On 21 December 2016, the Dutch Central Bank (De Nederlandsche Bank, DNB) published a guidance document setting out the level of investment knowledge that DNB expects from (prospective) pension fund directors (the Guidance Document).
Directors (and certain other (co-)policymakers) of, among others, pension funds, banks and insurers need to be screened for integrity (betrouwbaarheid) and suitability (geschiktheid) by DNB before they may take on their position. DNB has concluded that in 2016 a higher percentage of prospective directors of banks and insurers successfully passed the screening process (respectively 96.9% and 98.8%) than was the case with prospective directors of pension funds (93.3%). In particular prospective directors of pension funds with a focus on investments failed to pass the screening. With the publication of the Guidance Document DNB expects that pension funds will be better equipped to select and appoint suitable candidates. In addition, the Guidance Document assists pension funds with supplementing the suitability plan in view of the existing investment knowledge within the board of directors and help prospective directors to prepare for the screening interview.
When DNB assesses the level of investment knowledge of a candidate, it makes a distinction between two levels of investment knowledge (basic and advanced) and one experience / skill level. The two levels of investment knowledge are divided into knowledge in the following four main areas:
- policies (knowledge on the strategic investment policies);
- implementation and outsourcing;
- monitoring and evaluation (knowledge on controlling investment policies and investment risks); and
- governance and pension legislation.
DNB expects more knowledge depending on the involvement of a prospective director in the field of investments. For example, a member of the investment committee is expected to have a more knowledge on investments than a regular director. In the Guidance Document DNB indicates what knowledge is expected for each level and lists a number of questions that prospective directors should be able to answer. For example, a prospective director that is expected to have basic knowledge on investments should, among other things, be able to identify the basic categories of financial instruments (e.g. shares, bonds, commodities) and investment portfolio risks (e.g. interest risks, market risks, currency risks, counterparty risks), be familiar with the basic steps in selecting asset managers and the role of board of investors and other stakeholders when making investments. Prospective directors that are required to have more advanced knowledge on investments should, for example, be able to substantiate why asset classes are added to an investment portfolio and how the performance of asset managers are evaluated.
View DNB’s new item (Dutch only), 21 December 2016.
View DNB’s Guidance Document (Dutch only), 21 December 2016