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FINANCE

MiFID II will have severe implications for pensions investments

Mark Lloyd says the LGA will continue to fight against the FCA's plan to reclassify councils from professional to retail investors - a move that could cost billions in lost investment.

Not a day goes by without the Local Government Association fighting councils' corner in one way or another. Over recent months, we've taken on several legal tussles and have been arguing for councils' rights with regulators and parts of government.

From winning the argument that the NHS can commission the HIV treatment PrEP, successfully asserting that costs incurred from the transfer of the Local Land Charges Register should be fully funded or standing up to health providers who think they should be paying less business rates, often our work is about heading off things with a negative impact.

Our latest challenge has huge implications. Councils and our local government pension schemes potentially stand to lose out on billions in lost investment opportunities and the destruction of asset values if the Financial Conduct Authority (FCA) continues with plans to reclassify councils from professional to retail investors as it implements the European Directive known as MiFID II which applies from 3 January 2018. There is a risk councils will only be able to access the same investments in their treasury management and pension investments as a member of the public.

If these changes get through, it will put huge constraints on how councils manage their pensions investments. Right now, if we pooled the 89 pension pots, the local government pension scheme would be the fourth largest in the world. The implications of the changes could be huge, with councils forced to sell existing asset classes and being prevented from reinvesting in them in the future. And, given the size of our holdings, we would be selling into a buyers' market, depreciating the value of existing holdings.

We have to be on the front foot in defending councils' interests. We have been firm with the FCA in reiterating that councils' knowledge, experience and risk-awareness must be considered when they apply to retain their professional status. We have made sure the severe consequences of not taking notice, when there is still time to amend these plans, are understood.

We will continue to lobby the FCA and the Government to classify councils as professional investors within MiFID II.

Mark Lloyd is chief executive of the LGA

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