Trustees required to confirm compliance with CMA Order by 7 January 2021

Trustees of occupational pension schemes mainly administered in the UK (with limited exceptions) have until 7 January 2021 to submit a compliance statement together with a signed certificate to the Competition and Markets Authority (CMA), confirming that they have complied with the requirements of the Investment Consultancy and Fiduciary Management Market Investigation Order 2019.

This is an annual requirement, so trustees should add this to their annual business plan, although the law may change during the course of 2021, with additional requirements due to be introduced and with the Pensions Regulator due to take on the responsibility for enforcing this regime from the CMA.

Relevant requirements

The Order was published on 10 June 2019 following a market investigation by the CMA into competition concerns in the investment consultancy and fiduciary management sectors.

The Part of the Order which is relevant for almost all occupational pension schemes is Part 7, which provides that, from 10 December 2019, trustees of such schemes must not:

1. continue to receive investment consulting services from an investment consultant; or
2. enter into a contract with an investment consultant for investment consultancy services;

without having set strategic objectives for the investment consultant.

Given that this deadline has passed, we would expect trustees to have already implemented objectives for their investment advisers.

The CMA also expects trustees to confirm compliance with Part 3 of the Order, which relates to the mandatory tendering for fiduciary management services in various circumstances, regardless of whether or not their scheme has a fiduciary manager in place or, where it has, whether the mandatory tendering requirements have yet been triggered in respect of the scheme.

Compliance statement

Part 9 of the Order requires Trustees to send a compliance statement to the CMA by 7 January 2021 (and annually thereafter) confirming the extent to which they have complied with the Part(s) of the Order that apply to their scheme during the relevant period. In practice, this means that Trustees must confirm that strategic objectives have been in place for their investment consultant since 10 December 2019 and that they have complied with the mandatory tendering requirements for fiduciary managers (to the extent that they apply to the scheme).

The compliance statement must be accompanied by a signed certificate which confirms that:

1. the compliance statement has been prepared in accordance with the requirements of the Order; and
2. for the period to which the compliance statement relates, the Trustees have complied in all material respects with the requirements of the Order and reasonably expect to continue to do so.

The Order contains template wording for the compliance statement and sets out the requirements for the accompanying certificate. Where the relevant confirmations can be given, these simply need to tailored, completed and signed on behalf of a scheme and e-mailed to the CMA at RemediesMonitoringTeam@cma.gov.uk.

Where a scheme has a sole corporate trustee, the certificate must be signed by a trustee director. Where a scheme has a trustee board, it must be signed by the chair of trustees or, if there is no chair or the chair is unavailable, by any member of the board.

What if trustees have not had objectives in place since 10 December 2019?

If Trustees have been receiving investment consultancy services but have not had objectives in place since 10 December 2019 (or if they have not complied with the Order in any other respect) they need to notify the CMA of this within 14 days of becoming aware of the failure to comply, with a brief description of the steps taken to address the failure.

What if a scheme does not have a fiduciary manager or has not yet run a competitive tender exercise?

Where trustees have not been required to run a competitive tender exercise for a fiduciary manager they should still refer to Part 3 in their compliance statement and certificate and confirm that they have complied with this Part on the basis that either (1) their scheme has not appointed a fiduciary manager, or (2) because the requirement to run a competitive tender exercise has not yet been triggered in respect of their scheme.

Immediate actions

Trustees of schemes to which the CMA Order applies should prepare and submit the compliance statement and accompanying certificate to the CMA prior to 7 January 2021. Please speak to your usual HSF adviser if you need help with this.

Where trustees have changed investment adviser during the period, objectives should have been put in place before the contract was entered into with the new advisers. Therefore, in this scenario we would expect trustees to have had objectives in place with their previous adviser on 10 December 2019 and then to have put in place a new set of objectives for the new adviser before entering to the contract with them. However, this should be checked before the compliance statement and certificate are submitted.

Sanctions for non-compliance

The CMA can give directions to trustees to take specific action (or refrain from certain actions) to ensure they comply with the Order. The CMA can also enforce compliance by issuing civil proceedings.

Where the CMA considers that a notice it has given has not been complied with, without reasonable excuse, it can impose a fine.

In addition, in our experience, investment consultants would refuse to continue to act unless trustees have set objectives in compliance with the Order.

Reviewing performance against the objectives

The Order itself does not require trustees to assess their investment consultant's performance against the objectives. However, the Pensions Regulator has published guidance which makes clear that it expects trustees to:

• assess the performance of their investment consultant against the objectives set on a periodic basis (in most cases, the Regulator expects this will be on an annual basis, with a detailed assessment carried out at least every three years); and
• review the objectives themselves at least every three years and after any significant change in investment strategy and objectives.

Therefore, this is a good opportunity for trustees who haven’t yet done so to review the performance of their investment consultants against the objectives they have set. However, trustees are not currently required to confirm to the CMA that they have done this.

Future changes

Currently, the legal requirements in this area are set out in a CMA Order, and the CMA is responsible for monitoring compliance. However, the expectation is that the DWP will introduce regulations in place of the CMA Order in the near future (draft regulations having been published for consultation in July 2019) and that the Pensions Regulator will take over responsibility for monitoring compliance with this regime.

The requirements in the draft DWP regulations are slightly different to those in the CMA Order in some places. The requirement for Trustees to set objectives for the investment consultants remains. However, in the draft regulations, the expectations outlined in the Regulator’s guidance that trustees would assess the performance of their investment consultant against the objectives at least annually and review the objectives at least every three years or without delay following significant changes to the investment strategy would become a legal requirement and be placed on a statutory footing.

It is not currently known when these regulations will be introduced (with the DWP simply confirming that they would not become law before 2021). However, trustees should be prepared for these changes, which will include modifications to the annual compliance notification requirement.

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