Fiduciary responsibility: specifics of application

The application of fiduciary responsibility of non-governmental pension funds (NPFs) including the methodology for supervision of their fiduciary compliance was the subject of a joint meeting between the Bank of Russia and NPF self-regulatory organisations and NPF representatives.

The law introducing fiduciary responsibility was passed in the spring. The funds will be obliged to purchase and sell assets on the best terms available as of the transaction date. A non-compliant fund buying assets at prices higher than current market prices as of the transaction date will be liable for compensation made at its own expense. The judgement in respect of a non-compliant fund and the amount of compensation will be made by the Bank of Russia on the basis of a motivated decision. The funds have the right of appeal with the regulator’s special commission.

Based on its analysis of investment operations of several financial market participants, the Bank of Russia detected cases which can be treated as controversial from a customer benefit perspective. Study cases were modelled on their basis, which became discussion points in the meeting with market participants.

‘It is very important that we as the regulator receive feedback to see how the market perceives our analysis’, said Kirill Pronin, Director of the Bank of Russia’s Collective Investment and Trust Management Department. ‘In dialogue with market participants and within the Bank of Russia internally, we will produce a description of bad practices for the regulator to apply as reference when working out a motivated decision in the course of supervision. Also, the list of bad practices will certainly be updated based on supervisory process results. Besides, we began building a number of triggers which will enable us to detect transactions that suggest fiduciary incompliance or those conducted on inferior terms’.