholders; and

    5. (e)

      the direct and indirect costs incurred as a result of managing and investing, and activities in connection with the managing and investing of, the pension savings of relevant policyholders, including transaction costs;

  3. (3)

    the IGC will raise with the firm's governing body any concerns it may have in relation to the value for money for relevant policyholders delivered by a relevant scheme;

  4. (4)

    the IGC will escalate concerns as appropriate where the firm has not, in the IGC's opinion, addressed those concerns satisfactorily or at all;

  5. (5)

    the IGC will meet, or otherwise make decisions to discharge its duties, using a quorum of at least three members, with the majority of the quorum being independent;

  6. (6)

    the Chair of the IGC will be responsible for the production of an annual report setting out:

    1. (a)

      the IGC's opinion on the value for money delivered by relevant schemes, particularly against the matters listed under (2);

    2. (b)

      how the IGC has considered relevant policyholders' interests;

    3. (c)

      any concerns raised by the IGC with the firm's governing body and the response received to those concerns;

    4. (d)

      how the IGC has sufficient expertise, experience and independence to act in relevant policyholders' interests;

    5. (e)

      how each independent member of the IGC, together with confirmation that the IGC considers these members to be independent, has taken into account COBS 19.5.12 G;

    6. (f)

      the arrangements put in place by the firm to ensure that the views of relevant policyholders are directly represented to the IGC.

COBS 19.5.6GRP
  1. (1)

    An IGC is expected to act in the interests of relevant policyholders both individually and collectively. Where there is the potential for conflict between individual and collective interests, the IGC should manage this conflict effectively. An IGC is not expected to deal directly with complaints from individual policyholders.

  2. (2)

    The primary focus of an IGC should be the interests of relevant policyholders. Should a firm ask an IGC to consider the interests of other members, the firm should provide additional resources and support to the IGC such that the IGC's ability to act in the interests of relevant policyholders is not compromised.

  3. (3)

    An IGC should assess whether all the investment choices available to relevant policyholders, including default options, are regularly reviewed to ensure alignment with the interests of relevant policyholders.

  4. (4)

    Where an IGC is unable to obtain from a firm, and ultimately from any other person providing relevant services, the information it requires to assess the matters in COBS 19.5.5R (2), the IGC should explain in the annual report why it has been unable to obtain the information and how it will take steps to be granted access to that information in the future.

  5. (5)

    If, having raised concerns with the firm's governing body about the value for money offered to relevant policyholders by a relevant scheme, the IGC is not satisfied with the response of the firm's governing body, the IGC Chair may escalate concerns to the FCA if the IGC thinks that would be appropriate. The IGC may also alert relevant policyholders and employers and make its concerns public.

  6. (6)

    The IGC Chair should raise with the firm's governing body any concerns that the IGC has about the information or resources that the firm provides, or arrangements that the firm puts in place to ensure that the views of relevant policyholders are directly represented to the IGC. If the IGC is not satisfied with the response of the firm's governing body, the IGC Chair may escalate its concerns to the FCA, if appropriate. The IGC may also make its concerns public.

  7. (7)

    The IGC should make public the names of those members who are employees of the provider firm, unless there are compelling reasons not to do so. The IGC should consult employee members as to whether there are such reasons.

Duties of firms in relation to an IGC

COBS 19.5.7RRP

A firm must:

  1. (1)

    take reasonable steps to ensure that the IGC acts and continues to act in accordance with its terms of reference;

  2. (2)

    take reasonable steps to provide the IGC with all information reasonably requested by the IGC for the purposes of carrying out its role;

  3. (3)

    provide the IGC with sufficient resources as are reasonably necessary to allow it to carry out its role independently;

  4. (4)

    have arrangements to ensure that the views of relevant policyholders can be directly represented to the IGC;

  5. (5)

    take reasonable steps to address any concerns raised by the IGC under its terms of reference;

  6. (6)

    provide written reasons to the IGC as to why it has decided to depart in any material way from any advice or recommendations made by the IGC to address any concerns it has raised;

  7. (7)

    take all necessary steps to facilitate the escalation of concerns by the IGC under COBS 19.5.5R (4) and COBS 19.5.6G (5); and

  8. (8)

    make the terms of reference and the annual report of the IGC publicly available.

COBS 19.5.8GRP
  1. (1)

    A firm should consider allocating responsibility for the management of the relationship between the firm and its IGC to a person at the firm holding an FCA significant-influence function or designated senior management function2.

  2. (2)

    A firm should fund independent advice for the IGC if this is necessary and proportionate.

  3. (3)

    A firm should not unreasonably withhold from the IGC information that would enable the IGC to carry out a comprehensive assessment of value for money.

  4. (4)

    A firm should have arrangements for sharing confidential and commercially sensitive information with the IGC.

  5. (5)

    A firm should use best endeavours to obtain, and should provide the IGC with, information on the costs incurred as a result of managing and investing, and activities in connection with the managing and investing of, the assets of relevant schemes, including transaction costs. Information about costs and charges more broadly should also be provided, so that the IGC can properly assess the value for money of relevant schemes and the funds held within these.

  6. (6)

    If a firm asks an IGC to take on responsibilities in addition to those in COBS 19.5.5 R, the firm should provide additional resources and support to the IGC such that its ability to act within its terms of reference in COBS 19.5.5 R is not compromised.

  7. (7)

    A firm should provide secretarial and other administrative support to the IGC. The nature of the support, including how it is provided and by whom, should not conflict with the IGC's ability to act independently of the firm.

  8. (8)

    A firm can make the terms of reference for the IGC and the annual report of the IGC publicly available by placing them on its website and by providing them on request to relevant policyholders and their employers.

Appointment of IGC members

COBS 19.5.9RRP
  1. (1)

    A firm must take reasonable steps to ensure that the IGC has sufficient collective expertise and experience to be able to make judgements on the value for money of relevant schemes.

  2. (2)

    A firm must recruit independent IGC members through an open and transparent recruitment process.

  3. (3)

    A firm must appoint members to the IGC so that:

    1. (a)

      the IGC consists of at least five members, including an independent Chair and a majority of independent members;

    2. (b)

      IGC members are bound by appropriate contracts which reflect the terms of reference in COBS 19.5.5 R, and on such terms as to secure the independence of independent members;

    3. (c)

      independent IGC members who are individuals are appointed for fixed terms of no longer than five years, with a cumulative maximum duration of ten years;

    4. (d)

      individuals acting as the representative of an independent corporate member are appointed to the IGC for a maximum duration of ten years;

    5. (e)

      independent IGC members who are individuals, including those representing independent corporate members, are not eligible for reappointment to the IGC until five years have elapsed, after having served on the firm's IGC for the maximum duration of ten years;

    6. (f)

      appointments to the IGC are managed to maintain continuity in terms of expertise and experience of the IGC.

COBS 19.5.10GRP
  1. (1)

    The effect of COBS 19.5.9R (3)(b) is that employees of the firm who serve on an IGC should be subject to appropriate contractual terms so that, when acting in the capacity of an IGC member, they are free to act within the terms of reference of the IGC without conflict with other terms of their employment. In particular, when acting as an IGC member, an employee will be expected to act solely in the interests of relevant policyholders and should be able to do so without breaching any terms of his employment contract.

  2. (2)

    An individual may serve on more than one IGC.

  3. (3)

    A firm should replace any vacancies that arise within IGCs as soon as possible and, in any event, within six months.

  4. (4)

    A firm should involve the IGC Chair in the appointment and removal of other members, both independent members and employees of the firm.

  5. (5)

    A firm should consider indemnifying IGC members against any liabilities incurred while fulfilling their duties as IGC members.

IGC members who are independent

COBS 19.5.11RRP

The firm, in appointing independent IGC members, must determine whether such a member is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, that member’s judgement.

COBS 19.5.12GRP
  1. (1)

    An IGC member is unlikely to be considered independent if any of the following circumstances exist:

    1. (a)

      the individual is an employee of the firm or of a company within the firm's group or paid by them for any role other than as an IGC member, including participating in the firm's share option or performance-related pay scheme;

    2. (b)

      the individual has been an employee of the firm or of another company within the firm's group within the five years preceding his appointment to the IGC;

    3. (c)

      the individual has, or had within the three years preceding his appointment, a material business relationship of any description with the firm or with another company within the firm's group, either directly or indirectly.

  2. (2)

    A firm may appoint a body corporate to an IGC, including as Chair. The corporate member should notify the firm of the individual who will act as the member's representative on the IGC. A firm should consider the circumstances of a corporate IGC member and any representative of the corporate member with the objective of ensuring that any potential conflicts of interest are managed effectively so that they do not affect the corporate IGC member's ability to represent the interests of relevant policyholders.

  3. (3)

    Should the firm, or another company within the firm's group, operate a mastertrust, there may be benefits in a trustee of such a mastertrust also being an IGC member. If such circumstances exist, an individual or a corporate trustee may be suitable to be an independent IGC member, notwithstanding the relationship with the firm.

  4. (4)

    A firm should review on a regular basis whether its independent IGC members continue to be independent and take appropriate action if it considers that they are not.