RegulationOct 14 2019

How master trusts are regulated

  • Describe some of the bases on which master trusts will be assessed
  • Describe what happens to a master trust if it does not get authorisation
  • Identify what is needed to demonstrate financial competence
  • Describe some of the bases on which master trusts will be assessed
  • Describe what happens to a master trust if it does not get authorisation
  • Identify what is needed to demonstrate financial competence
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Approx.30min
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CPD
Approx.30min
How master trusts are regulated

Authorisation was not straightforward and it was costly in time and money, especially where process changes were required. Schemes also had to pay TPR to process their application.

We already know that a number of schemes have decided not to apply for authorisation or have agreed to be taken over if they receive authorisation. 

Collectively these changes are reported to half the number of authorised MTs between 2018 and 2020.

Interestingly, the tougher standards have already led one new provider to make a commitment to open a new MT in 2020. It will be interesting to see if others follow.

One aspect of the new authorisation process is to make the Master Trust Assurance Framework (MTAF) redundant. As such, Defaqto Engage users will see reference to it disappear from our database in early 2020.

What is involved in being authorised?

Full details can be found in TPR Code of Practice, code 15: Authorisation and supervision of MTs. 

In essence, the code sets out the fit and proper assessments that schemes and the key people fulfilling certain roles must pass. 

TPR has identified three critical roles.  Collectively individuals within these roles have the responsibility for ensuring members’ interests are protected and that the day-to-day running of the MT is planned, resourced, and adequately funded.

This is irrespective of whether they do it as individuals, a group of individuals and/or individuals working on behalf of a corporate entity. 

Where a role or part of the role is fulfilled by a corporate entity, TPR also wish to assess the appropriate senior individuals.

Additionally, there are two discretionary categories where TPR can choose to assess those fulfilling roles for fitness and propriety. 

These roles are considered discretionary as the influence and/or financial incentive differs between relationships and schemes. The roles are:

Each role has a different assessment criteria and therefore where an individual carries out more than one of the roles they must be assessed separately for each.

The authorisation criteria can be split into five assessments:

  1. Fit and proper
  2. Systems and processes
  3. Continuity strategy
  4. Scheme funder
  5. Financial sustainability

Each of the five assessments is designed to make sure the members' interests are protected in the event of a triggering event (See below).

We summarise each of the five assessment below. However, before we do it is important to understand what a triggering event is.

Triggering events

This is an event that could cause a MT to struggle to maintain its ongoing compliance and the provision of its statutory duties, including:

  • Maintaining up-to-date member records
  • Handling investments
  • Recovering outstanding contributions
  • Continuing to pay benefits for members already in retirement
  • Maintaining administration of the scheme
  • Retaining access to service providers (audit, accounting, investment, legal, etc.)
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