Trustees warned not to miss CMA’s self-certification January deadline

Following a 2019 market probe, trustees now have two main duties under the Investment Consultancy and Fiduciary Management Market Investigation Order 2019.

They must identify all the scheme’s service providers that fall within the CMA’s definition of investment consultants and set strategic objectives for all of those providers.

Trustees also have to identify all the scheme’s fiduciary managers and run a competitive tender for these appointments where the regulator’s rules require this.

There are some genuine opportunities within the CMA rules that might dovetail very nicely with a scheme’s emerging priorities in other areas

Andrew Lewis, Travers Smith

The CMA’s regulations require trustees to submit two self-certificates by January 7 2021. One is a compliance statement and the other is a certificate signed by a trustee to confirm they comply with these rules and will continue to do so.

Andrew Lewis, pensions partner at Travers Smith, said: “Superficially, the basic process shouldn’t cause too many headaches. There is some standardised wording already built into the legislation, and the CMA has said it will accept certificates by email.” 

Samora Stephenson, senior investment consultant at Hymans Robertson, added: “The statement fits easily on to one side of A4, and needs to be signed and then emailed to the CMA by the relevant parties.”

Regulator to enforce CMA regime

Considering that this is an annual requirement, Cathryn Marson, a senior associate in Herbert Smith Freehills’ employment, pensions and incentives practice, advises trustees to “add this to their annual business plan”.

She warned: “The law is expected to change during 2021, with additional requirements due to be introduced and with the Pensions Regulator taking on the responsibility for enforcing this regime from the CMA.”

For now, Ms Marson noted that trustees are only being asked to confirm that, since December 10 2019, they “have put objectives in place for any investment consultants they engage before taking advice from them or, in the case of new appointments, before putting a contract in place”.

Mr Lewis stressed that it is crucial for trustees to check if they are actually complying with the CMA rules.

“This is what trustees are ultimately signing off as the truth when they self-certify,” he said.

However, schemes with complex investment structures need to be more cautious. Mr Lewis explained that the CMA’s wide definitions “mean these requirements may affect more of the scheme’s providers than anticipated, or may apply to different providers in unexpected ways”.

“There are also some limited exceptions to the rules, where specific legal input may be sensible,” he added.

He has also found that some schemes are grappling with uncertainty about what reporting period to use and the forward-looking nature of some of the statement’s requirements that trustees are required to confirm.

New rules present opportunity for schemes

While not inundated with compliance statements, the CMA has already received a steady stream of them. For minor breaches of the order, the watchdog will publish an entry on its register of breaches.

For more serious offences, the CMA will write to businesses about their breach and publish those letters. And where it has real concerns about the compliance of a body subject to the order, it can issue legally-binding directions.

John Reeve, director at Cosan Consulting, warned there is a danger that the new CMA requirements are “seen as a tick-box exercise and does not add value”. “This would be a real shame,” he noted.

Mr Lewis shares this opinion, noting: “There are some genuine opportunities within the CMA rules that might dovetail very nicely with a scheme’s emerging priorities in other areas.”

One example is schemes’ strategies on environmental, social and governance factors. “We know this is a key issue where legal duties on trustees are definitely expanding, especially in relation to investment strategies,” he said.

“The CMA requirements for trustees already focus heavily on investment consultant objectives and fiduciary manager selection, meaning they provide a potentially useful mechanism for embedding ESG and climate change more firmly where trustees and providers wish to do this.”