Regulation and supervision of pension management companies and funds
A credible and stable pension system is one of the basic preconditions for a functioning economy. Such credibility and stability cannot be guaranteed by market mechanisms alone, so the activities of the institutions providing financial services in the area of the second and third pillars of the pension system (pension institutions) – pension funds (in the transitional period until 1 January 2013), pension companies managing transformation, participation and pension funds (from 1 January 2013) and foreign institutions for occupational retirement provision – are governed by restrictive and injunctive regulations, which chiefly take the form of legal rules regulating the operation of pension systems – pension schemes, pension savings, supplementary pension savings and occupational retirement provision. Overseeing adherence to these rules and ensuring accountability for any contravention of them is known as pension supervision. When performing pension supervision the CNB also proceeds in accordance with the Act on Supervision in the Capital Market Area, based on which it strengthens the confidence of investors and investment instrument issuers in the capital market above all by contributing to the protection of investors and the development of the capital market and promoting public awareness in this area. In the area of pensions, this broadly defined objective involves in particular promoting the sound development, transparency, market discipline and competitiveness of pension institutions, preventing systemic crises, protecting participants and strengthening public confidence in these pension systems.
It is not the aim of pension supervision to prevent the failure of individual pension institutions at all costs, to substitute for courts and arbitrators in deciding on private law relationships between service providers and their clients, to substitute for law enforcement authorities or to deal with participants’ complaints regarding any discrepancies in state contributions provided. The bodies of a pension institution are responsible for ensuring that its internal control mechanisms and risk management system are functioning. Depositories are vested with significant control powers. The supervisory authority’s job is to carry out subsequent checks focusing on compliance with the regulations. The supervisor cannot itself prevent loss-making transactions. If the supervisory authority uncovers any shortcomings, however, it should apply its remedial instruments, which can include revoking authorisation to operate a pension institution. These public law measures are intended to protect the financial market as a whole and to reduce the possibility of similar unlawful conduct happening in the future.
Under the Act on the Czech National Bank, pension supervision includes the making of decisions on licence, permit and registration applications and prior approvals pursuant to special legal rules; inspection of adherence to the conditions stipulated in licences and authorisations; inspection of adherence to laws, insofar as the CNB has the power to conduct such inspections under the law or special legal rules; inspection of adherence to the decrees issued by the CNB; collection of information needed to perform supervision and its enforcement, and verification of whether it is true, complete and up-to-date; the imposition of remedial measures and penalties; and proceedings regarding administrative offences.
The activities of pension funds (in the transitional period until 1 January 2013) and pension management companies are also subject to state oversight by the Ministry of Finance in respect of obligations linked with providing and returning state contributions.
Regulation of pensions involves laying down the framework for the prudent operation of pension institutions, while pension supervision involves checking compliance with this regulation. The activities of pension funds are governed by Act No. 42/1992 Coll., on state-contributory supplementary pension insurance and amending certain acts related to its introduction, as amended; this Act also applies to a limited extent to transformed funds. The activities of pension management companies, including management of participation and retirement funds, is governed by Act No. 426/2011 Coll., on Retirement Savings, and Act No. 427/2011 Coll., on Supplementary Pension Savings. In addition, rules have been introduced for occupational funds under Act No. 340/2006 Coll., on the Activity of Occupational Pension Funds, allowing – on the basis of EU regulations – foreign institutions for occupational retirement provision to operate in the Czech Republic (legislation).