FCA fined over master trust pension failings ‒ do compliance rules go too far?

Even the regulator struggles to keep up with what’s expected of it. While obviously embarrassing, it does highlight how tricky it can be to meet compliance rules.

It has emerged that the Financial Conduct Authority (FCA), the nation’s main financial regulator, has been fined by The Pensions Regulator after failing to meet compliance rules over its own pension scheme.

The FCA was hit with a £2,000 fine ‒ the maximum permitted ‒ with reports suggesting this was down to problems with the chair’s statement in its documentation.

What fun! The FCA is fined £2000 - the maximum possible - by the pensions regulator for failings in its own pension scheme administration https://t.co/X3sOKu0fem

— Paul Lewis (@paullewismoney) January 27, 2020

It’s within this statement that the scheme’s trustees are supposed to explain what they’ve done to comply with certain obligations on them.

It should also detail things like the default fund and its governance, costs and charges, assessment of value for members, and the training offered to the trustees.

A spokesperson for the FCA acknowledged that its application to become an authorised master trust had initially been refused due to “insufficient detail”.

They added: “The FCA Pension Plan trustee has apologised to members of the plan, and reviewed systems and processes to ensure all the required information is available to members and the 2019 governance statement (provided in October) was fully compliant."

This really falls into the 'you couldn't make it up if you tried' bin, the FCA fined by another regulator for messing up its own staff pension scheme. They're only human, could have happened to anyone, have every sympathy etc.. #schadenfreude #regulation
https://t.co/T8ZaktXqfT

— Philip Hanley (@philipjhanley) January 27, 2020

Falling foul of chair’s statements

It’s incredible enough that the financial regulator struggled to meet the compliance expectations that go with running a pension scheme, but it’s not the only high profile firm to do so.

Last year National Employment and Savings Trust (NEST), the Government-backed workplace pension provider was also fined £2,000 after compliance issues with its chair’s statement emerged.

NEST handles around eight million pension pots, so you’d hope it was on top of exactly what expectations it needs to meet.

And yet reports revealed that it fell foul of the Pensions Regulator because of a lack of information provided on the review of the scheme’s default investments.

Putting the trust in master trusts

Both NEST and the FCA were fined over their running of master trusts.

Master trusts are multi-employer occupation schemes ‒ essentially a host of different employers come together under a single wrapper, each with their own division, but under the governance of a single trustee board.

Obviously, with employers now required to offer their staff a pension ‒ and contribute to it ‒ due to the auto-enrolment initiative, a master trust can be an appealing set-up for smaller firms.

Back in October 2018, the TPR set out a new registration process for master trusts in a bid to ensure they are as secure as possible, by doing things like holding enough capital to cover the cost of certain scenarios, like the scheme winding up, without members of the scheme having to pay.

The new rules led to a host of former trust operators leaving the market entirely, with just 37 master trusts approved by the deadline of last November.

There had been more than 80 master trusts on the market in January 2018.

Setting high standards

Obviously, it’s a good thing that the TPR is being so stringent on master trusts, ensuring that they are meeting strict compliance rules.

After all, these trusts are handling the pensions of millions of savers ‒ it’s crucial that they are up to scratch.

But if I’m honest, there is a part of me that questions whether some of these rules may be being enforced a little too enthusiastically.

For example, according to FTAdviser, one of the reasons that NEST was fined was because in its chair’s statement didn’t include a hyperlink to its statement of investment principles, writing out the link instead.

That seems awfully petty to me, though it’s notable that in its guide for master trusts on what to include in a statement of investment principles it actually highlights NEST as a good example to follow (with a hyperlink of its own that doesn’t work ironically).

Similarly, the FCA reportedly didn’t provide enough detail on the regular training members of the trustee board receive in order to demonstrate sufficient knowledge and understanding.

Speaking as a pension saver, it’s enough for me to know that training has taken place ‒ do I really need more detailed info on what that training consisted of?

We should expect high standards from master trusts, but when even other financial regulators struggle to meet the compliance rules, I think it’s fair enough to question whether those rules are perhaps a little too prescriptive.

What do you think? Is this a big failure for the FCA or a sign rules need to be relaxed? Share your thoughts in the comments section below.