Response to the stakeholder /public comments on the amendments to PFRDA (Pension Fund) Regulations, 2015

Response to the stakeholder / public comments on the amendments to PFRDA (Pension Fund) Regulations, 2015 S No. Subject Matter Stakeholder / Public comments Response to comments 1 Definition of “Business Day” (i) Original definition may be retained. To simplify and provide clarity It means days on which the following are open to transact (ii) Need clarity wrt whether “or” / “and” is required to be read. and certainty the definition has business: been suitably reworded, for (i) designated Branch of Trustee Bank; and guidance of all concerned. (ii) stock exchange for equity and bond market; and (iii) Government securities market 2 Definition of “Compliance officer” of Pension Fund (i) To substitute ‘person of responsibility’ for the words ‘employee Key personnel have major roles An employee of the pension fund designated as such by the Board of’. and responsibilities to ensure of Pension Fund for monitoring compliance of the provisions of (ii) Compliance officer may be allowed on deputation from the compliance with the provisions the Act or the rules or the regulations, notifications, guidelines, Sponsor for a period of 60 months form the date of issuance of of the Act, rules and circulars or instructions issued by the Authority; certificate of registration or further extension as may be approved regulations. by the authority. Necessary changes be also carried out in proviso Key personnel of Pension Fund under the Regulation 8 (3) (a). include CEO, CRO, CIO, CISO, (iii) There shall be three Compliance Officers. Head of Operations and Compliance officer. 3 “Key Managerial Personnel” of Pension Fund (i) Whether CFO is not covered as KMP. “Principal Officer of pension It means employees of the pension fund designated as Chief (ii) Operations Manager be designated as Chief Investment fund” includes the Board of Executive Officer, Chief Investment Officer, Chief Risk Officer, Operations Officer or Head of Investment Operations. Directors of Pension Fund and Chief Information and Security Officer (CISO), Fund Manager, (iii) To substitute ‘person’ for the words ‘employees of the pension ‘key personnel’. Operations Manager, Compliance Officer; fund’. (iv) KMPs must also include Whole Time Directors, Executive Director, Managing Director and Principal Officers. 4 Eligibility criteria – Name clause (i) For more clarity after 12 months “from date of notification of Time period of 12 months has such clause may be inserted. been provided to the existing (ii) The companies can be incorporated with the word ‘Pension’ in Pension Funds to comply with their name. the requirement. ‘Pension (iii) The change in name clause should be dispensed with for the Fund’ is an intermediary which existing companies who do not have “Pension Fund” in their name. functions exclusively under (iv) It shall have Pension Fund in its name and not in name clause. NPS unbundled architecture. Hence, usage of name ‘Pension’ Fund is appropriate and synonymous with the activity Page 1 of 6 Note: The information and statements provided in this document are tentative, all concerned are advised to refer to the amendment to regulations notified in the Official Gazette, for further guidance on the matter.Response to the stakeholder / public comments on the amendments to PFRDA (Pension Fund) Regulations, 2015 S No. Subject Matter Stakeholder / Public comments Response to comments undertaken by it, for guidance of all. 5 Eligibility criteria - Networth To add the phrase “or such higher amount as stipulated by the It is a prudential norm and authority from time to time” principle of specificity has been followed. It may be amended through regulation in future, when deemed necessary in subscribers’ interest. 6 Eligibility Criteria – Infrastructure requirement (i) PFM should be allowed to continue sharing the IT infra of the Technology infrastructure is sponsor (e.g. network, firewall etc.). This would give the PFM necessary to perform the core access to superior quality infrastructure along with economies of function of Pension Fund, scale. Adequate governance standards should be put in place to which should be an ensure data integrity and confidentiality. However at least independent entity in its transaction systems should be completely segregated. operations and activities. Thus, (ii) It is suggested to use the word ‘provide’ instead of ‘facilitate’, Pension Funds are expected to and increase the period of 12 months to 36 months. develop such infrastructure of (iii) The revised clause is incomplete. The words before “facilitate” their own within 12 months are missing. The word “independently” should be deleted. The from date of commencement of period of 12 months be changed to 60 months with an option to be operations vis-à-vis date of extended with the approval of the authority. registration. 7 Terms and conditions of Certificate of Registration – Changes in (i) The criteria for intimation of any other change in ownership, For compliance of the management, shareholding pattern or control shareholding pattern can be kept limited to if there is a change of provisions of the Act and more than 1 percent of the paid-up capital of the Pension Fund. strengthening governance, the (ii) Increase in capital of the Sponsor or Pension Fund through change in capital structure of rights issue should be exempted from prior approval if such Pension Fund shall require increase does not result in change in shareholding pattern of the prior approval of the Authority sponsor or pension fund. only under the following (iii) The requirement of approval of Authority for the change in circumstances management, ownership, shareholding pattern or controlling i. the status as sponsor of interest of ‘sponsor’ of the pension fund should be removed if the pension fund is likely to undergo a change; or sponsor is already regulated by other regulator. Page 2 of 6 Note: The information and statements provided in this document are tentative, all concerned are advised to refer to the amendment to regulations notified in the Official Gazette, for further guidance on the matter.Response to the stakeholder / public comments on the amendments to PFRDA (Pension Fund) Regulations, 2015 S No. Subject Matter Stakeholder / Public comments Response to comments (iv) We request that the term management be defined. ii. the pension fund is likely to cease to be a government company; or iii. any change (in accordance with guidelines issued) in foreign holding in the pension fund attracting restriction under Section 24 of the Act; iv. Change in the shareholding pattern in excess of 5% 8 Terms and conditions of Certificate of Registration: (i) Reference to PMLA Act when Pension Fund do not have account As per provisions of PMLA, base relationship with the subscribers. Pension Funds are reporting The pension fund shall comply with the Cyber security policy, (ii) To remove valuation and broker empanelment guidelines from entities having obligations to outsourcing policy, Common Stewardship code, Prevention of the Regulations since valuation is undertaken by a third-party comply and guidelines Money Laundering Act, 2002 (PMLA), Valuation guidelines, agency. Pension funds do not have control over the process. covering the subject matter broker empanelment, auditor appointment and voting policy on (iii) The additional requirement of compliance with outsourcing have already been issued. assets held in the name of National Pension System Trust and policy, Valuation guidelines, broker empanelment, auditor NAV computation in such other guidelines issued by the Authority for the purpose. appointment should be voluntary or be made mandatory to large accordance with the guidelines pension funds with large assets base and large resource base. is the primary responsibility of Pension Funds. For clarity, an illustration has been provided. 9 Terms and conditions of Certificate of Registration: (i) Proposed change can be omitted since Reg 8(1) (j), restricts the To avoid any conflicts in sponsor and the pension fund from holding any equity stake in any operation and management, The sponsor or the pension fund shall obtain prior approval from other pension fund regulated by the Authority. Sponsor should not have the Authority in case of amalgamation or merger or acquisition or (ii) A threshold of holding of equity stake by sponsor or pension control or hold any equity stake take over by the sponsor leading to holding of equity stake by fund in any other pension fund should be defined and the approval directly or through its sponsor or pension fund in any other pension fund already of Authority should be required only in case of acquisition of equity subsidiary Company in any registered with the Authority. The Sponsor or Pension Fund shall stake by sponsor or pension fund beyond the said threshold. Also, other Pension Fund. notify the Authority of the proceedings before NCLT/other please clarify that this is applicable on direct equity holding in the Also Pension Fund should not relevant Authorities. pension fund. hold any direct equity stake in (iii) The sponsor and the pension fund being the entities of financial any other Pension Fund sector may make investments during their ordinary course of business and approval of Authority for every minor acquisition of Page 3 of 6 Note: The information and statements provided in this document are tentative, all concerned are advised to refer to the amendment to regulations notified in the Official Gazette, for further guidance on the matter.Response to the stakeholder / public comments on the amendments to PFRDA (Pension Fund) Regulations, 2015 S No. Subject Matter Stakeholder / Public comments Response to comments equity stake directly/indirectly in another pension fund may not be feasible. 10 Prudential norms for income recognition, asset classification and (i) This is already being communicated to the Trust and the The words “below investment provisioning Authority in the quarterly reviews. grade” have been added to harmonize with the Valuation Guidelines. 11 Computation of NAV – Allowable charges (i) The Authority is requested to consider allowable charges as any There is no change in the NAV type of brokerage other than mutual fund and PFRDA fees for the computation vis-à-vis the schemes, to the extent applicable. existing practice. The (ii) Suggest inclusion of debt brokerage charges upto 0.01% on debt methodology adopted has been transaction or as may be determined by authority under allowable clarified for ease of charges. Further, we also recommend raising the equity brokerage understanding of all concerned charges (to be chargeable to scheme) to 0.07% instead of 0.03%. including subscribers. (iii) Further, the Authority is requested to allow annual fees payable as an allowable expense. 12 Computation of NAV: (i) Request the Authority to evaluate the possibility of declaring The declaration of NAV for the The pension fund shall calculate and declare the net asset value of Net Asset Value (NAV) on quarter/ year end if the last day of the purpose of transactions is units for each pension scheme at the close of each “Business Day” quarter end/ year end is not a Business Day. business day. within the time specified by the authority. (ii) The proposed change is okay. Due to technical glitch/ error the For preparation of Scheme condonation of delay to be accepted by the Authority. Financials and disclosures, (iii) It is suggested to clarify NAV of which Business Day i.e., NAV shall be declared at the preceding Business Day or current Business Day, will be applicable quarter, half-year and year end. for creation and redemption of units. 13 Annual Report: (i) The annual report shall be submitted to the Authority within 7 NPS Trust to provide the The pension fund, shall within sixty days from the date of closure days from the date of receipt of signed financial statements from observations, if any and of each financial year:- the NPS Trust. Pension Funds to address (a) submit to National Pension System Trust for approval of the (ii) It is suggested that the annual report be submitted by NPS Trust observations within 15 days. annual report (inclusive of financial statements of the pension (iii) Quarterly unaudited report should be submitted for more In all, 90 days have been schemes and auditor report) duly approved by the board of vigil. provided for submission of (iv) Preparation of annual report as mandated under Regulation 19 directors of pension fund. The Board of Trustees of the Annual Report to the Authority should remain unchanged. National Pension System Trust shall thereafter approve and after addressing the counter sign the financial statements of the pension schemes. observations of NPS Trust. Page 4 of 6 Note: The information and statements provided in this document are tentative, all concerned are advised to refer to the amendment to regulations notified in the Official Gazette, for further guidance on the matter.Response to the stakeholder / public comments on the amendments to PFRDA (Pension Fund) Regulations, 2015 S No. Subject Matter Stakeholder / Public comments Response to comments (b) Any observation of the Board of NPS Trust shall be addressed (v) The 15 days timeline referred in Point (b) can be given Half-yearly Report on Scheme by the Pension Fund within a period of 15 days from the date separately instead of capturing the same in 60 days timeline Financials has to be submitted. of receipt. provided in the heading. The proposed change referred in point (c) (c) The annual report shall be submitted to the Authority within can be excluded. ninety days from the date of closure of each financial year. 14 Annual report: (i) Request omission of the words “digital architecture controls” The format has been specified The annual report of schemes managed by the pension fund shall and “Adherence to Code of Conduct and Ethics” in the schedule. The also include Directors’ responsibility statement, and CEO and (ii) Request to consider restricting the certification by CEO and certification shall be done by CFO certification which shall include the declaration in respect of CFO to the extent of preparation and presentation of schemes and Directors and COO / following key responsibilities: financials. Operations Head. a) Preparation and presentation of scheme financial statements (iii) CEO and CFO or Operation Manager shall certify the to provide a true and correct view of scheme state of affairs declaration. and scheme NAV; (iv) It is suggested to have certification by CEO and Head of b) Adequacy and effectiveness of internal financial processes Investment Operations instead of CFO. and digital architecture controls; (v) The proposed change is not prescribing any specific format of c) Compliance with PFRDA Act, PFRDA (Pension Fund) Directors’ responsibility statement. Regulations, Investment Guidelines, Valuation Guidelines, Stewardship code, voting policy and other applicable laws; d) Adherence to Code of Conduct and Ethics. 15 Books of Accounts: (i) Request the Authority to allow the Pension Fund Companies to Pension Fund being company The pension fund shall maintain books of accounts, records, maintain the requisite records and forms in digital format, in order shall maintain books of registers and documents relating to investment decisions and the to support the Go Green Initiative by the Government. accounts in the manner operations of the pension schemes to ensure compliance with the (ii) Request the Authority to specify the period for which such data prescribed under the regulations, guidelines, circulars issued by the Authority, (historical data) should be stored by the PFM. Companies Act, 2013. Further, facilitate audit trail of transactions and ensure business continuity the periodicity shall be in at all times. accordance with the applicable laws. 16 Governance: (i) It is suggested that nomenclature of Appointment Committee be Terms of reference of The pension fund shall adopt best governance practices for changed to Nomination & Remuneration Committee. Nomination and Remuneration investments and risk management viz. constitution of Investment committee shall be as per the Page 5 of 6 Note: The information and statements provided in this document are tentative, all concerned are advised to refer to the amendment to regulations notified in the Official Gazette, for further guidance on the matter.Response to the stakeholder / public comments on the amendments to PFRDA (Pension Fund) Regulations, 2015 S No. Subject Matter Stakeholder / Public comments Response to comments Committee, Risk Management Committee, Audit Committee, (ii) The Authority is requested to clarify on the terms of reference provisions of the Companies Appointment Committee whose composition, functions and and constitution of the Appointment Committee. Act, 2013. duties shall be as specified in Schedule. (iii) It should be Appointment Committee or Nomination & Remuneration Committee Meeting 17 Governance: (i) The proposed change can be omitted. Pension Fund shall comply The pension funds shall meet the compliance as are required to be (ii) Request you to kindly clarify what does it mean “regarding with the disclosure effected by public companies under Companies Act, 2013. compliance as are required to be effected by public companies requirements as applicable to under Companies Act, 2013” public company under the Companies Act 2013. 18 Grounds of suspension or cancellation of CoR (i) The Authority may consider levying penalties instead of Regulations provide sufficient suspension, cancellation, withdrawal of the certificate of safeguards through detailed Registration. hearing mechanism prior to Request omission of following grounds for cancellation any action. (ii) does not submit periodical returns as required by the Authority (iii) does not intimate change in shareholding pattern (iv) fails in the periodic review (v) generates return significantly lower 19 The pension fund shall manage schemes as notified by the Allow Pension Funds to discontinue or not offer certain classes of No change is proposed Authority on such terms and conditions. the Schemes to subscribers. 20 Terms and conditions of Certificate of registration: Relax requirement of prior approval for delegation of other No change is proposed Delegation of any other function shall be done only with the prior functions. approval of the Authority 21 Schedule III – Annual fee It is suggested to remove the floor for minimum fee, and cap the No change is proposed. The fee maximum annual fee to Rs. 1 Crore. shall be examined at the time of review of charge structure. Page 6 of 6 Note: The information and statements provided in this document are tentative, all concerned are advised to refer to the amendment to regulations notified in the Official Gazette, for further guidance on the matter.