Decree No. 341/2012 Coll. on the Scope of Activities of the Depositary of a Pension Fund and the Depositary of a Participant Fund

341/2012 Coll. DEGREE of 21 September 2012 on the scope of activities of the depositary of a pension fund and the depositary of a participant fund

The Czech National Bank, pursuant to Section 110(1) of Act No. 426/2011 Coll., on pension savings, to implement Section 39(3) and Section 41(6) of the Pension Savings Act, and pursuant to Section 170(1) of Act No. 427/2011 Coll., on supplementary pension savings, to implement Section 89(3) and Section 91(6) of the Supplementary Pension Savings Act, hereby decrees:

§ 1 Scope of Regulation (1) This Decree regulates the scope of activities of the depositary of a pension fund and the depositary of a participant fund (hereinafter referred to as the "fund depositary") in relation to a) safekeeping of assets in a pension fund and a participant fund, b) verification of the status of assets in a pension fund and a participant fund in cases where the nature of the assets precludes safekeeping, c) record-keeping of cash funds in accounts in a pension fund and a participant fund, d) verification of the crediting and debiting of pension units of a pension fund (hereinafter referred to as a "pension unit") and pension units of a participant fund (hereinafter referred to as a "participant pension unit"), e) verification of the calculation of the current value of a pension unit and a participant pension unit, f) ensuring the settlement of transactions involving assets in a pension fund and a participant fund within the usual time limit, g) verification of the management of assets in a pension fund and a participant fund, h) verification of the procedure for valuing assets and liabilities in a pension fund and a participant fund, i) verification of benefit payments, and j) verification of the calculation of fees for asset management in a pension fund and a participant fund. (2) This Decree further a) defines the actions of the pension company that constitute grounds for the fund depositary not to execute an instruction, and b) regulates the cases in which the fund depositary may perform the activities referred to in paragraph 1 through another person (hereinafter referred to as "outsourcing").

§ 2 Safekeeping of Assets in a Pension Fund and a Participant Fund [Pursuant to Section 39(1)(a) of the Pension Savings Act and Section 89(1)(a) of the Supplementary Pension Savings Act] The fund depositary ensures the safekeeping of assets in a pension fund and a participant fund by a) registering book-entry securities recorded in the central securities register¹) in an account of the owner in a register linked to the central securities register; other investment instruments, if their nature permits, are recorded in a separate register²) or in a register linked to a separate register, and b) taking physical custody of other assets, if their nature permits, or ensuring their safekeeping through outsourcing.

§ 3 Verification of the Status of Assets in a Pension Fund and a Participant Fund [Pursuant to Section 39(1)(a) and (b) of the Pension Savings Act and Section 89(1)(a) and (b) of the Supplementary Pension Savings Act] (1) The fund depositary verifies the status of assets that cannot be placed in safekeeping pursuant to Section 2, commensurate with their value and nature, at least by a) continuously monitoring the status in the register where the assets are recorded, and b) comparing information from the pension company with information from its own registers. (2) If, based on information obtained pursuant to paragraph 1, the fund depositary cannot reliably determine the current status of the assets, it verifies the status of the assets at least once a year through an on-site inspection or another suitable procedure; this method shall be used to verify the status of assets whenever there are doubts for any reason regarding the accuracy or completeness of information provided by the pension company. (3) The fund depositary may also perform the verification referred to in paragraphs 1 and 2 through outsourcing.

§ 4 Record of Cash Funds in Accounts of the Pension Company, Pension Fund, and Participant Fund [Pursuant to Section 39(1)(b) of the Pension Savings Act and Section 89(1)(b) of the Supplementary Pension Savings Act] Based on the records it maintains, the fund depositary verifies the movement of cash funds of the pension fund in the accounts referred to in Section 39(1)(b) of the Pension Savings Act and the cash funds of the participant fund in the accounts referred to in Section 89(1)(b) of the Supplementary Pension Savings Act, at least by verifying every working day whether a) the amount of cash funds credited the previous day to the account for receiving insurance premium payments, transferring participant funds, and making payments pursuant to Section 13 of the Pension Savings Act (in cases where they are not made from the pension fund account) equals the sum of amounts credited on that day to the accounts of all pension funds managed by the pension company, and b) the amount of cash funds credited the previous day to the accounts for receiving participant funds, employer contributions, state contributions, and participant funds transferred from another participant fund or a transformed fund equals the sum of amounts credited on that day to the accounts of all participant funds managed by the pension company.

§ 5 Verification of Crediting and Debiting of Pension Units and Participant Pension Units [Pursuant to Section 39(1)(c) and (j) of the Pension Savings Act and Section 89(1)(c) and (j) of the Supplementary Pension Savings Act] (1) The fund depositary verifies the crediting of pension units and participant pension units at least by verifying every day on which a pension unit and a participant pension unit are credited whether the number of pension units and participant pension units credited by the pension company equals the quotient of the total amount paid for them to the account of the pension fund and the account of the participant fund maintained by the fund depositary, and the current value of the pension unit and participant pension unit announced for the relevant date. (2) The fund depositary further verifies the crediting of pension units and participant pension units by reviewing at least once a month whether the number of pension units and participant pension units credited to individual participants in pension savings and participants in supplementary pension savings corresponds to payments made during the relevant period to the account of the pension fund and the account of the participant fund. The fund depositary shall take into account the current value of these pension units and participant pension units on the relevant date. This verification may also be performed by checking a representative sample of participants, the representativeness of which the fund depositary verifies once a month. (3) The fund depositary verifies the debiting of pension units and participant pension units, benefit payments, and the transfer of participant funds as part of the payment verification pursuant to Section 9. Financial settlement is carried out by the fund depositary based on the instruction of the pension company in the manner specified in the statute of the pension fund and the statute of the participant fund (hereinafter referred to as the "fund statute") and according to the agreement between the pension company and the participant.

§ 6 Verification of the Calculation of the Current Value of a Pension Unit and a Participant Pension Unit [Pursuant to Section 39(1)(d) and (i) of the Pension Savings Act and Section 89(1)(d) and (i) of the Supplementary Pension Savings Act] The fund depositary verifies the calculation of the current value of a pension unit and a participant pension unit always prior to the publication of this value³) by verifying the accuracy of the data on this value submitted by the pension company. The fund depositary verifies the fund's net asset value based on data from sources independent of the pension company that qualified investors typically use in their activities; if such sources do not exist, the fund depositary relies on the pension company's documentation.

§ 7 Ensuring the Settlement of Transactions Involving Assets in a Pension Fund and a Participant Fund within the Usual Time Limit [Pursuant to Section 39(1)(f) of the Pension Savings Act and Section 89(1)(f) of the Supplementary Pension Savings Act] The fund depositary ensures the settlement of transactions involving assets in a pension fund and a participant fund within the usual time limit by

a) enabling the management of assets in a pension fund or a participant fund that it holds in safekeeping or whose management requires its consent, and b) verifying that counter-values are provided by third parties within usual time limits.

Verification of the Management of Assets in a Pension Fund and a Participant Fund § 8 [Pursuant to Section 39(1)(h) and (j) of the Pension Savings Act and Section 89(1)(h) and (j) of the Supplementary Pension Savings Act] (1) The fund depositary verifies the pension company's instructions regarding the management of assets that are part of the assets in a pension fund and a participant fund (hereinafter referred to as "instruction verification"), to the extent and in the manner specified in paragraphs 2 to 5 and Section 9(2), and within the timeframes set in Section 9. (2) If the instruction concerns the acquisition of an asset into the assets of a pension fund and a participant fund, the fund depositary, as part of the instruction verification, shall a) verify that only types of assets permissible under the Pension Savings Act, the Supplementary Pension Savings Act, and the fund statute are acquired into the assets of a pension fund and a participant fund; if the type of asset is not obvious, it shall also perform the verification based on an analysis of documentation concerning the relevant asset, and b) verify compliance with investment limits under the Pension Savings Act, the Supplementary Pension Savings Act, and the fund statute by comparing the established limits with the latest available data on the assets in a pension fund and a participant fund as of the date the instruction was submitted. (3) If the instruction concerns the acquisition or disposal of an asset, the fund depositary, as part of the instruction verification, shall verify the exercise of due diligence in determining the price and other terms of the transaction, unless it involves anonymous transactions concluded at a trading venue referred to in Section 48(2)(b) of the Pension Savings Act or Section 100(2)(a) of the Supplementary Pension Savings Act. This verification shall be performed at least by reviewing an analysis submitted by the pension company demonstrating that the acquisition or disposal of the asset was made under the best conditions and that the transaction was advantageous⁴). The review shall cover, commensurate with the nature of the transaction under verification, at least the price, the potential return from the transaction, whether the transaction was concluded under more favorable or similar conditions compared to another counterparty (comparison of competitive offers), and an assessment of the counterparty's quality (creditworthiness and reliability). (4) If the instruction concerns techniques and instruments for efficient asset management, the fund depositary, as part of the instruction verification, shall verify the exercise of due diligence in determining the price and other terms of the transaction. This verification shall be performed primarily by reviewing the analysis of the transaction's advantage pursuant to paragraph 3 and by verifying compliance with the rules for using techniques and instruments for efficient asset management⁵). (5) If the instruction concerns payments from the assets of a pension fund and a participant fund not covered in paragraphs 2 to 4, the fund depositary, as part of the instruction verification, shall verify that the instruction does not contravene the Pension Savings Act, the Supplementary Pension Savings Act, or the fund statute, including the exercise of due diligence, particularly whether the reasons leading the pension company to submit the instruction are justified. The verification of the justification of the payment instruction, including the exercise of due diligence, shall be performed to a degree dependent on the purpose of the payment, its amount, and whether it is a one-off or recurring payment. (6) If the legal framework governing the management of assets permits, the fund depositary shall agree with the pension company on an arrangement such that assets in a pension fund or a participant fund cannot be validly managed without the consent of the fund depositary.

§ 9 [Pursuant to Section 39(1)(h) and (j) of the Pension Savings Act and Section 89(1)(h) and (j) of the Supplementary Pension Savings Act] (1) The fund depositary shall verify the instruction prior to executing a payment or otherwise settling a transaction based on this instruction. Verification of instructions after a payment has been executed or a transaction otherwise settled may only be performed in cases where a) the amount of the instruction does not exceed 500,000 CZK, until the cumulative daily value of such payments reaches 0.1% of the value of assets in a pension fund or a participant fund, or b) the subject matter of the transaction involves assets referred to in Section 46(1), Section 47(1)(a), (b), and (c), and Section 48(1)(b) and (c) of the Pension Savings Act, or assets referred to in Section 98(1)(a), (b), and (c) and Section 100(2)(a) and (c) of the Supplementary Pension Savings Act, and where

1. the method of trading at the trading venue referred to in Section 48(2)(b) of the Pension Savings Act or Section 100(2)(a) of the Supplementary Pension Savings Act precludes settling the transaction later than the day following the submission of the instruction, or
2. the fund depositary, based on a verification at the pension company and persons entrusted by the pension company with asset management in a pension fund or a participant fund, conducted after agreement with these persons during the preceding 12 months, has ensured that the management and control systems of these persons provide sufficient control over compliance with the Pension Savings Act, the Supplementary Pension Savings Act, the fund statute, and the depositary agreement. (2) Verification of instructions pursuant to paragraph 1(a) may be performed by checking a representative sample of payments within 30 days from the end of the week in which the instruction was given. The fund depositary shall select the representative sample of payments for a period of up to 30 preceding days. (3) The fund depositary shall simultaneously co-authorize an instruction to make a payment submitted through an electronic banking system, for which the fund depositary performs verification prior to payment execution. This shall not apply to payments submitted through automated clearing systems.

§ 10 [Pursuant to Section 39(1)(h) of the Pension Savings Act and Section 89(1)(h) of the Supplementary Pension Savings Act] (1) The fund depositary shall ensure that the pension company provides it daily with a list of concluded transactions for the account of all participant and pension funds managed by it on that day, broken down by individual pension funds and participant funds. The fund depositary shall verify at least once a month whether assets were acquired and disposed of in accordance with the provided lists of concluded transactions after settlement. (2) Paragraph 1 shall not apply if the pension company manages only the mandatory conservative fund.

§ 11 [Pursuant to Section 39(1)(h) of the Pension Savings Act and Section 89(1)(h) of the Supplementary Pension Savings Act] The fund depositary verifies compliance with a) limits relating to assets in a pension fund and a participant fund⁶) at least once a month, within 15 days from the end of the preceding month based on the latest available data, b) limits relating to the issuer of securities in the assets of a pension fund and a participant fund⁷), based on the latest available information, at least once per quarter, and c) other limits under the Pension Savings Act, the Supplementary Pension Savings Act, and the fund statute commensurate with the nature of the limit; compliance with investment instrument quality requirements or its issuer must be verified not only when concluding a transaction with the given investment instrument, but also during the holding period of the given investment instrument, at least once per quarter.

§ 12 Verification of the Calculation of Fees for Asset Management in a Pension Fund and a Participant Fund [Pursuant to Section 39(1)(k) of the Pension Savings Act and Section 89(1)(k) of the Supplementary Pension Savings Act] The fund depositary verifies the calculation of fees for asset management in a pension fund and a participant fund prior to each payment of these fees to the pension company.

§ 13 Reasons for Not Executing an Instruction by the Fund Depositary [Pursuant to Section 41(6) of the Pension Savings Act and Section 91(6) of the Supplementary Pension Savings Act] A ground for the fund depositary not to execute a pension company's instruction pursuant to Section 41(6) of the Pension Savings Act and Section 91(6) of the Supplementary Pension Savings Act is a case where a) the pension company fails to remedy the deficiency, particularly by issuing a new instruction whose execution will eliminate the deficiency arising from the original instruction and which can reasonably be expected to be settled, or b) execution of the instruction would exceed a limit established by the Pension Savings Act, the Supplementary Pension Savings Act, or the fund statute by more than 1%, or the risk of damage caused by settling the instruction demonstrably exceeds the risk of damage associated with its non-settlement; the fund depositary shall also consider, when assessing the risk of damage, the likelihood of timely compensation of the damage by the pension company or a person entrusted by the pension company with asset management in a pension fund or a participant fund.

§ 14 Outsourcing of Activities of the Fund Depositary [Pursuant to Section 39(3) of the Pension Savings Act and Section 89(3) of the Supplementary Pension Savings Act] (1) If this Decree allows the fund depositary to perform its activities through outsourcing [Section 2(b) and Section 3(3)], the fund depositary shall a) verify that the outsourcing provider is authorized to perform the given activity, b) conclude a contract with the outsourcing provider, pursuant to which the outsourcing provider shall, depending on the nature of the activity

1. not release assets in a pension fund and a participant fund or documentation relating to these assets to another person without the prior consent of the fund depositary, unless it is the fulfillment of a statutory obligation and the outsourcing provider immediately informs the fund depositary of the release of assets or documentation,
2. comply with the fund depositary's request to suspend the execution of an instruction concerning entrusted assets,
3. enable the fund depositary to take over assets or documentation of a pension fund and a participant fund at any time, if their nature permits,
4. not use another person for this activity, except as provided in paragraph 2,
5. perform the relevant activities in compliance with legal regulations and enable the fund depositary to verify the performed activities. (2) In the case of safekeeping, the contract shall regulate whether and under what conditions the outsourcing provider may use other persons to perform the relevant activities; the conditions pursuant to paragraph 1 must be met.

§ 15 Entry into Force This Decree shall enter into force on 1 January 2013.

Governor: Ing. Singer, Ph.D., in person

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Footnotes:

1. Section 92(1) of Act No. 256/2004 Coll., on business on the capital market, as amended.
2. Section 93 of Act No. 256/2004 Coll., as amended.
3. Section 68 of Act No. 426/2011 Coll., on pension savings. Section 118 of Act No. 427/2011 Coll., on supplementary pension savings.
4. Section 54(1)(j), (l), and (m) of Act No. 427/2011 Coll.
5. Sections 51 and 52 of Act No. 426/2011 Coll. Sections 101 and 102 of Act No. 427/2011 Coll. Title II, Part Three of Decree No. 117/2012 Coll., on detailed regulation of the activities of the pension company, pension fund, and participant fund.
6. Sections 53 and 54 of Act No. 426/2011 Coll. Sections 103 to 105 of Act No. 427/2011 Coll.
7. Section 55 of Act No. 426/2011 Coll. Section 106 of Act No. 427/2011 Coll.