Independent governance committees (IGCs) may see their remit expanded to include reporting on social investing issues under Financial Conduct Authority (FCA) plans unveiled in its business plan today.
The watchdog said it had begun wider policy work on potentially changing the rules for IGCs to improve governance and value for money, citing recommendations from the Law Commission last year.
The Law Commission had urged the government and regulator to clarify investment rules and fiduciary duties for pension funds, and require IGCs to report on how they evaluate long-term risks, members' ethical concerns, and stewardship. The commission said it wanted to see a more level playing field between contract- and trust-based schemes.
The FCA is now exploring the prospect of implementing these recommendations, it said in its business plan for 2018/19, although it revealed no further details. It follows the Department for Work and Pensions, which in December said it would clarify legislation around these issues for trust-based schemes.
ShareAction head of policy Bethan Livesey said it was time for the regulator to recognise value for money has a wider definition.
"‘Value for money' is not just about costs and charges; it is about wider investment strategy and risk management, both of which include risks arising from environmental, social and governance factors," she said. "Many players in the pensions market are not taking these seriously so it is time for the FCA to step up and regulate."
But Aegon IGC chairman and Sackers partner Ian Pittaway said the nature of contract-based schemes means the IGC members cannot do as much as their trustee counterparts, as they are not primary decision-makers.
"We're more reviewers and influencers and persuaders; were not actually decision-makers," he said. "This wouldn't be a big bang solution, it would be every year, we would question - interrogate - the provider about what their social impact policies were and there would be a dialogue about that and we'd seek to influence it."
Because IGCs "turn up a little bit after the thing's all been set up", putting these issues on the agenda and more centre-stage would have a "more subtle and long-term impact", but it would be a "longer burn" than with trust-based arrangements.
Elsewhere in the report, the financial watchdog committed to working with The Pensions Regulator (TPR) through a joint pensions strategy - which it launched a consultation on last month - while intervening in advisory firms which are dealing what it deems unsuitable defined benefit (DB) transfer advice.
The plan said: "Some firms have responded to the pension reforms by changing their business models in ways that potentially cause harm to consumers. We will not hesitate to intervene, where necessary, if we see evidence of firms providing unsuitable pension transfer advice."
This will be enabled through greater data collection from all firms with pension transfer permissions, with the regulator identifying the extent of harm and the most effective way it can intervene.
Research will also be undertaken to understand whether there is under-saving for retirement, investigating if there are any consumer groups at greater risk of a shortfall in retirement. The FCA will also publish its final report on the Retirement Outcomes Review, along with a consultation paper on proposed remedies, later this year.
With the FCA also putting aside £30m for Brexit planning-related expenditure over the year - with £14m raised from reprioritising in its ongoing regulated activity budget and £5m from regulatory fees - its chief executive Andrew Bailey said the plan reflects the regulator's biggest concerns.
"The business plan is an important way in which we are transparent about our priorities for the year," he said. "We recognise that this year we need to dedicate a significant amount of resource to withdrawal from the EU. As a result, setting our priorities this year has involved a particularly rigorous level of scrutiny and challenge to focus on areas where we see the greatest potential for harm."
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