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Comments from ACCA
May 2003

Thank you for sending me the draft revised Note on the above for comment. ACCA's views on the draft are set out below.

We consider that the format of the revised Note is potentially very helpful to professional advisers. It should be able to give them a much clearer indication of what OPRA itself considers to be of 'material significance' in the context of s48(1) and, as a consequence of this, should be of substantial help to advisers in making their decision as to whether they need to report a particular matter or not.

We also welcome the declaration by OPRA in the draft Note that it intends henceforth to focus its regulatory attention on certain specified areas of scheme compliance and that these key areas will be the focus of its interest in the reports made by advisers. The effect should be to ensure that OPRA is required to deal with a more manageable and focused flow of information from advisers.

The major innovation in the draft revised Note is the 'traffic light' framework of reporting scenarios. The proposal to group possible non-compliance scenarios into three categories, with clearly indicated consequences for what OPRA expects of professional advisers once they encounter them, is in principle a good idea and should prove very helpful in practice. We accept that what is important as far as s48(1) is concerned is what OPRA itself considers to be of material significance, not what individual advisers might or might not consider to be so. Given this, we would expect from the Note a clear statement of OPRA's position with regard to the significance of the scenarios concerned.

Our overall reaction to the draft's presentation of the traffic light framework is that, in certain respects, the draft does not offer the clear indication of OPRA's position that the idea calls for. The wording used in the various tables needs in some cases to be tightened up, particularly in the 'Red' and 'Green' sections, which are presented as being types of circumstances which give rise to 'categorical' action by the adviser, viz 'must report' or 'should not report'. Given the clear steer in these two sections towards one of the two courses of action, OPRA should be prepared to be more forthcoming about the circumstances which, in its view, are materially significant or otherwise and which should cause the adviser to take the appropriate action.

For example, under 'Green' scenarios, the draft uses terms such as 'insignificant' and 'trivial' with respect to breaches of the law and talks of 'relatively short periods' [of lateness] in respect of failure to prepare the scheme's annual accounts. Under the 'Red' scenarios, the table on page 15 refers to 'persistent' non-payment of contributions and failure by the trustees to appoint advisers on a timely basis. We suggest that the guidance could be more forthcoming as to OPRA's own judgement of the seriousness of these 'failures' without necessarily intruding on the adviser's own responsibility to make a judgement.

Also with respect to the individual scenarios in the proposed new framework, under 'Green' reports on page 17 we suggest that certain of the individual matters listed appear to be rather serious, e.g. failures to collect contributions and to pay members' benefits correctly. Although there is a reference in the table to the need for such mistakes to be corrected, we suggest that there needs to be more emphasis on the importance of correction if the fault is not to be considered materially significant.

With respect to the 'Red' scenarios, the list contains, at the foot of the page, references to the inclusion of qualifications in the scheme's audit report. These in themselves do not mean that there has necessarily been a breach which is covered by s48(1). The two items should be re-phrased so as to make clear that OPRA will expect the auditor to report if there are relevant breaches which have led directly to the qualification. If, conversely, OPRA is keen to receive reports of all qualifications regardless of the reportability of the underlying problems, then the guidance should make this clear.

With respect to the 'Amber' scenarios, the draft suggests that several 'Green' scenarios may together constitute an 'Amber' scenario. This should be highlighted, perhaps at the end of paragraph 37, to explain more fully what is meant by 'cumulative factors'.

We would also make the general point that, given the purpose of this document, viz to guide advisers on the regulator's interpretation of the concept of 'material significance', the precise meaning of words is a key factor in its success. For this reason, care should be taken throughout with respect to terms such as 'significant', 'appropriate' and 'potentially [detrimental impact]'. Where possible, OPRA should consider expanding on such terms to explain its own regulatory position on them.

We offer the following detailed drafting points:

1. The content of paragraph 7 is unclear and needs to be re-worded.
   
   
2. In the Introduction on pages 6-7 of the draft, we suggest that the Note states clearly that its primary purpose is to give advice to professional advisers on what matters OPRA considers to be of 'material significance' under s48(1)(b) of the Pensions Act 1995. The passage could then proceed to set out OPRA's four main areas of regulatory focus (currently in paragraph 8) and make the point that, for the purposes of advisers' reports under the Act, the matters which OPRA considers to be of material significance will relate essentially to those four areas.
   
   
3. Paragraph 30 states that OPRA expects advisers to consider 'the purpose of regulation; namely, to protect the interests of scheme members and to help to safeguard scheme assets'. This definition of the purposes of regulation has not been introduced prior to this point, so it would help if the drafting of the passage could state at this point that these are what OPRA considers to be the purposes of regulation in the context of pension schemes. Alternatively, this statement of the purpose of regulation could be introduced first in the Introduction on pages 7-8 and then repeated, without the attribution, in paragraph 30.
   
   
4. In paragraph 31, we would favour the term 'in principle' rather than 'broadly speaking' in the summary of matters which should trigger the making of a report. We would point out that paragraph 8 in the Introduction, which covers similar ground to paragraph 31, uses a bullet point format and different wording to that of paragraph 31. Of the two paragraphs, we suggest that paragraph 31 should be regarded as definitive, although its wording could be tightened up.
   
   
5. In paragraph 45, there are successive uses of the word 'consider'. We suggest that, in place of the first use, the sentence might read '�OPRA should be invited to decide whether to use its powers'.
   
   
6. Paragraph 53 discusses the internal systems which audit firms which are constituted in different ways should put in place. Since LLPs are referred to here as well as partnerships and companies, there should be a reference to the LLP 'member' as well as to the partner and [company] director.
   
   
7. In paragraph 73, we suggest that the last word should read 'competence'.

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