‘Good practice’ expectations in the single code: Regulatory creep?

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The Pensions Regulator could be trying to introduce new rules by calling it “good practice” to have a statement of investment principles even where this is not legally required, some have suggested. Is this a case of regulation through the back door or simply outlining current practice? 
The regulator has recently published its interim response to a consultation on the new single code, combining 10 of its codes of practice. Industry responses were mainly concerned with the timelines and burden of the ‘own risk assessment’ and the introduction of the term ‘governing body’, which some public service schemes said is a poor fit for their structure. 

Single code ‘goes beyond consolidation’ of rules 

While these are key areas in the new code, one lawyer has also pointed out a section in the draft that reads: “In cases where preparing a SIP is not a legal requirement, in our view it would be good practice for governing bodies to prepare a document that is similar in nature, and to publish it online as if it were a SIP.” 
“Producing a SIP, keeping it under review and publishing it on a publicly available website is a substantial piece of work. Is this an example of law-making through the backdoor?” writes Julia Chirnside, senior knowledge lawyer at Norton Rose Fulbright. 
She adds that the regulator is not mandating a SIP for smaller schemes or even that it expects them to produce one, “but the implication is that not to do so is out of line with ‘good practice'.  So is this really a choice, particularly if most smaller schemes fall into line and you end up in a minority who aren’t producing a (non-)SIP?” she says. 
The assertion that producing a SIP is good practice even when it is not a legal requirement shows “how the proposed single code goes beyond consolidation into codification”, finds John Wilson, head of technical, research and policy at Dalriada Trustees.  
“Schemes of all sizes should consider how they maintain and evidence an effective system of governance but should do so in a manner proportionate to the size, nature, scale and complexity of the activities of the scheme,” he argues. 

Code is ‘littered’ with good practice expectations 

The draft single code of practice was littered with examples of what TPR considers to be ‘good practice’ even if not a legal requirement, including on things such as remuneration, adviser and provider reviews, continuity planning, investment monitoring, cyber risk, chair’s statements, dispute resolution – and SIPs, says Barry Mack, director at governance specialists Muse Advisory. 
“It’s no secret that TPR would like small schemes in particular to improve their governance and so not surprising that their expectations are mentioned in the draft single code of practice,” he says. “The key will be getting that message to small schemes and then small schemes responding in a proportionate way.” 
Mack warned that there is a danger that “a large tick-boxing exercise will take place without any benefit to member outcomes”, however. While some have criticised the requirements as disproportionate to smaller schemes, he says small schemes should be thinking about the issues raised in the code, “sometimes more so than the larger schemes”. The ‘good practice’ expectations will still appear in the final code, he predicts, “but perhaps accompanied by a greater degree of pragmatism given the critical responses TPR has had”. 
Others also see nothing unusual in TPR’s view that it is good practice to produce a SIP-like document. What is more, it is uncommon for schemes not to have a SIP at all, says partner at law firm Squire Patton Boggs, Clifford Sims. 
“The exemption that allows smaller schemes not to have a formal SIP is not widely relied upon in our experience - most well-run schemes will have thought about the policy aim behind having a SIP and (I would hope), not see it as an unnecessary burden to have to think about the risk issues that underpin the SIP,” he says. 
For Sims, “the much bigger issue that smaller schemes are going to have to face is the regulatory nudge to consolidate - albeit that comes from the government not TPR.” 


Does the expectation to have a SIP even when it is not required amount to back-door regulation? 

Barry Mack
Julia Land
Julia Chirnside
John Wilson
Clifford Sims
Andrew Gregory