Rathi reiterated his call for investment consultants to be brought “into the regulatory perimeter”, a stance that the FCA has held since 2018.
“The perimeter is a matter for government and parliament,” he said.
“We don’t believe that pension funds have necessarily had the ability to compare performance [and] qualities of disclosures,” he continued, along with their ability to assess fees.
“There has been this nagging concern about conflicts of interests within the investment consultancy model. To what extent are they using their privileged position with pension schemes potentially to steer them towards other services that they may provide?”
“We therefore thought that the regulatory umbrella would be valuable.”
‘Trustee awareness varies’
During the market volatility, TPR issued guidance urging schemes to “review their liquidity, liability hedging and governance processes, suggesting that managers of their LDIs could be granted power of attorney over some assets to quicken trading”.
The watchdog also told MPs that it had reached out to the BoE and other regulators before the launch of the central bank’s gilt-buying programme, to clarify what actions they could take in response to the gilt market turbulence.
“In terms of the degree to which trustees were aware of what they were investing in, I think it does vary,” Counsell told the Industry and Regulators Committee.
“Broadly, we have a lot of extremely good trustees who will have been very aware and will have known exactly the right questions to be asking of the LDI fund,” he continued.
Counsell pointed to the broad nature of the pension scheme landscape, which he noted consists of “a number of very large schemes” and “a very big number of rather small schemes”.
“I think the degree to which the trustees of those small schemes were fully aware of what they were in is a good question,” he said.
“There is a broader question […] about the overall governance,” of small schemes, he continued, “and that is something that’s been giving us concern for, frankly, many years”.
Counsell told the committee that TPR has been pushing for the consolidation of smaller schemes, with the watchdog harbouring concerns over “the degree to which the smaller schemes are sufficiently well run”.
“We’ve got quite a lot of evidence that demonstrates that they are less likely to be well run than larger schemes,” he said.
“It is not to say that there aren’t some small schemes that are well run […] but on balance, it is true that the governance of smaller schemes is not as strong as the governance of larger schemes.”
Counsell told the Industry and Regulators Committee that TPR would need to look at the speed of decision-making in pension schemes, something he said is “partly wrapped up” in issues surrounding scheme governance.
