How have other roles in your career prepared you for this role as managing director of KAS Bank?
Before joining KAS Bank, I spent just under 30 years at HSBC working in the securities services sector. For approximately 20 years of my time at HSBC I looked after pension funds, and for the last 10 years at HSBC, I was responsible for its pension fund business in the Securities Services business in Europe. By this point, I knew the sector extremely well.
I was also a trustee at HSBC, which gave me the insight on the other side of the fence. I heard people in the industry discuss how challenging being a trustee could be and it made me respect what trustees do, which has helped me understand our clients and their challenges. Coming to KAS Bank, I like to think that I’ve got a greater understanding of what we can do to try and help the trustees.
KAS Bank focuses solely on pension funds in the UK, we do have some non-pension fund clients and we will continue to look after them, but our main focus is for the future growth of the institutional pension industry.
KAS Bank is not only a specialist securities services provider, but also a specialist in pension funds. I wasn’t going to get that opportunity anywhere else.
KAS Bank launched its cost transparency dashboard for defined-benefit pension schemes last year. How does this address cost reporting for schemes?
There are some great initiatives driving greater transparency of costs for UK pension funds. For example, the Local Government Pension Scheme (LGPS) transparency code and the Department for Work and Pensions announcement on changing the cost disclosure rules for defined contribution (DC) workplace pension schemes. In addition, the Institutional Disclosure Working Group (IDWG), which is the disclosure group that the Financial Conduct Authority (FCA) have formed to look at standardising the template for collection of costs for asset managers.
In 2015, it became a regulatory requirement for pension funds in the Netherlands to report all of their costs from asset managers—we think this is integral to demonstrating good governance and informs future investment decisions. This way, all Dutch pension funds have to report their costs to the regulator on an annual basis.
Having identified a gap in the UK pension sector, KAS Bank took the framework and changed the cost collection template slightly to suit the UK market. There are two top level components to the costs, firstly the investment costs, which is mostly derived from the investment managers, and secondly, pension management costs (administration, staff), which are collected via two templates. Typically, pension funds will complete the pension management fund fees as they are fully aware of those costs, but the investment manager costs are slightly more difficult for a trustee to complete themselves so usually, a template is sent to each of the asset managers.
KAS Bank’s cost transparency dashboard is simple to navigate, easy to understand and the data presented in a clear way, for trustees to use and refer for more informed decision making.
I think we can be harsh on trustees, given the range of subjects they have to cover, so KAS Bank wanted to make it as easy as possible to present a complex subject in simple terms, enabling them with a clear understanding of total cost of ownership. From there, KAS Bank can drill down into these costs as far as they want to go, allowing trustees to fully understand their costs as well as to compare themselves with other schemes. You do have to take every scheme into context. A lot of these costs haven’t been reported before, because the industry did not demand it. Everyone demands everything at the push of a button in our everyday lives, and that’s why everyone suggests the industry is hiding costs, when in fact for the majority, it’s just a case of providing a framework to presenting those costs clearly, which can take some time.
At KAS Bank, we are currently focusing on what the trustees need and hopefully we can get to a point where we can start delivering some of the data to members, as, at the moment, for the most part, pensions are too confusing for members to fully understand so we need to manage this carefully.
KAS Bank planned to create a financial technology innovation division, aimed at transforming the governance technologies available to UK pension schemes. Are there any updates on this?
The dashboard is just the beginning, KAS Bank have big plans to expand our offering and expertise within the fintech space.
We’ve built an innovation lab in Amsterdam, and we have a resident financial technology team in our lab, to provide us with expert support. and help us with building and delivering innovative services for the UK pensions industry.
However, the real issue for KAS Bank (and all other providers), is collecting the actual data. Those data templates are currently Excel spreadsheets. At the moment we’re working with a number of financial technology companies in which we’re looking to build a solution that will automate the collection of the data.
In addition, the bank is looking at some solutions in robotics, artificial intelligence and machine learning. We want it to become an efficient and accurate process, to get that information to trustees, more frequently and accurately, in any shape they want.
What challenges will KAS Bank and the pension sector face in 2018?
Governance standards is one of the biggest issues to tackle. The spotlight is currently on trustees, which in some cases is fair, but we need to be very careful about what we do in respect of changing trustee boards. Ensuring you have a board of trustees that between them are knowledgeable and who can understand and engage with the membership is key. If you don’t have that person on the board that talks the member language, then you’re going to face a bigger challenge. We need to have a good framework in place for trustees to ensure they are educated, supported with clear guidance and structure.
Another key challenge to the industry is establishing long-term trust. Given the failure of some high-profile cases recently, it’s fair to say more needs to be done by the industry to prevent the public from questioning the integrity of the sector. Transparency is one key initiative to solving that trust issue.
At KAS Bank, it’s about trustees, and in my mind, we need to get that data to the members, but in a way that they can understand and is useful. Let’s not blind them with the inner workings behind this process but instead empower them to feel confident when presenting this to boards and ultimately their members.
Will the General Data Protection Regulation (GDPR) regulation affect KAS Bank at all? If so, how?
First, to confirm we are a data controller and not a data processor.
There are two key areas that we must look at, which are how we hold and manage employee personal data and client personal data. We hold a significant amount of client personal data to ensure that we meet our legal and know-your-customer (KYC) obligations as a bank.
We have put together a project team to assess the implications and how this impacts us as an organisation.
Our project team is in Amsterdam, supported by the local compliance officers in the UK and Germany. They are all working closely and they keep me informed regularly as to how it’s progressing.
Recently regulation has played a major role in shaking up the industry, are there any other challenges ahead for KAS Bank?
The big one is Brexit. What makes Brexit so challenging is the ongoing uncertainty in terms of outcome and fall out from this. Any project that doesn’t have a definite outcome will be tricky to navigate for anyone.
Here in the UK we’re regulated with the Prudential Regulation Authority and FCA, they’ve been very supportive and helpful, but they’re in a similar position to us in that there is uncertainty in respect of the outcome.
To that effect, we are preparing for all potential developments. KAS Bank are well positioned and well informed and we have legal support keeping very close to regulators. We have regular dialogue with them, so whether we should start undertaking new kinds of authorisation processes, including third-country access, we have all aspects covered.
It’s difficult to know what to expect, but KAS Bank is prepared and completely committed. There will be no change to the way we do business here in the UK.
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