The clause introduces the first of the five authorisation criteria that I mentioned previously. It means that, when authorising a master trust scheme, the Pensions Regulator must be satisfied that those involved in the scheme are fit and proper persons. The structure of the master trust scheme means that it is no longer the members’ employers who set up the scheme or appoint the trustees. That changes the key relationship and the influences on the running of the scheme. Some master trusts are set up as a commercial enterprise and resemble something more akin to a conventional financial services product, but without being subject to the same regulatory requirements. It is therefore only right that we introduce the requirement of being fit and proper—fitness and propriety—in respect of those setting up and running master trusts.
The clause lists the key people whom the regulator must assess as fit and proper to act in their capacity in relation to the scheme. They include the trustees, the scheme funder and the scheme strategist. That list can be extended under regulations. Again, we do not want a situation in which an entity can create another entity without our being able to opine on whether they are fit and proper people to do it.
The clause also gives the regulator the power to assess a person who promotes or markets the scheme. Regulations can specify further individuals acting in a particular capacity, whom the regulator may assess to determine whether they are fit and proper for that role.
On the point about the person who promotes or markets the scheme, a lone employer or an employer thinking about his options, whether it be the National Employers Saving Trust or another master trust, may ask his independent financial adviser to consider which scheme is suitable for his business. How would the Pensions Regulator get involved with subsection(3)(a)—
“a person who promotes or markets the scheme”?
The subsection includes the word “may”. I am concerned that we may be putting regulatory requirements on IFAs who are already duly authorised under the FCA and may be caught under this clause. Was that the Minister’s intention?
No, I confirm that that was not the Minister’s intention at all. As we get through the regulations for this Bill, it is precisely that kind of case that we need to take into consideration, and there may be others. An IFA, of course, would be regulated and deemed to be a fit and proper person by the FCA. I am not very familiar with those rules, because they are outside my area of responsibility, but I think that they are pretty stringent and that they might be directly comparable to those under the Pensions Regulator. However, it is a fair point. In fact, most companies in the position to which my hon. Friend refers usually have to go to a professional adviser to be able to make that decision, because they have neither the time nor the experience to make the decision themselves, unless they are a very large company with suitable employees.
The regulation-making powers are needed to respond to developments in the market where the structures of master trusts might evolve to include other functions. There is a regulation-making power that enables regulations to specify matters that the regulator must take into account when assessing whether someone is a fit and proper person. As with other provisions in the Bill, we intend to work closely with industry, regulators and Her Majesty’s Revenue and Customs in developing these regulations, as well as conducting formal consultation.
The clause also gives the regulator a discretion to take into account other matters as it considers appropriate when carrying out the fit and proper person test, including matters related to a person connected to the person being assessed. That will give the regulator the flexibility to ensure that it can be fully satisfied that the criteria for a fit and proper person have been met and not avoided on technicalities.
The fit and proper person criteria are a key part of the new regime for master trusts. They relate to the competence and propriety of those responsible for the pension savings of thousands workers.
Will the Minister confirm that he expects this to be a high bar; that he wants people to be able to show that they are knowledgeable, competent and have the training to be a trustee and run a pension scheme, and not just that they can pass a check that they have no criminal convictions for fraud? They have to show positively that they can run these pension schemes well, not just that there is no historical evidence that they cannot.
I can absolutely confirm that for my hon. Friend. I hope that he will agree that the fit and proper person test is quite well established across different regulatory regimes. By definition, it has to allow a certain subjectivity, because otherwise it becomes the low-level box-ticking that he fears. Having discussed this with the Pensions Regulator—both the chief executive and other people—I know that this would never happen under its regime. I hope that most people would not regard the fit and proper person test as the kind of thing to which my hon. Friend refers, but he makes a sensible point.