Agenda and minutes

The Chairman reported that County Councillor Robbie Marshall was seriously ill and was currently in the Queen Elizabeth Hospital.  The Committee extended their thoughts and prayers to Mr Marshall and to his family.

There were no declarations of interest on this occasion.

The Director of Finance and Resources informed Members that the Local Pensions Board had agreed to the Committee’s request to undertake a detailed review of the Pension Fund’s Risk Register.

RESOLVED – That the minutes of the meeting of the Pensions Committee held on 7 July 2017 be confirmed and signed by the Chairman.

RESOLVED – That the minutes of the meeting of the Pensions Panel held on 5 September 2017 be noted.

Report of the Director of Finance and Resources

The Committee were informed that, under regulations, the Pension Fund had to publish an annual report which included the accounts. The external auditors were also obliged to issue a statement on the accounts.

The Director of Finance and Resources submitted the draft Annual Report and Accounts 2016/17 for the Staffordshire Pension Fund, explaining the need for formal approval of its contents by members prior to its publication.

The Pension Fund accounts were included within the County Council’s Statement of Accounts and were reported to the County Council’s Audit Committee on 25 September 2017.

The Director summarised the Funds accounts and made particular reference to the inclusion in the document of the independent auditors report on those accounts which stated that they were consistent with those included within Staffordshire County Council’s Statement of Accounts for the year ended 31 March 2017.

RESOLVED – (a) That the 2016/17 Pension Fund Annual Report and Accounts (Appendix 1 to the report) be approved and that the external auditor’s statement on page 74 be noted.

(b) That the separate report from the external auditors entitled: Staffordshire Pension Fund – Audit Results Report Year ended 31 March 2016 (Appendix 2 to the report), be noted.

Report of the Director of Finance and Resources

The Committee considered a report of the Director of Finance and Resources outlining the impact of the implementation of the European Markets in Financial Instruments Directive 2014/65 (MiFID II), and in particular, the risk to Staffordshire County Council as the administering authority for the Staffordshire Pension Fund of becoming a retail client on 3 January 2018. 

The Committee were informed that under the current UK regulatory framework, local authorities were automatically categorised as ‘per-se professional’ clients in respect of non-MiFID scope business and were categorised as ‘per-se professional’ clients for MiFID scope business if they satisfied the MiFID Large Undertakings test.  Local authorities that did not satisfy the Large Undertakings test may currently ‘opt up’ to elective professional client status if they fulfilled certain ‘opt-up criteria’.

Following the introduction of MiFID II from 3 January 2018, local authorities would lose the automatic right to be categorised as per-se professional clients by banks, investment managers, brokers and advisors. Instead, all local authorities must be classified as ‘retail clients’ by these firms, unless they were ‘opted up’ by the firms to ‘elective professional client’ status.  The criteria for ‘opting up’ in the UK was specified by the Financial Conduct Authority (FCA) and required an assessment of quantitative factors (relating to the nature and scale of the client’s business); and qualitative factors (relating to the expertise, experience and knowledge of key decision makers).

The assessment aimed to demonstrate whether the client was capable of making its own investment decisions and had an understanding of the risks involved. It was for the service provider to determine whether or not, based on the information submitted by clients, the appropriate ‘opting up’ criteria were met. 

A move to retail client status would mean that all financial services firms like banks, investment managers, brokers and advisors would have to treat local authorities in the same way they did non-professional individuals and small businesses. This entails providing a raft of protections to ensure the suitability of investment products and the evidence that all risks and product features have been fully explained.  Whilst this would provide a higher standard of protection for the client, it also involved more work and potentially cost, for both the firm and the client (investor), for the purpose of satisfying the regulator that all such requirements had been met.

These protections would ultimately mean that the Fund would be prevented from accessing a wide range of products and financial instruments which were deemed unsuitable for retail investors and yet essential for the Fund to implement and deliver an effective and diversified investment strategy. The Fund would also have fewer options in terms of which financial institutions or investment managers it could appoint, as many institutions currently serving local authorities were not licensed for retail business and might not wish to incur the costs involved in seeking additional regulatory permissions.

In electing for professional client status, the Fund would effectively forego the protections afforded to retail clients.  The Committee noted that these protections were not  ...  view the full minutes text for item 26.

RESOLVED - That the public be excluded from the meeting for the following items of business which involve the likely disclosure of exempt information as defined in the paragraphs of Part 1 of Schedule 12A of the Local Government Act 1972 indicated below

PART TWO

The Committee then proceeded to consider reports on the following issues:

(Exemption paragraph 3)

(Exemption paragraph 3)

(Exemption paragraph 3)

(Exemption paragraph 3)

(Exemption paragraph 3)

Report of the Director of Finance and Resources

(Exemption paragraph 3)

(Exemption paragraph 3)

Presentation by Hymans Robertson

(Exemption paragraph 3)

(Exemption paragraph 3)

Report of the Director of Finance and Resources

(Exemption paragraph 3)

Presentation by Andrew Warwick-Thomson (CEO) and Joanne Segars (NEC) of LGPS Central Ltd.

(Exemption paragraph 3)