Trustees are being warned that recent market volatility, and a corresponding high volume of transactions, could make pension schemes a potential target for fraudsters.
RSM UK says that schemes have, rightly, been focused on their investment strategies in response to unprecedented movements in the gilt and bond markets. But they have warned that there needs to be increased awareness of fraud potential at this time.
RSM UK pensions audit director Elisabeth Storey says: “Investment consultants, managers and trustees have been making quick decisions about when and where to move their investments and how to access their liquid funds.
“This additional time pressure may mean corners are cut in ensuring robust controls are in place and investment transactions are legitimate. We are also seeing an increase in pension scheme trustees approaching their sponsoring employer for loans to support liquidity requirements, which creates another potential opportunity for fraudsters. It is well known that one of the scam red flags is emergency warnings to push victims into acting quickly. The risk is that, among all the genuine time-pressured investment and disinvestment instructions taking place, a fraudulent instruction could easily slip through the net.”
To mitigate the risk, RSM UK is encouraging trustees to ensure that controls that have been put in place to protect pension funds from fraud are being adhered to. These include
- Is the signing authority mandate up to date for all investment managers?
- Are investment transaction instructions protected so that funds can only be moved to agreed sources – for example the scheme bank account?
- Are there similar controls in place to ensure any additional funds provided by the sponsoring employer can only be moved to the pension scheme bank account?
- Does the investment transaction process include a call-back function, so any instruction is verified before processing?
Storey concludes: “All trustee boards will be keeping an eye on the markets and monitoring the impact upon their investments, regardless of whether they are following an LDI (Liability Driven Investment) strategy. However, we would urge caution to all involved in the investment process to ensure that instructions given are genuine.
“With pension fund values already plummeting, it would be a double blow if problems were compounded by a fraudulent disinvestment by a scammer capitalising on the current pressurised environment. Trustees should have this at the forefront of their minds as they look to comply with the forthcoming Single Code. Trustees should also remember that if an investment sounds too good to be true, it generally is. Appropriate due diligence is critical to ensure pension funds are protected.”