Wilson accepted that there had been “conflicting messages” between the BoE’s gilt-selling programme and a “huge unfunded component” in the subsequent “mini” Budget.
“I think the size of the movements surprised us, and the thinness of the market,” he said.
“Trying to sell very modest amounts, particularly into the index-linked market, was causing further large intraday movements in pricing that have never been seen before in the history of the gilts market,” he added, arguing that no analysts had predicted this scenario.
“We’d never stress-tested for that. There has never been a question that the stress-testing that we’ve had in the past has been inappropriate,” Wilson continued.
After pointing out that nobody had envisaged that the government would create the circumstances which led to the turmoil, Kingman said there is “nothing wrong with the process of stress-testing”, adding “a scenario occurred that no-one tested against”.
‘Trustees are very well-informed’
Investment consultants do not fall within the FCA’s remit, despite previous advice from the Competition and Markets Authority calling on the Treasury for consultants to come under the scope of the FCA.
On November 7, Rathi and FCA interim chair Richard Lloyd appeared before the Treasury Committee to discuss its recent work. At the hearing, Lloyd highlighted a “gap in regulation” concerning investment consultants.
Rathi reiterated this message on his November 15 appearance at the Industry and Regulators Committee and called for the regulation of investment consultants. He also suggested “gaps in competence” for some investors.
Appearing alongside Rathi, Counsell suggested a lack of awareness among some trustees over LDI, particularly at small schemes, and expressed concerns over the standard of their governance.
Kingman said that it would be L&G’s preference for investment consultants to be regulated, caveating that this view was not connected to the LDI crisis.
“I don’t believe that were the consultants regulated, this episode would have been avoided,” he said.
Wilson claimed that trustees are “very well-informed” and “ask very good questions” in response to a query over their understanding of LDI.
TPR and the FCA have been criticised in some quarters over their responses to the crisis.
During the market volatility, TPR issued guidance urging schemes to “review their liquidity, liability hedging and governance processes, suggesting that managers of their LDIs could be granted power of attorney over some assets to quicken trading”.
The watchdog also informed MPs that it had contacted the BoE and other regulators before the launch of the central bank’s gilt-buying programme, in order to clarify what actions they could take in response to the gilt market turbulence.
TPR and FCA flag governance and competence concerns over LDI
The Pensions Regulator and the Financial Conduct Authority have raised questions over the governance of small schemes and the competence of some investors, in response to questions from a parliamentary committee over the use of liability-driven investments by pension schemes.
