Pensions Alert: CMA Order - Compliance Statements

In December 2019, provisions of an Order made by the Competition and Markets Authority (CMA) came into force which impose obligations on trustees of occupational pension schemes in relation to competitive tenders for fiduciary management services and setting strategic objectives for investment consultants.

The Order also requires trustees to submit Compliance Statements to the CMA, with the first statement due by 7 January 2021. Trustees therefore need to ensure that they take action to meet this deadline.

In this Pensions Alert we provide further information about the requirement to submit a Compliance Statement.

Background

In June 2019 the CMA published The Investment Consultancy and Fiduciary Management Market Investigation Order 2019 (Order) which implements remedies set out in its December 2018 report in relation to its investment consultants market investigation. The Order includes obligations on fiduciary management providers, investment consultancy providers and trustees of occupational pension schemes, and sets out definitions of fiduciary management services and investment consultancy services for these purposes.

The provisions in relation to trustees came into force on 10 December 2019 and, in summary, set out the following obligations.

• Trustees have to carry out a competitive tender process before entering into one or more than one agreement with a fiduciary management provider which individually, or when aggregated with each other, would cover 20% or more of the scheme’s assets.
• If the trustees already have an agreement, or agreements, in place with one or more than one fiduciary management providers covering 20% or more of the scheme’s assets and a competitive tender was not held, they must carry out a competitive tender process within a specified period (broadly, the later of five years from the date of the agreement or 9 June 2021).
• Trustees are prohibited from entering into a contract to obtain, or continuing to obtain, investment consultancy services from an investment consultancy provider unless they have set strategic objectives for the provider.

Compliance Statements

The Order also requires trustees to submit annual Compliance Statements to the CMA which confirm the extent to which the relevant applicable provisions of the Order have been complied with during the reporting period. The first Compliance Statement must be submitted to the CMA by 7 January 2021.

The Order prescribes the form which the Compliance Statement must take. Trustees should therefore use the wording as set out in the Order. It is worth noting that the Order does not require the Compliance Statement to describe how compliance was achieved. However, the CMA can request information and documents to monitor compliance with the Order.

The Order also provides that a signed certificate must be submitted with the Compliance Statement. The certificate must state that:

• the relevant Compliance Statement has been prepared in accordance with the requirements of the Order; and
• 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 certificate must be signed by: a director of any sole corporate trustee; or the chair of the board of trustees; or, if there is no chair or the chair is not available, any other member of the board of trustees.

DWP Regulations

In July 2019 the DWP published a consultation on draft regulations which would: (1) integrate the trustee obligations in relation to competitive tenders for fiduciary management services and setting strategic objectives for investment consultants into pensions law; and (2) provide for the Pensions Regulator to oversee the requirements. The draft regulations require compliance to be reported to the Pensions Regulator within the existing scheme return process, and give the Pensions Regulator power to issue compliance notices and financial penalties in relation to non-compliance.

The DWP’s consultation proposed that the regulations would come into force on 6 April 2020 but a response to the consultation and a final version of the regulations have not yet been published.

Conclusions

There is now only just over a month until the deadline for submitting Compliance Statements to the CMA. It therefore seems increasingly unlikely that DWP regulations will supersede the requirement for trustees to submit a Compliance Statement to the CMA by 7 January 2021.

Trustees should therefore take action now to prepare their Compliance Statement and accompanying certificate in the form required by the Order and submit them to the CMA by 7 January 2021.

The Order requires Compliance Statements to be submitted annually and it may be that the DWP regulations are made and come into force before the next deadline so that, in future, compliance is instead reported to the Pensions Regulator in the scheme return.

If you have any queries about the requirement to submit a Compliance Statement by 7 January 2021, please get in touch with your usual DLA Piper pensions contact.