On Monday, 10 February 2020 Cyprus has transposed into a national Law -10(Ι) of 2020 (herein “Law”) – the Directive (EU) 2016/2341 of the European Parliament and the Council of the European Union of 14 December 2016 on the activities and supervision of institutions for occupational retirement provision (IORPs). The existing Laws for the Establishment, Activities, and Supervision of Funds for Occupational Retirement Benefits Law of 2012 to 2018 are repealed. The purpose of the European directive (“IORP II”) is to enhance and further ensure the sound governance of Professional Pension Schemes through the implementation of new key functions such as risk management, internal audit and actuarial operation and the provision of clear and useful information to potential candidates, members and beneficiaries of funds.
IORP II introduces a range of requirements relating to governance, risk management, and member communication regarding occupational retirement plan arrangements in the European Union. The IORP II requirements place significant focus on improving the risk management function in order to ensure that:
- own-risk assessments are carried out every 3 (three) years, or after any significant change in risk profile;
- risk management is integrated into all management processes & decision making;
- risk is considered from the perspective of members and beneficiaries, including the risk of benefit reductions or loss of indexation.
The new Law requires that IORPs should establish and apply written policies in relation to risk management, internal audit and, where relevant, actuarial and outsourced activities. The said written policies shall be subject to prior approval by the management or supervisory body of the IORP and shall be reviewed at least every 3 (three) years and adapted in view of any significant change in the system or area concerned. The risk-management system shall cover, in a manner that is proportionate to the size and internal organisation of IORPs, as well as to the size, nature, scale and complexity of their activities, risks which can occur in IORPs or in undertakings to which tasks or activities of an IORP have been outsourced, at least in the following areas, where/as applicable:
- underwriting and reserving;
- asset–liability management;
- investment, in particular derivatives, securitisations and similar commitments;
- liquidity and concentration risk management;
- operational risk management;
- insurance and other risk-mitigation techniques;
- environmental, social and governance risks relating to the investment portfolio and its management thereof.
Moreover, the internal audit function shall include an evaluation of the adequacy and effectiveness of the internal control system and other elements of the system of governance, including, where applicable, outsourced activities. Furthermore, under IORP II the internal audit function must be carried out by an independent person.
For more details about the new regulatory framework of Professional Pension Schemes and how our firm can assist you meet the new requirements feel free to contact us.