Guideline 24. Prudent person principle

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The investing institution follows the prudent person principle in managing the funds of the social security institution.

This principle requires that a person exercises the same care, diligence and skill in discharging his/her duties of office as a reasonably prudent person would exercise in comparable circumstances. The prudent person principle is integral to the fiduciary duties of the board and management in administering and managing the funds of the social security institution.

Guideline code

INVEST_02700

Mechanism

The management should establish standards and benchmarks to evaluate the performance of the investment unit(s) and external fund manager, noting that the performance evaluation period should take into consideration the nature of the assets invested in.
Procedures manuals should document how investment policies are to be implemented in accordance with the prudent person principle.
Compliance with the procedures manuals must be monitored and reviewed.
Staff compensation and appraisal criteria should create the correct incentives to do right and not to do wrong and align these incentives with the investment objectives of the investing institution.
The decision-making process must be clear and transparent.
The liability of the officers and staff of the investing institution must be clearly established.

Parent

C. Common Processes

Structure

There should be minimum suitability standards for all staff in the investing institution.
The investing institution should have a code of ethics and conduct.
There should be an office external to the investing institution to monitor compliance with the minimum suitability standards and the code of ethics and conduct.
To establish clear accountability, the organizational structure of the investing institution should reflect the investment decision-making process and integrate a system of checks and balances.
The internal audit office, or a similar body, may dedicate competent staff to the investing institution.
There may be an office external to the investing institution to evaluate, monitor and review the overall risk of the investment portfolio.

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