UK watchdog says regulating pension fund consultants would contain risks better

By Huw Jones

LONDON -Regulating consultants who advise pension funds would guarantee larger give attention to managing dangers that may emerge from the sector, such because the current difficulties with liability-driven funding (LDI) funds, the Monetary Conduct Authority stated on Monday.

LDI funds, which assist pension funds meet future payouts, struggled to satisfy collateral calls on their holdings of UK authorities bonds in September, forcing the Financial institution of England to step in to purchase gilts.

Pension funds use consultants, who don’t should be regulated, to advise on hiring LDI funds provided by asset administration corporations.

“Maybe if their advisers had been extra delicate to coping with ranges of stress like this, a few of that danger would have been managed extra successfully,” FCACEO Nikhil Rathi advised parliament’s Treasury Choose Committee.

Knowledge reporting on leverage in funds is required, together with worldwide motion to control non-banking, the huge sector that features LDI, Rathi stated, echoing a name from the Financial institution of England earlier on Monday.

Rathi stated it was onerous to know if the turmoil seen within the gilts market may have been prevented had pension fund consultants been regulated, provided that what occurred was “wholly distinctive”.

Britain’s Pensions Regulator doesn't accumulate systematic information on leverage in pension funds, and depends on trustees of the funds to handle these dangers, Rathi stated.

LDI funds are listed in EU states like Luxembourg and Eire, and the FCA needed to ask regulators there for information with the intention to reply to the turmoil within the UK, FCA performing chair Richard Lloyd advised lawmakers.