Regulating consultants advising pension funds would ensure greater focus on managing risks that may emerge from the sector, such as the recent difficulties with liability-driven investment (LDI) funds, Financial Conduct said on Monday. Authority. LDI funds, which help pension funds meet future payments, struggled to meet collateral calls on their holdings of UK government bonds in September, forcing the Bank of England to step in to buy bonds. gilts.
Pension funds use consultants, who do not need to be regulated, to advise them on hiring LDI funds offered by asset management companies. “Perhaps if their advisors had been more sensitive to managing stress levels like this, some of that risk would have been managed more effectively,” FCA CEO Nikhil Rathi told the commission. Parliamentary Treasury.
Reporting of fund leverage data is needed, along with international action to regulate the non-banking sector, the broad sector that includes LDI, Rathi said, echoing a call from the Bank of England earlier Monday. Rathi said it was unclear whether the turmoil seen in the gilt market could have been avoided if pension fund consultants had been regulated, given that what happened was “quite exceptional”. .
The UK pensions regulator does not collect systematic data on pension fund leverage and relies on fund administrators to manage such risks, Rathi said. LDI funds are listed in EU states such as Luxembourg and Ireland, and the FCA had to ask regulators there for data in order to respond to the turmoil in the UK, the acting chairman said of the FCA, Richard Lloyd, to lawmakers.
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