The Financial Conduct Authority (FCA) is proposing to expand the remit of independent governance committees (IGCs) to help "protect consumers from unsuitable investments".
In its consultation - unveiled today (15 April) - the watchdog is asking if IGCs should be required to report on their firm's policies on environmental, social and governance (ESG) issues, including climate change. The FCA wants ensure consumer concerns are taken into account, and help encourage good stewardship of investments.
It is also proposing a duty for IGCs to oversee the value for money of investment pathway solutions for pension drawdown, which is expected to take effect from 2020.
The consultation is part of the watchdog's efforts to improve value for money in the investment sector by cracking down on unfair fees and charges.
The FCA also said it wants to ensure costs and charges are good value relative to the quality of the pathway solution and associated services, and a pathway solution that is appropriate for the consumers invested in it.
It also expects to see IGCs raising any concerns they may have about the value for money of pathway solutions, and providers addressing these concerns.
Its overall objective is to "help make sure that the pensions sector delivers good outcomes for consumers with workplace personal pensions and, in the future, pathway solutions", according to the document.
Hargreaves Lansdown senior analyst Nathan Long said it is the "success" of IGCs in workplace pensions that has convinced the FCA to look at "going all in", and to extend their reach in this area.
"This looks like a small extension of powers, but potentially represents a very significant shift in how pensions and personal finances more widely are policed and it's important the FCA doesn't give up on trying to encourage people to save and invest for themselves.
"Building up the pension pots of workers who've made no active decisions is a world away from the myriad of personal decisions made by people at the point of retirement. Currently, a narrow remit allows IGCs to be effective tyre kickers, it's not certain the same will be true with more on their plate."
The publication of the document follows an initial announcement this time last year - in which the watchdog said it had begun such wider policy work on potentially changing rules for IGCs in these areas. 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.
Furthermore, in an update to its Retirement Outcomes Review published in January, the FCA consulted on making further plans, first mooted last June, to introduce rules to boost the adequacy of investment options in drawdown products.
The consultation closes on 15 May.
What the FCA is asking
- Should IGCs report on the adequacy and quality of their firm's policies on ESG issues, member concerns and stewardship?
- Should they report on how the firm has implemented its policies on ESG issues, member concerns and stewardship?
- Should IGCs report on the firm's policies on these issues for both pathway solutions and workplace personal pensions?
- Should firms make the IGCs' annual reports publicly and prominently available, with two prior year reports for comparison
- Should the proposed guidance apply more widely to all firms that provide pension products and all life insurers that provide investment-based life insurance products?
- Should the proposed approach for providers with smaller numbers of non-advised consumers entering drawdown is agreed upon?
- Should IGCs assess the initial designs of pathway solutions?
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