Sweden’s financial watchdog has formally reprimanded the Church of Sweden’s pension fund for failing to have any limit in its internal rules on how much investment risk it can take – and imposed a fine following nearly two years of legal wrangling.
The Swedish FSA (Finansinspektionen, FI) announced this morning it was fining Kyrkans pension SEK5m (€447,000) for what it deemed a “moderate” breach of rules.
Åsa Larson, head of FI’s insurance division, said: “Current and future pensioners should be able to feel secure that their pension money is being managed in a way that is in their long-term interests.”
She said the authority’s review revealed a shortcoming which meant pension savers and pensioners were not getting all the protection intended from occupational pension rules.
Carl Cederberg, chief executive officer of the SEK25.8bn (€2.3bn) pension fund, told IPE his institution was taking note of FI’s decision, and indicated he might make further comment following the midsummer national holiday in Sweden this weekend.
FI said the case began with an investigation in 2022 into whether the pension fund had followed external and internal rules in connection with the expansion of its investment in real estate company Fastighets AB Stenvalvet – an investment move the pension fund announced on its website just before Christmas 2021.
“The investigation shows that the pension fund violated FI’s regulations by not having introduced a so-called risk tolerance limit for investment risks in its internal governing documents, i.e. a clearly-defined limit to the level of risk the company would accept,” the authority said today.
It said the fact Kyrkans pension had allowed an individual equity holding in a real estate company to weigh heavily in its total portfolio made the absence of a risk tolerance limit more problematic than it would otherwise have been.
During the investigation in 2022, Kyrkans pension made multiple complaints about the authority’s handling of the probe, according to the document published by FI today, and after these were rejected, the pension fund appealed the FI’s decision in Stockholm’s Administrative Court, then later took the case to the Court of Appeal in the Swedish capital.
However, on 11 April, that court ruled in FI’s favour and denied Kyrkans Pension leave to appeal further.
Kyrkans argued, according to FI, that it did regulate risk, but within its investment guidelines rather than in a governing document for risk management, and among other angles of defence, said it regularly submitted its investment guidelines to the watchdog, but the authority had never pointed out any lack of risk tolerance limit before.
But FI said today that without internal regulations, the pension fund had no upper limit on how large a proportion of an asset portfolio and individual holding could be.
“If the working committee gives its approval, an individual holding can be as large a proportion of the current portfolio – and carry with it as much investment risk – as the working committee determines,” it argued.
The authority also dismissed Kyrkans pension’s argument FI had not mentioned the lack of risk limits before, with the watchdog saying its previous reviews had not been aimed at the presence or absence of a risk tolerance limit for investment risks.
The SEK5m fine for Kyrkans Pension is much lower than the maximum financial penalty of SEK50m that FI can impose.
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