TPR to review Stewardship Code with watchdogs and government

The revised code came into effect at the start of 2020. It responded to FRC recommendations that the changes be made to ensure the code differentiated “excellence in stewardship” and to promote transparency around the subject.

The review will take place in 2023 to allow for two years of reporting under the code in its revised form.

It will assess “whether the code is creating a market for effective stewardship and the need for any further regulation in this area”, according to a government response to a consultation on strengthening audit, reporting and governance published on May 31.

This could undermine the profession, lead to a lowering of standards, and result in regulation spanning an ill-defined range of activities which would be difficult to monitor and enforce effectively

Matt Saker, Institute and Faculty of Actuaries

In March, it was announced that 18 pension companies had signed up to the UK Stewardship Code, including the Pension Protection Fund, the Wales Pension Partnership and Barnett Waddingham.

The government has also set out the regime for a replacement for the FRC with a “stronger” and “tougher” regulator. 

The Audit, Reporting and Governance Authority’s arrival marks a significant milestone for the audit sector.

The FRC has been under pressure over audit quality and perceived regulation failures, including from the Local Authority Pension Fund Forum. It was also criticised in the wake of the collapse of construction company Carillion in 2018. 

A new-look regulator

Arga will be empowered to take action against any individuals who breach technical actuarial standards when public interest actuarial work is carried out, including for large pension schemes. 

The government said its intention was to refine the UK’s audit and corporate governance framework and review rules in the wake of the UK’s exit from the EU.

Large, privately held companies will come into the regulatory regime, as well as listed companies.

Large businesses will have to be more transparent about their profits and losses, and provide more information to investors and the public about what they have done to prevent fraud. 

Unlisted companies with more than 750 employees and with more than £750mn in annual turnover will come under Arga’s scope. 

Meanwhile, directors at the biggest companies who breach their legal duties or lie about the state of their company’s finances will face sanctions.

Potential for regulatory arbitrage

Like the FRC, Arga will oversee the actuarial profession. However, some concerns remain around the detail of the government’s proposals, which commentators have said could lead to unintended consequences.

Matt Saker, president-elect at the Institute and Faculty of Actuaries, said these unintended consequences could cause regulatory arbitrage.

He noted that it would be vital to define the scope of Arga’s regulation clearly and carefully, with a focus on public interest activities, and as well as setting out how the rules will be monitored and enforced consistently and proportionately.  

In addition, he said risks remained around some rules applying to members of the IFoA but not to non-members, who are undertaking the same work.

“We believe this could undermine the profession, lead to a lowering of standards, and result in regulation spanning an ill-defined range of activities which would be difficult to monitor and enforce effectively,” Saker said.

“Actuaries are essential to a well-functioning financial system,” he continued. 

“The work they do on a daily basis in the public interest ensures that people receive the pensions they are entitled to, that insurance products are priced accurately for customers, and that companies hold sufficient capital to pay claims to their customers.”