Regulator fines regulator

Schadenfreude has a bad name; it is not usually gracious to delight in another's misfortune. But a broadcast on BBC Radio 4 January 26 2020 (Something understood) on the topic suggests that there are times when it is acceptable, and now might just be one of them. The FCA is having a bad time at the moment; it has lost its chief executive, it has been ordered to pay for an error on its register which caused serious loss to an IFA, and now it needs to write to 160,000 people about their DB pension transfers because around 80% of the advice given was sub-optimal (ie 'bad') (FCA on pension transfers) But worse, much worse than this, was the £2,000 fine it has had to pay to The Pensions Regulator because its Chairman's Statement on its pension fund was also sub-optimal. The size of the fine is relevant - it is the highest that can be imposed. For trivial breaches the minimum £500 is the norm; £2,000 suggests the breach was very serious indeed.

Of course, the FCA could always appeal - and they would almost certainly be successful. A judge in the First-tier Tribunal at the end of 2018 suggested that the legislation empowering TPR to impose fines was probably invalid. The decision for some reason is not on the usual case-law websites but I'm happy to make copies available on request (see Moore Stephens Master Trust v The Pensions Regulator [2019] 050 PBLR (018), 14 December 2018).

The sight of one regulator fining another regulator is in some ways delicious to observe. But it also makes the point that there is now no reputational cost to a fine. If even regulators are fined, fines are simply a normal incident of running a pension scheme. How much better it would have been if one regulator had had a coffee with another regulator or pension trustee chairman and suggested that next year the statement should be better, and explained what it thought what the fault was. This sanction is simply grandstanding, and brings regulation into disrepute. The FCA is entitled to whinge, but it also is guilty itself of grandstanding; it has issued a 'Dear CEO' letter complaining that firms are giving unsuitable advice, not preventing consumers from falling victim to pension and investment scams, not encouraging their clients to claim from the ombudsman and charging excessive fees. What has the FCA been doing since 1986? It may be that consumers would be better off to relinquish trust in the regulator to protect them, and take out a subscription to Which? instead. It would be cheaper and more effective.

Meanwhile just to continue the note on pensions and the arts: Mick Herron (a friend) has published 'The Catch' in the States, one in a very successful series of thrillers. The hero, of course, is a part-time pensions administrator, and the plot involves possible over-payment of a spy's pension. Pensions and spies have a long-standing connection; remember Bruce Willis falling in love with his pensions administrator in the Red and Red 2 movies? What is it about pensions administrators that makes them so attractive?

Finally, back to the FCA. It has set out a list of complaints against the asset management industry (Siobhan Riding, City watchdog targets asset managers, FT, 23 January 2020) following the Woodford imbroglio and concentrating on liquidity mismatches. It is inevitable that regulators fight the last war, but an article in the same issue of the FT (Joe Rennison, Meet the new bond kings, FT Big Read, January 23 2020) explains how computerised portfolio trading fixes liquidity issues. Problem solved.