In the second of his series of monthly columns for Professional Pensions, Robin Ellison explains why we need more regulators, looks at pensions in the arts, discusses jacket problems, opines on litigation, and shares some musings about things abroad.
We need another regulator (1)
Anyone attempting to use pension funds to help build infrastructure (as is currently being encouraged by government) in the UK faces a number of challenges - financial, engineering, legal - and of course, not unique to the UK, nimbys. It's one of the reasons we have energy challenges (complaints about nuclear power stations, or land-based wind farms) and housing shortages.
The government is suggesting reducing planning controls in relation to housing and energy, but the problem may be less the zoning rules than the protesters. We already have a law that requires the registration of lobbyists, and now we almost certainly need a regulator of nimbys. It maybe should be illegal to protest against something if we can be regarded as having an interest in the outcome without having registered, we should be trained and qualified in how to be a nimby, and there should be a Nimby Regulatory Authority (NRA) with power to fine and disqualify nimbys. This is outcomes-based regulation: we would then have more windpower and more housing. What's not to like?
Infra is a major investment opportunity for pension funds, and if the side effect of an NRA is fewer people gluing themselves to motorways using hydrocarbon-derived adhesives, it could be a win-win.
We need another regulator (2)
There is now a proposal for the establishment of a Football Regulator (TFR). TFR may struggle to deal with diversity rules for teams, and how sun-ray lamps for football pitches can be compatible with ESG, but a couple of hundred pages of A4 should manage that. Maybe all sports should have some form of regulator; tiddlywinks, croquet and Ultima Online (all involving elements of violence, with impact upon the young and impressionable) are obvious candidates.
We need another regulator (3)
US regulators have been disappointed that traders and dealmakers have not been preserving their WhatsApp messages (although Matt Hancock may take a different view); investment banks have so far been charged $2bn (£1.63bn) in penalties. And now the SEC wants private equity and hedge funds to provide their own WhatsApps. The US Managed Funds Association and the Investment Company Institute are objecting to this (they call it ‘rulemaking by enforcement'), and to another slew of rules that the SEC is proposing (see the Financial Times article from 11 February - The WhatsApp showdown between SEC and money managers). This is not just a US excess; The Pensions Regulator (TPR) also has a practice of issuing requests for copies of WhatsApp and other messages to pension trustees. It might be sensible if we in the UK had a trade body that objected to the regulatory creep of the Financial Conduct Authority (FCA) and TPR; maybe we should start one.
Pensions and the arts (1)
There is a drama-doc on Netflix, Madoff: The Monster of Wall Street. Among many things it shows how the frauds were perpetrated over decades which, as one of the reviews noted, involved ‘grotesque regulatory failure'. The reviewer missed the point that paradoxically it was the fact that he was regulated that persuaded many investors that due diligence was unnecessary - ie it was the regulation that allowed it to happen, much as happened in the UK in the Maxwell imbroglio 30 years before.
Instructively FTX, the cryptocurrency exchange and hedge fund once-valued at $32bn (£26bn), and which went bust in November 2022, was unregulated but the founder is being subjected to legal process much earlier than he might have been than if a regulator had been involved. Leonardo di Caprio is probably being pencilled in to play the anti-hero.
Incidentally, there is a well-reviewed play on in the West End dealing with the Grenfell tragedy, suggesting it was inadequate regulation that allowed it to happen. Other commentators have plausibly suggested however that it was excessive regulation that might have been the indirect cause, with no one regulator being responsible for safety. We are still waiting for the official report and hopefully when it appears it will explore the counter-narrative.
Pensions and the arts (2)
Brian Brown-Easley (portrayed by John Boyega) was a US veteran who complained that he had not received his disability pension; at his wit's end he held up a bank. Last year the hostage movie Breaking which relates the story more or less accurately ends with him being killed by a sniper despite the prospect of a peaceful ending. Hostage takers have also been shot unnecessarily in the UK so it is not just a US problem, but maybe TPR and the Pensions Administration Standards Association should email DVDs of the film to all pensions administrators to show what can happen if pensions are not paid on time.
Jacket problem (1): Pensions lawyers in love
The Metro freesheet published this in its lonely hearts column on 13 February 2023:
To the blonde lawyer, late-20s, blue eyes, very witty and funny. I saw you after a night out, just after midnight on Tuesday near Bank station. You had lost your phone and were cold, so I gave you my jacket and put you in an Uber to your home. I can't forget your deep-blue eyes - and I also need my jacket back. Let's go for a drink.
It must be genuine; only a pensions lawyer would, whilst courting, articulate the legal issue of recovery which has been explored in a number of cases covering overpaid pensions. The blonde lawyer should repay him the taxifare - and return the jacket or its equivalent within 14 days (see personal note below).
Jacket problem (2): Personal…
I was at a splendid and informative conference last month held at Australia House in London; the security screening was intense when entering the building. But the heavy-duty protection did not prevent my ancient rainjacket from later being misappropriated from the cloakroom. If you have it (maybe it's that blonde lawyer again) I'd quite like it back. The event was the first annual conference of the Institute of Regulators. Should have expected it really.
Litigation: LDI, ESG…
The joy of working in the law is that there's always someone spoiling for a court fight. Liability-driven investment (LDI) has been seized upon by a House of Commons select committee who feel things went wrong and there should be more controls in future. As any fule kno (sic), LDI was not intended to be risk-free, but it was a risk control mechanism which by and large has worked remarkably well.
Most if not all pension funds have had their liabilities reduced by the increase in gilt yields, due to what is the real scandal - the expectation of the regulator that liabilities should be measured against gilts. It is vanishingly improbable that there will be LDI litigation against lawyers or advisers or asset managers. But it is possible that there will be an inquiry by a select committee into TPR's policy of regulating pension funds' liabilities to a measure which has cost UK industry billions in wasted capital.
Meanwhile just as ClientEarth sues Shell in the UK for continuing in the hydrocarbon business, there is litigation in the US (not just by flat-earth Republicans) against pension funds adopting ESG criteria (see the Plan Sponsor article from 24 February - New lawsuit calls ESG unlawful ‘investing fad'). And Vanguard has pulled out of the Net Zero Asset Managers Initiative on measurement concerns.
So we're damned etc. What is comforting is that even in the US the courts are reluctant to get involved in investment hindsight. We almost certainly need to review whether it is appropriate for DWP and TPR to tell us how to apply ESG (see a comprehensive article on the state of play in the US from the Harvard Law School Forum on Corporate Governance from 11 March - ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the US).
Foreigners (1): France
There's no doubt many things are better in France: omelettes, French fries, high-speed trains. And strikes. French towns have an app dedicated to strikes, so that we can find out what strikes are on, why, and what are their dates, so we can better plan our lives.
In early March 2023 there was a French general strike against the proposed legislation intended to increase the state pension age from 62 to 64. The UK is rather less good of course at grand projets (look at our high-speed train issues), but we do have our own mini-strikes on pensions. We don't, sadly, have a strike app, but we do have a webpage, which is comprehensive, but doesn't explain the objective of the strikes (so we don't have a list of our own pension strikes). TPR should have a pensions strike list on its webpage, so we could show solidarity with university lecturers etc.
Foreigners (2): Canada
A Canadian case - R v Epstein heard in the Court of Quebec's criminal and penal division on 24 February 2023 - explores what is legal in expressions of discontent. The court held: "To be clear: it is not a crime to dislike a neighbour. It is not a crime to express it… To be abundantly clear, it is not a crime to give someone the finger. Flipping the proverbial bird is a God-given, Charter enshrined, right that belongs to every red-blooded Canadian. It may not be civil, it may not be polite. It may not be gentlemanly… Nevertheless it does not trigger criminal liability. It is an integral component of one's freedom of expression… Being told to ‘fu*k-off' should not trigger a 911 call." English law probably reflects that of Canada; nevertheless it is probably unwise to treat officials at TPR or the FCA in this way, however frustrated our feelings at the time when they fine us for breach of the chair's statement regulations.
Robin Ellison is, among many other things, the chairman of the College of Lawmakers, a retired pensions lawyer, a visiting professor in pensions law and economics at Bayes Business School, City, University of London and chair of several pension funds