Source · Select Committees · Work and Pensions Committee
Recommendation 15
15
Accepted
Paragraph: 140
Report back on giving TPR a financial stability remit and ensuring its capacity.
Recommendation
When the LDI episode arose, the Bank of England had to intervene to prevent financial instability. The regulatory framework was complex and fragmentary, and not fit for purpose when it came to managing systemic risks. The Financial Policy Committee recommended that TPR should have the remit to take into account financial stability considerations. Given the events of September 2022, we tend to agree, although it depends on what it means. One possible model would be for TPR to be a source of key information, able to proactively identify potential risks in the sector and then work with other regulators to analyse the implications. DWP should report back to us by the end of January 2024 on how it proposes to take forward the FPC’s recommendation that TPR be given a remit to take account of financial stability considerations and how it plans to ensure that TPR has the capacity and capability to deliver on this.
Government Response Summary
The government accepts the FPC's recommendation for TPR to incorporate financial stability, detailing that TPR is setting up protocols with the BoE, reviewing its risk management approach to include systemic financial risk, and exploring required skills and capabilities with DWP.
Paragraph Reference:
140
Government Response
Accepted
HM Government
Accepted
TPR, the FCA and BoE all have a role to play in monitoring risks and feeding into the FPC’s assessment of systemic risks to the UK financial system. The Government accepts the FPC’s recommendation that TPR should incorporate financial stability considerations in its decision making and balance them with its objectives as a pensions regulator. As suggested by the Committee, enabling TPR to be a source of key information through data collection is a sensible means of achieving this. Government wants TPR to be more connected within the financial stability ecosystem and bringing the added value of TPR’s pensions expertise without duplicating capability held by other regulators. TPR is looking to set up protocols with the BoE to ensure, as a pensions regulator, they are working cohesively with the wider financial regulatory system. Collaborative working is already underway – in addition to monitoring LDI resilience as set out above, TPR and the FCA are also supporting the BoE with their System Wide Exploratory Scenario exercise. As a direct result of the LDI episode, TPR is in the process of reviewing its approach to the capture, ownership, assessment and management of external risks. This includes expanding its work to consider not only risks to savers and their strategy, but also the risk that the operation of the pension system destabilises the financial system. TPR is currently researching non-LDI trends within pensions (and especially within the gilt and insurance markets) that might lead to concentration risk and have wider financial stability risk implications. TPR are in conjunction with DWP also exploring what additional skills and capabilities they may require to embed the consideration of financial stability in their work.