Corporate governance
Compliance
The board of Securities Trust of Scotland has considered the principles and recommendations of the AIC Code of Corporate Governance (AIC code) by reference to the AIC Corporate Governance Guide for investment companies (AIC guide). The AIC code, as explained by the AIC guide, addresses all the principles set out in the UK Corporate Governance Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to Securities Trust of Scotland.
The board considers that reporting against the principles and recommendations of the AIC code, and by reference to the AIC guide (which incorporates the UK Corporate Governance Code), will provide better information to shareholders.
The company has complied with the recommendations of the AIC code and the relevant provisions of the UK Corporate Governance Code, except as set out below:
- the role of the chief executive;
- executive directors’ remuneration; and
- the need for an internal audit function.
For the reasons set out in the AIC guide, and as explained in the UK Corporate Governance Code, the board considers these provisions not relevant to the position of Securities Trust of Scotland, being an externally managed investment company. The company has therefore not reported further in respect of these provisions.
The 21 principles of the AIC Code are detailed on the Annual report.
Internal control
The AIC Code and the Disclosure and Transparency Rules require directors, at least annually, to review the effectiveness of the company's system of internal control and include a description of the main features relating to the financial reporting process.
Since investment management and all administrative services are provided to the company by Martin Currie, the company's system of internal control mainly comprises monitoring the services provided by Martin Currie, including the operating controls established by them, to ensure that they meet the company's business objectives. The company does not have an internal audit function of its own, but relies on the risk and compliance department of Martin Currie. This arrangement is kept under review. Martin Currie also carries out a review of the activities carried out by BNP Paribas Fund Services who are contracted as administrators to the company.
The board, either directly or through committees, reviews the effectiveness of the company’s system of internal control by monitoring the operation of the key controls of Martin Currie as follows:
- reviews an internal control report as provided to the board twice yearly by the manager. This report details significant risks, regulatory issues, error management and complaint handling;
- reviews the terms of the management agreement;
- reviews reports on the internal controls and the operations of the manager and of the custodian; and
- reviews the risk profile of the company and considers investment risk at every board meeting.
During the course of its review of internal controls, the board has not identified or been advised of any failings or weaknesses which it has determined to be significant, and are content with the arrangements.