Conference on Voluntary Pension System- August 11, ROLE OF TRUSTEE IN PROTECTING THE PENSION FUND UNDER THE VOLUNTARY PENSION SYSTEM (VPS) AND OTHER PENSION SYSTEMS Presented by: Mohammad Hanif Jakhura Chief Executive Officer Central Depository Company of Pakistan Limited

Conference on Voluntary Pension System- August 11, What a Trustee is all about under VPS Rules, 2005? Appointment of Trustee For every pension fund, the Pension Fund Manager shall appoint a Trustee with the approval of the Securities and Exchange Commission of Pakistan (the “Commission”). Trustee and Pension Fund Manager to be independent A director or employee of the Trustee shall not: – In any way be related to the Pension Fund Manger or its Directors or Investment Advisor – Be involved in any manner with the Pension Fund Manger

Conference on Voluntary Pension System- August 11, Eligibility criteria of a Trustee under VPS Rules, 2005 A scheduled bank with minimum A+ rating from a credit rating company which is registered with the Commission and has been in business for atleast five years. A trust company which is a subsidiary of a scheduled bank. A foreign bank operating as a scheduled bank in Pakistan and providing trustee services internationally. A central depository company approved by the Commission.

Conference on Voluntary Pension System- August 11, Trustee of VPS VPS Rules, 2005 Trust Deed & Offering Document Income Tax Ordinance, 2001 Companies Ordinance, 1984 Regulatory / Legal Frame work

Conference on Voluntary Pension System- August 11, Obligations of the Trustee under VPS Rules, 2005 Take control of all the property of the Fund. Title of all Fund property shall vest in the Trustee [VPS Rule 31 (a)] Bank accounts are opened in the name of the Trustee. Authorized signatories of the Trustee operate these bank accounts independently. Book entry securities should be held in CDC account to be opened in the name of the Trustee. Only authorized users of the Trustee to have access of this account and should have full control over it. Physical securities should either be kept in custody of the Trustee or should be placed with the sub-custodian appointed by and acting on the instructions of the Trustee.

Conference on Voluntary Pension System- August 11, Obligations of the Trustee under VPS Rules, 2005 Be liable for any act or omission of any agent appointed by the Trustee [VPS Rule 31 (b)] If an agent (such as sub-custodian) is appointed by the Trustee to delegate any of its responsibilities, Trustee being the principal, shall continue to be liable for all acts performed by the agent on his behalf.

Conference on Voluntary Pension System- August 11, Obligations of the Trustee under VPS Rules, 2005 Ensure that the unit price is calculated and applied in accordance with the provisions of the constitutive documents [VPS Rule 31 (d)] Trustee should ensure that issue, redemption and cancellation of units are carried out in accordance with the constitutive documents. Trustee should ensure that the Net Asset Value (NAV) is applied in accordance with the provisions of the constitutive documents.

Conference on Voluntary Pension System- August 11, Obligations of the Trustee under VPS Rules, 2005 Ensure that the methods adopted in calculating the value of units are in accordance with the constitutive documents [VPS Rule 31 (e)] Assets should be valued as follows: – Listed securities: Where price is truly representative of the market value, should be valued at last quoted price. Where price is NOT truly representative of the market value as in the case of TFCs, Trustee, jointly with the auditor, shall suggest method of valuation. – Unlisted debt securities: Be valued at fair value determined to the satisfaction of the Trustee.

Conference on Voluntary Pension System- August 11, Obligations of the Trustee under VPS Rules, 2005 Carry out the instructions of pension fund manager if they are not in conflict with the constitutive documents [VPS Rule 31 (f)] Trustee should ensure that no transactions are executed which are covered under restrictions (e.g. participate in a joint account with others in any transaction – Rules 8 (e)). Trustee should ensure that no transactions are executed with connected persons - Rule 27.

Conference on Voluntary Pension System- August 11, Obligations of the Trustee under VPS Rules, 2005 Ensure compliance with the investment policy and borrowing limitations as set out in the constitutive documents [VPS Rule 31 (g)] Trustee should ensure that the given instruction fall within the parameter of: – Investment Policy – For example under Equity sub-fund: Invest atleast 90% of its NAV in listed shares. – Borrowing limitations – Borrowing allowed only in case of meeting withdrawal requests and transfers.

Conference on Voluntary Pension System- August 11, Obligations of the Trustee under VPS Rules, 2005 Issue an annual report to participants as to whether the pension fund manager has managed the Fund in accordance with the constitutive documents [VPS Rule 31 (h)] Trustee to report all non-compliances and steps taken by the Trustee in respect thereof.

Conference on Voluntary Pension System- August 11, Obligations of the Trustee under VPS Rules, 2005 Ensure that units are allocated after receiving contributions [VPS Rule 31 (i)] The amount credited into Fund account in particular day is matched against the product of units issued and the offer price of that day.

Conference on Voluntary Pension System- August 11, Role of the Trustee in protecting Pension Funds Commission may cancel / suspend / remove registration of Pension Fund Manager (PFM) if the Trustee reports that the PFM has failed to carry out duties to the satisfaction of the Trustee. PFM shall account to Trustee for any loss caused to the Fund’s assets due to his negligence / willful act / omission. PFM to appoint auditor with the consent of the Trustee.

Conference on Voluntary Pension System- August 11, What a Trustee is all about under VPS Rules, 2005? Power of the Commission to give directions to trustees The Commission may, in the interest of the participants, capital market and public give directions to the trustees. Retirement of Trustee A Trustee may retire with the prior approval of the Commission.

Conference on Voluntary Pension System- August 11, Key Operational Controls of VPS Trustee Execute all settlement instructions on Delivery Vs Payment basis. Maintain daily portfolio position. Maintain daily fund position of all bank accounts. Prepare daily portfolio reconciliation. Prepare daily bank reconciliations of all bank accounts. Daily reporting of fund position, portfolio etc. to Pension Fund Manager. Review Fund’s financial statements on quarterly, half yearly and annual basis.

Conference on Voluntary Pension System- August 11, Thank you !