Whither Pension regulation? (23/29)

Starting on 16 March 2020, I began writing daily blogs about the impact of the Covid crisis on financial regulation, and this has extended into commentary on regulation generally.

The House of Lords' Industry & Regulators Committee (IRC) has written to relevant HM Treasury and DWP Ministers about the LDI (liability-driven investments) crisis, making several recommendations.

The IRC has no power, and the letter contains a lament that ministers haven't met it, but does have a platform to help shape the debate.

This continues next month with publication of the Bank of England's plans to strengthen LDI resilience, and a session of the Commons' Work & Pensions Committee (also attended by IRC members) at which the Ministers will appear. And there's now a review of TPR (The Pensions Regulator).

The IRC's recommendations - review pensions' accounting; review use of leverage; regulate investment consultants; give TPR a duty to consider pensions' wider impact; and give the FPC (Financial Policy Committee) pension sector powers - all make sense but seem to go further than the Government wants.

However, there's a case for doing more...

I remember seeing, in 2014, when I was still at the FCA, a diagram of who did what in pension regulation. It was a complicated mixture of FCA, TPR and DWP, with evident potential for confusion between regulators and for issues to fall down gaps.

If it was a legitimate criticism, pre-financial crisis, that it was unclear who was ultimately accountable for what, the same applied to pensions.

Ever since, I've thought that pension regulation needed to be simplified and clarified.

What I should also have spotted, but didn't, was the absence of financial stability from the diagram, so no mention of either Bank or FPC.

When the LDI crisis burst, my first instinct was that TPR should become a member of the FPC. I think this still holds, and the IRC goes a long way down this path - giving both bodies relevant new responsibilities and powers - but without reaching its logical conclusion.

Stepping back, one factor is that our regulatory framework is more a reaction to the financial crisis rather than a cool-headed assessment, more focused on preventing a repeat of that crisis than on anticipating the next. And so, while it has many strengths, it also carries a slight whiff of the Maginot Line.

Hopefully, the various reports and debates about the LDI crisis won't solely concentrate on the minutiae, but will also consider pension regulation as a whole.

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