Code of Practice - Reporting Breaches of the Law
Comments from ACCA
January 2005
ACCA is pleased to comment on the above document. Many members of ACCA will be involved with pension schemes as accountants, auditors, trustees or administrators and our comments on the draft document reflect this level of involvement on the part of our members.
Our first comment must be to regret that the period of public exposure allowed for this document has been so short. In our case, we have been involved with the preparation of the document at an earlier stage, so have had advance notice of its likely contents. But a consultation period of just one month, either side of the Christmas break, will have made it difficult for many interested parties to produce fully representative and thorough feedback on the proposed Code.
As a general point, we very much welcome the decision to adopt the risk-based approach which first featured in the corresponding OPRA Note. We believe that this is a sensible approach which will reduce the need for superfluous and wasteful reporting.
In the following paragraphs we respond to the specific questions posed in the document and later make some additional points about aspects of the draft Code.
Q1 Do respondents feel that the categories [on pages 9-10] have been sufficiently explained?
The second paragraph of the section under �professional advisers' is confused. The passage appears to be trying to make an important point about the responsibility to report falling on a firm as a whole, rather than on each individual associated with a firm. The passage concerned needs to be re-written so as to make this point absolutely clear � there should also be a cross-reference to pages 22 and 23 of the Code, which deal with internal arrangements within firms.
The section at the foot of page 10, headed �corporate bodies', should be amended so as to refer to �firms' rather than corporate bodies. In the context referred to, the guidance should apply to partnerships and other entities which are not, technically, corporate bodies.
Q 2 Do respondents consider any further explanation is needed here?
The passage immediately under the heading �Duty to Report' states that a duty to report could relate to the administration of the scheme. In our view the duty to report arises in respect of legislation or rules of law which are related to the administration of a pension scheme. Therefore both elements must be present for a duty to arise.
Q3 Do respondents consider the explanation on page 13 sufficient?
The first of the two key judgements to be made should read � does the reporter have (reasonable cause to believe �') This would make clear that the judgement is to be made by reference to the knowledge or suspicion held by the individual reporter.
In paragraph 1 under �Reasonable cause to believe', we suggest that the sentence read �� more than merely having a suspicion which cannot be substantiated.' The suggested new wording would have the effect of requiring a reporter to seek to substantiate any suspicion before falling under any duty to report. We also suggest that it would be helpful for the Code to state expressly that an unsubstantiated suspicion dies not give rise to a duty to report.
In paragraph 3, we suggest that the text should say �they [the reporters] should clarify their understanding of the law �), rather than �it would be appropriate' for them to do so.
Q4 Do respondents consider there are other significant failures which will impact on the Pensions Regulator achieving its objectives?
The analysis of what breaches of the law are likely to be of material significance to the Regulator are a matter for the Regulator alone.
Q5 Do respondents consider the approach [on pages 17-18] appropriate?
In paragraphs 7 and 8, the guidance states that it will be a matter of concern to the Regulator where, after a breach is identified, remedial action is not carried out by the trustees or their advisers or service providers. It would be helpful for the guidance to state to what extent reporters are expected to know that the remedial action in question has actually been carried out.
More generally, this section would benefit from a comment to the effect that reporters should weigh up all four of the factors discussed, and that a judgment needs to be made on the balance of evidence following this process.
Q6 Would a decision tree or other illustration help reporters to decide whether a report is necessary?
Yes.
Q7 Do respondents believe a more specific timeframe is needed here?
Once a judgment is made that a report would be appropriate, the reporter should proceed to make the report. We do not believe that it is realistic to impose a set chronological deadline on reporters, but the term �promptly' should be replaced by the stronger term �forthwith'.
Q8 Duplicate reporting
We support the proposals to reduce the incidence of duplicate reporting.
Q9 Do respondents feel a standard format is the most effective way of reporting?
A standard format would be preferable for both sides, as long as it did not restrict the freedom of reporters to adequately explain their concerns.
Q10 Do respondents agree that it is sometimes more appropriate to allow a reporter's professional or governing body to exercise disciplinary measures?
The decision as to whether or not to report will very often require a high degree of judgment. It will also be the case that some of those who have a reporting duty will have a more in-depth knowledge of pensions law than others. In view of those two factors, we do not believe that the Regulator should in all cases resort to civil penalties where it considers that a report should have been made. It would be appropriate, in our view, for the Regulator to restrict its actions to a complaint to the adviser's professional body where the adviser's actions suggest an apparent lack of competence or material lack of understanding of the law and the guidance set out in the Code of Practice, actions which did not necessarily cause or risk loss to beneficiaries. The civil penalty regime should be used, where appropriate, in cases where a reporter's failure to report has been dishonest or resulted in losses or the risk of losses to beneficiaries.
With regard to the second indented point under paragraph 1 of �Failure to Report', our view would be that, if a reporter felt that a breach would not be considered to be of material significance by the Regulator, a reporting duty would not arise.
Q11 Are the [traffic light] examples helpful?
We support the traffic light approach and consider that the examples set out are helpful.
ADDITIONAL POINTS
Status of the Code
Readers of the Code must be given a very clear indication of the purpose and status of the Code. In our view, the section under the heading �The status of codes of practice' needs to be re-written, since the second sentence seems to contradict the first.
Under the heading Whistle-blowing' on page 7, we suggest that point 4 should read �the term reporter is used to describe any person who has a duty to consider reporting.' Under point 5 on the same page, we believe that the two conditions set out in bullet points must both be present if a requirement to report is to be triggered. In point 9, the direct �You' style is used � this inconsistent with the rest of the document.
Reporting arrangements
As commented previously, it is essential that the Code be clear about where the reporting responsibility lies in the case of a firm. We suggest that the guidance on pages 22 and 23 recognises that, in the case of a firm, it will be acceptable to set up in-house reporting procedures whereby individual employees and partners fulfil their own responsibilities by reporting knowledge or suspicions to one or more nominated officers or officials who will have responsibility for making the final decision on behalf of the firm on whether to report a particular matter. But the Code should also give guidance on the responsibilities of individual employees or partners where no such arrangements have been put in place by their firm.