FCA consultation: default investment pathways and cash warnings

The FCA has consulted on imposing two new requirements on providers of non-workplace pension schemes:

• the requirement to offer a "default" investment option to new non-advised customers; and
• a requirement to issue warnings to members holding more than 25% of their fund in cash for a sustained period, warning the member of the risk of the value of the fund being eroded by inflation.

For more detail click here.

FCA and DWP publish final rules for stronger nudge to pensions guidance

The FCA and DWP have both published the final rules for implementing the "stronger nudge" to pensions guidance which will take effect from 1 June 2022.  The stronger nudge rules will require pension scheme providers/trustees to offer to book an appointment with the Pension Wise guidance service for members in certain circumstances (-broadly, where it appears likely that the member will start to receive benefits soon).  Where the stronger nudge requirements apply, the trustees/provider must not generally action a benefit/transfer value request without obtaining confirmation from the member either that guidance has been received or that the member has opted out of receiving guidance.  The FCA rules will apply to providers of personal pension schemes and the regulations produced by the DWP will apply to trustees of occupational schemes.  Although the wording of the regulations is not as clear as it could be, it appears that SSASs will be exempt from the stronger nudge requirements provided all the members of the SSAS are trustees.  For more detail, click here.

New Consumer Duty consultation

In December 2021 the FCA published a second consultation on its proposed new Consumer Duty together with feedback from its  first consultation in May 2021 which outlined its high level proposals.  The FCA proposes that the Consumer Duty will be expressed as a new Principle 12 stating that, "A firm must act to deliver good outcomes for retail customers."  The FCA expects to make any new rules by 31 July 2022 and to give firms until 30 April 2023 to fully implement the new Consumer Duty.

Our Financial Regulation team has produced three webinars on the Consumer Duty:

• Consumer Duty Workshop 1: What does the Duty mean and what does it apply to?
• Consumer Duty-  Workshop 2: Deeper Dive into the Consumer Outcomes
• Consumer Duty- Workshop 3: The challenges of compliance and oversight

For more detail, including our thoughts on the application of the Consumer Duty to SIPP providers, click here.

Final rules on how IGCs and GAAs should assess value for money

In October 2021 the FCA issued its Policy Statement and final rules on how Independent Governance Committees (IGCs) and Governance Advisory Arrangements (GAAs) should compare value for money offered by the pension schemes they oversee.  For more detail, click here.

Pensions dashboards: proposed rules for pension providers

In a consultation paper published on 11 February 2022, the FCA sets out its proposed rules requiring FCA-regulated pension providers to connect to the pensions dashboard service, identify matches with any members seeking to view their pensions via the dashboard service, and provide the required information for members to view. 

The DWP has published a separate consultation on the regulations that will impose similar requirements on the trustees of occupational pension schemes.  The draft regulations only provide for schemes with 100 or more relevant members to connect to the dashboard, so will not catch SSASs, though the consultation does not rule out the possibility of smaller schemes being required to connect to the dashboard at some point.

The FCA aims to publish its Policy Statement and final rules in Autumn 2022.

For more detail on the pensions dashboard rules, click here.

FCA expectations on remote or hybrid working

In October the FCA set out its expectations of firms that have adopted remote or hybrid working.  These include that firms should be able to prove that the lack of a centralised location or remote working does not and is unlikely to:

• affect the firm's location in the UK or its ability to meet the threshold conditions for its regulated activities;
• affect the firm's ability to oversee its functions;
• cause detriment to consumers; or
• increase the risk of financial crime.

The FCA says firms should make sure their employees understand that the FCA has powers to visit any location where work is performed, including residential addresses, for any regulatory purposes.

The FCA says any material change to how a firm intends to operate may need to be notified in advance to the FCA under Principle 11 which requires firms to disclose to the FCA anything relating to the firm of which the FCA would reasonably expect notice.

FCA climate-related disclosure rules start to come into force

The FCA's rules on climate-related financial disclosures for asset managers, life insurers and FCA-regulated pension providers started to come into force from 1 January 2022 following publication by the FCA of its Policy Statement and final rules in December 2021.  For more information, click here. 

FCA says "high net worth" and "sophisticated investor" exemption require reform

In its 2020/21 Perimeter Report the FCA says that it believes that the exemptions in the Financial Promotion Order for "high net worth" and "sophisticated" investors are in need of reform.  It says that the threshold for being classed as a high net worth investor is significantly lower than that used in other comparable jurisdictions and that the advent of investment-based crowdfunding means that ordinary consumers can now easily meet the criteria for a "sophisticated" investor by making more than one investment in an unlisted company in a two year period.  There is currently no requirement for firms to check that consumers meet the criteria for self-certifying as high net worth or sophisticated.  The FCA has seen evidence of unregulated firms coaching consumers to self-certify when they do not meet the tests.

FCA guidance consultation on approach to compromises for regulated firms

In January the FCA published a consultation on guidance which sets out its role and approach in relation to compromises entered into by regulated firms with their creditors and/or shareholders.    The guidance covers three types of compromise: schemes of arrangement, restructuring plans and voluntary arrangements.  The consultation runs until 1 March 2022.

The FCA says that where a firm is considering a compromise, it must notify the FCA immediately in accordance with Principle 11 (which requires firms to disclose to the FCA anything relating to the firm of which the FCA would reasonably expect notice) and provide relevant information at an early stage to enable the FCA to assess the compromise.  The guidance sets out a detailed list of information which the FCA would expect to receive as soon as it is available.  This includes details of any rights being extinguished (including ability to raise a complaint with the Financial Ombudsman Service).

The FCA says that where redress is due to a firm's customers, it would be concerned if a regulated firm proposes a compromise where customers are offered less than their full redress and the firm continues to trade and the redress liabilities were caused by serious misconduct by the firm.  If firms do propose a compromise in respect of redress liabilities, the FCA says firms should ensure that it is the best proposal they can make in terms of the what the customers receive as a proportion of redress due.

The FCA makes clear that it may intervene in court proceedings if it objects to a proposed compromise.  It says that the consideration of schemes of arrangement and restructuring plans is not business as usual work for the FCA and that in some circumstances it may charge a Special Project Fee for legal or advisory costs.  The FCA may also use its regulatory powers to prevent a firm from pursuing a compromise if it considers that the compromise is being used to prevent redress for serious misconduct whilst allowing a firm to continue to trade.  It makes clear that its assessment of whether to use its regulatory powers is independent of whether a compromise is approved by creditors/shareholders/the court.

The guidance will not apply retrospectively to a compromise where a firm has issued a "practice statement letter" or a voluntary arrangement proposal before the date the guidance comes into effect.  These will be reviewed on a case by case basis, though the principles in the guidance may be relevant.

Our thoughts

We anticipate that the FCA will take a hard line on compromises which seek to enable shareholders/investors to extract value from a business at the expense of customers with claims.

This item was amended on 30 March 2022 to reflect that we now consider that SSASs will be exempt from the "stronger nudge" requirements provided all the members are trustees.

FRC consults on major changes to actuarial standard used for benefit projections

On 14 February 2022 the Financial Reporting Council (FRC) published a consultation on the actuarial standard TM1 which specifies the assumptions and methods used for calculating statutory illustrations  of money purchase benefits.  For more detail, click here.

Pensions minister announces "statement season"

Speaking at the PLSA annual conference in October 2021, pensions minister Guy Opperman announced that the Government intends to legislate for a "statement season" so that scheme members all receive their benefit statements at around the same time.  No further detail has yet been provided.  Some members of the pensions industry have expressed concern at the resourcing challenges that a statement season would present.

Covid-19 commercial rent arrears – new arbitration scheme

The Government has published a new Code of Practice (Code) and draft legislation, the Commercial Rent (Coronavirus) Bill which will enable landlords and tenants who have not already reached an agreement to apply to an arbitrator to settle disputes relating to commercial rent arrears resulting from the Covid-19 pandemic. The arbitration scheme will apply to commercial rent debts related to the mandated closure, in full or in part, of certain businesses, including pubs, gyms and restaurants, from March 2020 until the date coronavirus restrictions ended for their sector. Where the arbitration scheme applies, the arbitrator will have powers to write off arrears or defer payment.

Commercial tenants in England, Wales and Northern Ireland are protected from eviction and various other landlord remedies until 25 March 2022, which provides time for landlords and tenants to negotiate how to share the cost of accrued Covid-19 commercial rent debts. These negotiations will be underpinned by the new Code, which outlines a clear process for settling outstanding debts.

The new Code proposes that, in the first instance, tenants unable to pay in full should negotiate with their landlord in the expectation that the landlord waives some or all of the rent arrears where they are able to do so. The onus is on the tenant to demonstrate it cannot afford to pay the rent in full. Where possible, the parties should resolve any disputes before the new Bill comes into force.  The new Code replaces the 'Code of Practice for commercial property relationships', originally published on 19 June 2020 and updated in April 2021. 

The Bill will establish a legally binding arbitration process, expected to come into force from 25 March 2022, for commercial landlords and tenants who have yet to reach an agreement, following negotiation, in accordance with the principles set out in the new Code of Practice in respect of ring-fenced arrears relating to periods of enforced closure.