PFRDA to audit pension funds on corporate governance

Pension Fund Regulatory and Development Authority (PFRDA) is planning to audit the pension funds/sponsors, who manage pension assets worth over Rs 2.8 lakh crore for 2.48 crore subscribers. The pension fund managers (PFMs), appointed to manage the retirement savings of subscribers under the NPS, will be audited on seven parameters, including reporting & disclosures, investments, corporate governance and senior management.

As per Regulation 26 of the PFRDA (Pension Funds) Regulation 2015, PFRDA may undertake directly or through its authorised representative, or an auditor, an inspection and audit of the books, accounts, records including the telephone records and electronic records and documents of the custodian of securities for any purpose, including the purposes as specified under this regulation. "Although NPS Trust is the main entity that undertakes monitoring of the pension funds, the proposed exercise is intended to be conducted with an objective of bringing all the operations and processes in compliance to laws, regulations, guidelines and agreements to which custodian of securities is subjected to," said PFRDA.

At present, there eight pension fund managers with State Bank of India (Rs 1.06 lakh crore), LIC (Rs 0.84 lakh crore) and UTI (Rs 0.83 lakh crore) being the biggest. The others are from HDFC, Kotak, Reliance, ICICI and Birla entities.

With the focus on the Board at pension fund managers, the auditors would verify whether at the pension funds/sponsors, at least 50% of the directors of the pension fund have adequate professional experience in finance and financial services related field, whether the Board of directors of the pension fund has at least 50% independent directors, etc.

The audit will also have a close look at the senior management of the pension funds. The audit scope includes looking at whether the appointed senior management have adequate professional experience in the requisite field and whether the compliance officer is immediately and independently reporting, any non-compliance observed by him or her, to PFRDA or the NPS Trust.

The pension fund regulator wants to verify whether the corporate governance at pension funds is in good shape. The audit will look at both the investment committee and risk management committee components. This would include checking whether the pension fund draws up an investment policy and places the same before the Board of directors for its approval. In framing such a policy, the Board has to be guided by issues relating to liquidity, prudential norms, exposure limits, stop loss limits in securities trading, management of all investment and market risks, etc.

Also, the Board would be checked if it reviews its investment policy and its implementation on a half-yearly basis, etc. Areas of conflict of interest would be looked into.

The other parameters that the pension funds audit would be process, investments, reporting & disclosures.

The PFRDA is also planning to carry out audit of other NPS intermediaries, including CRA (Central Recordkeeping Agency) i.e. NSDL e-Governance Infrastructure and Karvy Computershare Private Limited, the NPS Trust, the Trustee Bank (Axis Bank), the custodian of securities and Points of Presence (POPs) under NPS, NPS-Lite and Atal Pension Yojana.

The National Pension System (NPS) was launched with effect from January 1, 2004 initially for the central government employees (excluding Armed Forces) which was adopted by state government and state autonomous bodies also subsequently. NPS was extended to all other citizens of India from May 1, 2009.

TIGHTENING SCREWS

• The pension fund managers will be audited on seven parameters, including reporting & disclosures, investments, corporate governance and senior management
   
• At present, there eight pension fund managers with State Bank of India (Rs 1.06 lakh crore), LIC (Rs 0.84 lakh crore) and UTI (Rs 0.83 lakh crore) being the biggest