IORP II: DNB guidance on outsourcing key functions raises new questions
At the end of April 2019, DNB published new guidance on outsourcing IORP II key function holders. Earlier we published practical recommendations for embedding the key functions and key function holders at pension funds. Under the legal framework, it will generally not be possible to outsource the risk management function holder and internal audit function holder.
In its new guidance, DNB indicates that outsourcing a key function holder may be proportional in exceptional circumstances if a pension fund can demonstrate that the key function holder is positioned in the decision-making and reporting process (with access to relevant information sources) in such a manner that the key function can be performed effectively. Pension funds are struggling especially with the question of how best to embed the internal audit function, for a host of reasons: there are a limited number of qualified people; outsourcing to an audit firm has its disadvantages; and, in many cases, the function does not warrant a full-time position. We believe that a secondment is a possibility and that the outsourcing rules do not apply in such a case. A secondment involves the hiring of a key function holder (for instance, a self-employed individual) to perform activities under a pension fund’s responsibility. DNB has indicated that it would like to see such a relationship to be long term and that the self-employed secondee could join the management committee as an expert member.
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