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CFA Institute Launches Global Code of Conduct for Pension Schemes

London and Amsterdam, June 24, 2008 − Today, at the CFA Netherlands Conference “Opportunities and Challenges for Pension Funds,” the CFA Institute Centre for Financial Market Integrity launched the Code of Conduct for Members of a Pension Scheme Governing Body (the “Code”) to help such individuals manage their ethical responsibilities.

Funding pension schemes and securing the financial future of pension participants and beneficiaries is a growing global challenge as longevity and ageing populations become critical issues in many countries. Accordingly, the role of pension scheme trustees in managing private and institutional pension fund assets assumes greater importance. With over US$25 trillion in global institutional pension fund assets1 and an investment landscape becoming ever more complex, trusteeship on a pension scheme board carries a great burden of responsibility.

The Code sets forth 10 fundamental ethical responsibilities for individuals who sit on the governing bodies of pension funds worldwide. Though voluntary, the CFA Institute Centre encourages pension plans to adopt the Code to establish an ethical framework for governing board members and to demonstrate their commitment to serving the best interests of participants and beneficiaries. (View the Code)

The Code has kept the list of responsibilities high-level and principle-based, so as to address the primary ethical principles that a member of the governing body should follow, rather than prescribing the specific duties or detailed functions that a trustee should accomplish. The Code is globally applicable and the principles outlined provide best practice regardless of where the pension scheme is formed or managed. The working group which produced the Code has strived to accommodate different types of pension schemes and standards into one global standard for ethical conduct that pension trustees should follow. The result is a Code that can be incorporated into existing internal procedures and give focus to high ethical standards.

Jon Stokes, director, Standards of Practice, CFA Institute Centre for Financial Market Integrity, said: “The conduct of those who govern pension schemes significantly impacts the lives of millions of people around the world who are dependent on pensions for their retirement income. Just as shareholders trust corporate directors to look out for their best interests in a corporate setting, trustees are charged with looking out for the interests of the participants in and beneficiaries of pension schemes. The Code establishes just that through the provision of 10 fundamental ethical principles.”

Mark Anson, CFA, president and executive director of Nuveen Investments and member of CFA Institute Board of Governors, commented: “There are many things for an individual member of a pension governing board to consider in undertaking such a role but acting to the highest ethical standards should be foremost in their minds. The Code is a valuable reference tool, applicable regardless of jurisdiction and type of scheme, which can be used to address ethical responsibilities and best serve the interests of participants and beneficiaries.”

Juan Yermo, principal administrator, Private Pensions Unit, directorate for Financial and Enterprise Affairs Organisation for Economic Co-operation and Developments (OECD), and a member of the working group that produced the Code, added: “Around the world pension funds are undergoing a major drive to modernize their governance structures and methods. This code of conduct, which complements the OECD guidelines on pension fund governance, provides a much needed global template for the industry, raising the bar of competence and integrity in pension fund boards and hence ultimately strengthening pension protection.”

1) USD 25 trillion is Watson Wyatt’s estimate of  global institutional pension fund assets in the 11 major markets (Global Pension Asset Study 2008 January 2008)

 

Code of Conduct

Pension trustees:

  1. Act in good faith and in the best interest of the scheme participants and beneficiaries.
  2. Act with prudence and reasonable care.
  3. Act with skill, competence, and diligence.
  4. Maintain independence and objectivity by, among other actions, avoiding conflicts of interest, refraining from self-dealing, and refusing any gift that could reasonably be expected to affect their loyalty.
  5. Abide by all applicable laws, rules, and regulations, including the terms of the scheme documents.
  6. Deal fairly, objectively, and impartially with all participants and beneficiaries.
  7. Take actions that are consistent with the established mission of the scheme and the policies that support that mission.
  8. Review on a regular basis the efficiency and effectiveness of the scheme’s success in meeting its goals, including assessing the performance and actions of scheme service providers, such as investment managers, consultants, and actuaries.
  9. Maintain confidentiality of scheme, participant, and beneficiary information.
  10. Communicate with participants, beneficiaries, and supervisory authorities in a timely, accurate, and transparent manner.


Drafting of the Code

The Code was produced by a working group led by the CFA Institute Centre which included representatives from The Council of Institutional Investors (U.S.), The Organisation for Economic Cooperation and Development, National Association of Pension Funds (U.K.), Swiss Association of Pension Funds, Hong Kong Retirement Schemes Association, and Dutch Association of Industry-wide Pension Funds. These organisations all provided invaluable insight and diverse perspectives in developing the standards set out in the CFA Institute Code.

In July 2007, CFA Institute Centre introduced the Code drafted by the working group at a meeting of the Organisation of Economic Cooperation and Development Working Party on Private Pensions.  In order to further strengthen the global application of the Code, the CFA Institute Centre solicited public comments from all major global financial markets and from the broad spectrum of stakeholders impacted by the governance of pension funds.  Many individuals and groups submitted comments and the working group incorporated these comments in producing the final version of the Code.

CFA Institute has put forth codes of conduct and behaviour for professionals involved in handling fiduciary assets for over sixty years. Many of these Codes have been accepted by the industry, including the Global Investment Performance Standards (GIPS®) which has been adopted by 28 country sponsors. (View here)

CFA Institute Centre for Financial Market Integrity
The CFA Institute Centre develops timely, practical solutions to global capital market issues. Established in 2004, the CFA Institute Centre builds upon the CFA Institute mission to lead the investment profession globally by setting the highest standards of ethics, education and professional excellence. It carries forward the organization’s 60-year history of standards and advocacy work, especially its Code of Ethics and Standards of Professional Conduct for the investment profession. More information may be found at www.cfainstitute.org/centre.

CFA Institute
CFA Institute is the global membership association that administers the Chartered Financial Analyst (CFA) and Certificate in Investment Performance Measurement (CIPM) curriculum and exam programs worldwide; publishes research; conducts professional development programs; and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry. CFA Institute has more than 94,000 members, who include the world’s 81,000 CFA charterholders, in 131 countries and territories, as well as 135 affiliated professional societies in 56 countries and territories. More information may be found at www.cfainstitute.org. (Bloomberg users can find CFA Institute at 497458Z).