COMPILED COMMENTS RECEIVED AGAINST DRAFT NATIONAL PENSION SYSTEM TRUST REGULATIONS. regulation /Subregulation No. & Clause No.)

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1 COMPILED COMMENTS RECEIVED AGAINST DRAFT NATIONAL PENSION SYSTEM TRUST REGULATIONS Name of the Person: Mr. Sandeep Shrikhande Organisation: Kotak Mahindra Pension Fund Ltd Designation: Chief Executive Officer Sr. No. Pertains to which regulation /Subregulation (Regulation No. & Clause No.) 1 Chapter I (2) (12) & Chapter I (2) (17) Definition Proposed/suggested changes* Rationale (12) National Pension System Trust means the Board of Trustees who hold the assets of subscribers for their benefit. (17) Trustee or Trustees shall mean the Board of Trustees appointed to the National Pension System Trust from time to time As per the current definition both Trust and Trustees are defined to include the Board of Trustee which could be re worded. Reference can be drawn from mutual fund regulation which defines mutual fund as well as the

2 trustee. Chapter II (3) (4) (2) The Trust established by the Interim Pension Fund Regulatory and Development Authority vide deed of the National Pension System Trust (earlier referred as The New Pension System Tust) dated under the Indian Trust ACT 2 Chapter II (3) (17) Indemnifying the Trustee for loss or damage... should be replaced with Indemnifying the TRUST for loss or damage... We assume that the intention is to compensate the trust for certain acts of trustees. Chapter III (9) (3) The Authority may appoint a Chief Executive Officer (CEO) of the National Pension System Trust, who shall be a trustee of such trust. The CEO of the Trust should be suitably qualified, having sufficient education and experience in the field of fund management, finance, law, economic and any other field... The word and should be replaced by OR Chapter III (10) (ii) To borrow from any person, commercial banks, financial institutions... The intent to borrow is not spelt out. If the intention is to borrow for the benefit of the

3 This provision should in specific provide and include against securities/cash as margins as may be permitted by authority subscribers one may want to permit encumbrance on scheme assets. Any encumbernac e for the benefit of the pension fund or trustees or any other intermediary should be prohibited. Chapter III (10) (xii) 2 Chapter III (10) Powers and functions of the Board of trustee (xvii) To appoint a panel of independent Auditors to undertake compliance and scheme audits of each Pension Fund... The word compliance could be dropped. - To approve payment of fees to the custodian... should include and applicable taxes Scheme Audits mean the statutory Audit of Pension Fund Schemes. Further Pension Funds are required to get the internal audit at regular intervals hence compliance audit can be included in the scope of internal audit and could be dropped as a separate audit NPS Trust shall have to approve the charges along with applicable taxes. The same has to

4 Chapter III - (11) (42) The Board of Trustees shall ensure that schemes should not be organised, operated, managed or the portfolio of securities selected, in... The words organised, and operated should be dropped be in line with the draft Pension Fund Regulation as well. Pension Funds primarily manage the schemes which are designed by the authority and hence they are involved only in managing the portfolio. Chapter IV (13) (4) (v) Consolidated scheme Accounts approved by the Board of Trustees The word consolidated should be replaced with Accounts of all the schemes approved by the Board of trustees The schemes are separate entities and hence financial statements are prepared scheme wise.

5 Response for Draft PFRDA (National Pension System Trust) Regulations, 2014 Organisation: ICICI Prudential Pension Fund Company Sr. No. Pertains to which regulation /Subregulation (Regulation No. & Clause No.) Proposed/suggested changes* Rationale 1. Regulation 2(6) Compliance Officer shall be a person of responsibility from an Intermediary, and designated as such, duly responsible for monitoring compliance of the provisions of Act, rules and regulations, notifications, guidelines, instructions, etc, issued by the Authority or the Central Government from time to time and for redressal of subscriber grievances. Such compliance officer shall not be below the rank of General Manager. We would like to draw the authority s attention to the fact that the Compliance Officers for specific intermediaries have been defined in respective draft regulations. E.g. PF, POP etc. Defining them again for all intermediaries may result in conflict/inconsistencies in the definitions. We also request the authority to delete the provision that compliance officer shall not be below the rank of General Manager. e.g. Definition for Compliance office as per draft for PFRDA (Pension Fund) Regulations, 2014 clause 8 : Compliance Officer shall be a person of responsibility from a Pension fund and designated as such, duly responsible for monitoring compliance of the provisions of Act, rules and regulations, notifications, guidelines, instructions etc, issued by the Authority or the Central Government from time to time. To avoid conflict of the definition with respect to regulations for specific intermediaries.

6 2. Chapter II 3. Contents of Trust Deed 13. Explicitly forbid assumption of any unlimited liability or that which would result in encumbrance of the property vested in the Board of Trustees in any way. Chapter III 11. Obligations, duties, responsibilities and liabilities of the Trustee/ Board of Trustees The Board of Trustees or a trustee shall not create any encumbrances on the funds or the assets held under the National Pension System. We would like to appreciate the Authority's concern towards protecting subscriber's interests. However, the Authority is requested to take note of the fact that encumbrances of assets may be required in certain cases to post margin for operations in financial markets and it will be in benefit of the subscribers as it can eliminate the float required to be maintained with the bankers otherwise. Any such requirement for maintaining float with the banker results in loss of potential income to the subscribers. We request the Authority, to consider that encumbrances of assets may be required in certain cases in following manner: e.g.: Encumbrance of asset may be required for equity settlements for transactions undertaken through stock exchanges, the details of which are given below: Currently the below options have been made available by the Stock Exchanges for equity settlement: 1. Early payment of fund obligation. This will require advance payment on T+1 instead of T Payment of margin money in advance and balance amount on settlement date. The margins require for trade obligation is normally 25% to 30% of the scrip value in case of Nifty 50 stocks. 3. Deposit fixed deposits or any other approved collateral with the clearing houses of stock exchanges and avail benefit of T+2

7 settlement of funds obligation. The interest receivable on the collateral will be credited in the client accounts. Thus, it is in the interest of subscribers to place fixed deposit as collateral and avail benefit of settlement on T+2. Also, such additional revenue is earned with no additional risk. Similarly, to participate in NDS OM market directly, margins need to be maintained with CCIL through government securities or fixed deposits. 3. Chapter III Regulation 10: Powers and functions of the Board of Trustees clause 2(xvii) to approve payment of fees to the Custodian, Pension Fund management fees and any other fees/charges payable to such intermediaries as decided by the Authority from time to time 4. Chapter III Regulation 11. Obligations, duties, We request the authority to replace the word approve by review i.e. to review the payment of fees to the Custodian, Pension Fund management fees and any other fees/charges paid to such intermediaries as decided by the Authority from time to time. We request the authority, to delete the words all All payments done by Pension Funds are as per the rate prescribed by the Authority and a prior approval for the same will be too time consuming and onerous process for payment of fees to intermediaries. It may be noted that calculation of all such fees are subject to internal and statutory audits, thereby obviating the need for prior approval. The performance review conducted will cover the

8 responsibilities and liabilities of the Trustee/ Board of Trustees, clause 19: The Board of Trustees shall review the scheme performance and all transactions carried out by Pension Fund(s) on an ongoing basis, and submit exception reports along with their recommendations to the Authority. 5. Chapter III Regulation 11. Obligations, duties, responsibilities and liabilities of the Trustee/ Board of Trustees, clause 29: The Board of Trustees shall be responsible for the calculation of any income due to be paid to the pension fund/custodian and also of any income received in the pension fund for the subscribers in accordance with these regulations and the trust deed. transactions, since the performance review conducted will cover the financial impact of all transaction carried out by the Pension Fund(s). Review of each transaction by the Trust should be avoided unless an investigation is deemed necessary based on performance review and suspicion of fraudulent / negligent transactions/ practices. The Board of Trustees cannot practically undertake calculation of income to be paid to the pension fund / Custodian etc. Their responsibility should be limited to supervision based on audit findings. financial impact of all transaction carried out by the Pension Fund(s). Review of each transaction by the Trust should be avoided unless an investigation is deemed necessary based on performance review and suspicion of fraudulent / negligent transactions/ practices. The Board of Trustees cannot practically undertake calculation of income to be paid to the pension fund / Custodian etc. Their responsibility should be limited to supervision based on audit findings.

9 Response for Draft PFRDA (National Pension System Trust) Regulations, 2014 Organisation- NSDL (CRA) PFRDA (NPS Trust), Regulations,2014 Sr.No Ref. Point Text of the document CRA comments/suggestions 1 2(6) Compliance Officer shall be a person of The regulations for CRA responsibility from an Intermediary, and do not specify a designated as such, duly responsible for monitoring compliance of the provisions of Act, rules and regulations, notifications, 'Compliance Officer'. In case of CRA regulations, the term used is 'Principal guidelines, instructions, etc, issued by the Officer'. Hence, it is Authority or the Central Government from time to time and for redressal of subscriber grievances. Such compliance officer shall not be below the rank of General Manager. suggested that this point may be modified to make a common reference inline with other regulations. 2 2(8) Individual Pension Account means an account of a subscriber executed by a contract setting out the terms and conditions of the National Pension System. 3 2(10) Intermediary includes pension fund, central recordkeeping agency, National Pension System Trust, pension fund adviser, retirement adviser, point of presence and such other person or entity connected with collection, management, recordkeeping and distribution of accumulations. 4 11(26) The Board of Trustees may, through a written approval, authorize any intermediary to expend a pre-determined amount on activities such as legal counseling, engaging advocates and consulting in the benefit of subscriber interest. The Board of Trustees, during the meeting where the agenda for such approval is placed, must record the reason for such authorization in accordance with guidelines laid down by the Authority. The subscriber only submits a Subscriber Registration Form to get registered under NPS. There is no execution of any contract. The definition may be rephrased accordingly. The terms- "Pension Fund Advisor" and "Retirement Advisor" may be clarified. We would request for a separate discussion regarding the process of registration and functions of these entities in CRA system. This point may be elaborated and can be made more specific (e.g. the sum to be expended by the intermediary has been mentioned to be 'predetermined'. Manner of determination of the sum can be specified).

10 PFRDA (NPS Trust), Regulations,2014 Sr.No Ref. Point Text of the document CRA comments/suggestions 5 10 (xiii) to obtain compliance certificates at regular intervals from the Pension Funds(s), Points of The regulations for some intermediaries (e.g. CRA Presence, Aggregators, Trustee bank, and Custodian) do not Custodians, Central Recordkeeping Agencies and other intermediaries and keep the specify requirement of a 'Compliance Certificate'. Authority informed about it 6 11(58) The Board of Trustees to ensure that Central Recordkeeping Agency (CRA) shall exercise all due diligence and vigilance in carrying out its duties and in protecting the rights and interests of the subscribers and comply with the terms and conditions of the agreement between the National Pension System Trust and the CRA. 7 11(61) The Board of Trustees shall ensure audit of the CRA operations, technical parameters and financial reports against already defined operational and technical SLAs under the agreement between the National Pension System Trust and CRA. Such audit report shall be submitted by the board of Trustees for the approval of the Authority. At present there is no agreement between NPS Trust and CRA. Further, as per draft CRA regulations, there is no requirement of executing agreement between NPS Trust and CRA. Further, as per CRA Regulations, the role of NPS Trust in monitoring the operations of CRA is limited. In view of the above, consistency between CRA regulations and NPS Trust Regulations may be brought about. 8 General comment Some of the general points mentioned in the NPS Trust regulations are applicable to the intermediaries which are governed by specific regulations. E.g. CRA is governed by CRA regulations. Hence, we presume that at the end, the intermediary specific regulations will supersede. E.g. charges related point-it has been mentioned in the NPS Trust Regulations that NPS Trust will approve the charges to be paid to the intermediaries, but such approval has not been mentioned in the CRA regulations.