Part 7 – Cross-Border Activities Within European Union
1151.Sections 287 to 295 contain provisions that are required in order to comply with the requirements of the European Pensions Directive(1) concerning the activities and supervision of institutions for occupational retirement provision who are engaged in ‘cross-border activity’. A key objective of the Directive is to put in place a regulatory framework which will enable an occupational pension scheme located in one EU Member State to accept contributions from an employer based in another Member State.
UK occupational pension scheme receiving contributions from European employer
Section 287: Occupational pension scheme receiving contributions from European employer
1152.This section details the conditions an occupational pension scheme located in the UK must meet before it can begin to operate as a cross-border scheme. Subsection (1) provides that trustees or managers of an occupational pension scheme cannot accept any contribution to the scheme from a European employer unless the conditions in subsections (2) to (6) are met. A scheme must:
be ‘authorised’ under section 288 by the Regulator to engage in such activity (subsection (2)); and
have been approved under section 289 by the Regulator to receive contributions in respect of a particular employer from a different Member State (subsection (3)).
1153.Subsection (4) provides that the scheme must not operate cross-border until its trustees or managers have been notified, by the Regulator, of the social and labour law of the host Member State, together with details of any additional investment restrictions under Article 18(7) and information rules under Article 11 of the Directive that the host Member State requires the scheme to comply with. If a period of two months has passed since the Regulator notified the scheme that it is approved under section 289 and this information has not been provided by the Regulator, this condition is taken to be satisfied.
1154.Subsection (5) enables the Regulator to take action to impose a civil penalty under section 10 of the Pensions Act 1995 (civil penalties) against the trustees or managers of a scheme who commence cross-border activity without having complied with the conditions listed above.
1155.Subsection (6) makes provision for the terms “European Employer” and “host Member State” to be defined in regulations.
Section 288: General authorisation to accept contributions from European employers
1156.An occupational pension scheme intending to commence cross-border activities must first be authorised by the Regulator. This section makes provision for the authorisation process, which will be set out in regulations. The Regulator will have the power to refuse authorisation and it will also have the power, where necessary, to revoke an existing authorisation. Subsection (1) provides that trustees or managers of occupational pension scheme applying to the Regulator for authorisation to accept contributions from European employers must do so in a form and manner prescribed in regulations. Subsection (2) provides that on receiving the application, the Regulator must, if satisfied that it meets the conditions set out in regulations, give authorisation. Otherwise the Regulation must refuse authorisation. Subsection (3) provides a power for provision to be made in regulations for the Regulator to be able to revoke authorisation given under this section and for provision to be made regarding any criteria applicable in the Regulator reaching a decision to revoke authorisation.
Section 289: Approval in relation to particular European employer
1157.Once a pension scheme provider has received general authorisation for cross-border activities, it must identify the specific employer(s) from whom it wishes to receive contributions. At this stage, the trustees or managers of the occupational scheme in question must obtain the approval of the Regulator to accept contributions from the specified employer or employers. The trustees or managers of a scheme that intends to operate cross-border must notify the Regulator of their intention to do so.
1158.Subsection (1) provides that the information contained in this ‘notice of intention’ is to include details of the prospective employer (the “specified employer”), the host Member State, the intention (subject to approval under this section) to accept the contributions and any other prescribed information. The prescribed information will include details of the main characteristics of the scheme. Regulations will specify what information will be needed to constitute the scheme’s main characteristics together with the manner in which this information is to be provided to the Regulator.
1159.The process undertaken before commencing cross-border activity is therefore a two stage process, with the first stage being the general authorisation process set out at section 288 and the second stage being the specific approval process set out at section 289. It should be noted, however, that although the overall accreditation process has two stages, a prospective cross-border scheme will have the option to apply simultaneously to the Regulator for both general authorisation and employer-specific approval.
1160.Subsection (2) provides that within 3 months of receiving the notice of intention, the Regulator must, if satisfied those giving the notice meet prescribed requirements, inform the appropriate regulatory authority of the Member State in which the prospective employer is located of the notice and its contents and notify those who gave the notice of intention as to whether they are approved or not for the purposes of this section. The Regulator does not have to pass on this information if, in accordance with Article 20(4) of the Directive, it has reason to doubt that aspects of the pension scheme or those operating it will be compatible with the proposed cross-border operation. The decision whether or not to refuse to pass on such information is an integral part of the approval process. Regulations will prescribe the circumstances in which the Regulator will not be required to take this action, in accordance with the provisions of Article 20(4) of the Directive.
1161.The Regulator will be required to inform the scheme’s trustees or managers of what course of action it has taken, whether by passing on the information if it approves the proposal or by notifying the trustees or managers of its refusal to pass on that information. However, subsection (3) provides that if the Regulator does fail to notify the scheme of its decision within the period of 3 months after the Regulator received the notice of intention, the scheme can proceed on the basis that it is approved.
1162.Subsection (4) provides that regulations can specify the process and criteria the Regulator must follow when revoking an authorisation previously granted under this section.
Section 290: Notification of legal requirements of host Member State outside United Kingdom
1163.Where the Regulator has forwarded details of a notice of intention to the regulatory authority of the Member State in which the prospective employer’s employees are located (the ‘host Member State’), that host Member State’s regulatory authority should, (in accordance with Article 20(5) of the Directive), within two months of receipt, transmit to the Regulator details of the ‘social and labour law’ relevant to pensions, together with details of any additional investment restrictions under Article 18(7) and information rules under Article 11 of the Directive, which the prospective UK based cross-border will be required to comply with (in addition to relevant UK pensions legislation). In accordance with Article 20(8), the host Member State should inform the Regulator of any significant change in the host Member State’s social and labour law requirements, and in any rules under Article 18(7) and Article 11 of the Directive.
1164.This section places a duty on the Regulator to pass any such information received from the regulatory authority in the host Member State on to the trustees or managers of pension schemes as soon as is reasonably practicable.
Section 291: Duty of trustees or managers to act consistently with law of host Member State
1165.Subsection (1) places an obligation on the trustees or managers of a UK-based cross-border scheme receiving contributions to the scheme from a European employer to operate in accordance with the relevant social and labour laws of the host Member State in respect of the relevant members.
1166.Subsection (2) confers a regulation-making power to allow modification of UK pensions legislation in respect of UK-based cross-border schemes. The intention here is to avoid issues such as unnecessary dual regulation between the Regulator and the regulatory authority of another Member State.
1167.Subsection (3) provides that failure to operate in accordance with those laws may lead to the imposition of a civil penalty under section 10 of the Pensions Act (civil penalties). (The Regulator will also have the power to revoke both general authorisation and the specific approval for the pension scheme provider scheme to operate cross-border where it considers that such action is required.) Subsection (4) provides a definition of UK pensions legislation for this purpose.
Section 292: Power of Regulator to require ring-fencing of assets
1168.In order to comply with the funding provisions of Article 16(3) and, where appropriate, the investment provisions of Article 18(7) of the Directive, the home Member State may require a cross-border pension scheme to ‘ring-fence’ some or all of the assets or liabilities (or both) of the scheme. To this end, subsection (1) is a regulation-making power enabling the Regulator to direct the trustees or managers of a UK-based cross-border scheme to take, or refrain from taking, specified ring-fencing action. Subsection (2) provides that “ring-fencing” has the same meaning as in the Directive.
1169.Subsection (3) provides that failure to act in accordance with the directions in a ring-fencing notice issued by the Regulator may lead to the imposition of a civil penalty under section 10 of the Pensions Act 1995 (civil penalties).
European occupational pension scheme receiving contributions from UK employer
Section 293: Functions of Regulator in relation to institutions administered in other Member States
1170.This section places certain duties on the Regulator where the UK is the host Member State – that is, where a non-UK based pension scheme is accepting contributions from a sponsoring employer located in the UK.
1171.Subsection (1) provides that where a UK employer is making, or plans to make, contributions to a European pensions institution, any function which Article 20 of the Directive requires or allows to be exercised by the competent authorities of the host member, is exercisable by the Regulator. Subsection (2) requires the Regulator, when it has been notified of the intention of a non-UK based pension scheme to accept contributions from a UK employer, to inform the regulatory authority of the host Member State within 2 months of receipt of the notice, of the relevant UK legal requirements under which the prospective cross-border pension scheme must operate.
1172.Subsection (3) places a duty on the Regulator to notify the competent authority of the home Member State, as soon as reasonably practicable, of any significant changes in UK relevant legal requirements.
1173.Subsection (4) places a duty on the Regulator to monitor the activities of a pension scheme located in another Member State that is accepting contributions from a UK employer, and to notify the regulatory authority for that scheme of any breaches detected of UK legal requirements.
1174.Subsections (5) to (7) enable the Regulator to take action against a UK employer where a non-UK based pension scheme accepting contributions from that UK employer has breached relevant UK legal requirements under which it is obliged to operate. These provisions implement the provisions of Article 20(10) of the Directive, which allow the Regulator to take steps to stop the pension scheme from operating in respect of a sponsoring employer where the regulatory authority of the Member State in which the pension scheme is based has been unable to stop the scheme from breaching the host Member State’s social and labour laws. Subsection (5) will enable the Regulator to issue a notice to a UK-based employer, requiring the employer to take (or refrain from taking) various steps, as specified in the notice, including directing the UK-based employer to cease to make further contributions to the pension scheme. Subsection(6) is regulation making power permitting further provision to be made about the effects of a notice ordering a UK employer to cease making further contributions to a European pensions institution. Subsection (7) enables the Regulator to impose a civil penalty under Section 10 of the Pensions Act 1995 for failure to comply with a notice issued under Subsection (5).
1175.Subsection (8) defines the terms ‘European pensions institution’, ‘UK employer’ and ‘relevant legal requirements’.
Assistance for other European regulators
Section 294: Stopping disposal of assets of institutions administered in other Member States
1176.Article 19(3) of the Directive requires Member States to put in place mechanisms to prohibit, in accordance with the provisions of Article 14, the free disposal of assets held by a depositary or custodian located within its territory at the request of the pension scheme’s home Member State.
1177.Subsection (1) provides that this section applies where the Regulator is asked by the competent authority of another Member State for help in prohibiting the disposal of UK held assets of a European pensions institution with its main administration in that Member State (“European pension institution” is defined in section 293(8)). On an application from the Regulator, subsection (2) allows the High Court, or the Court of Session in Scotland (subsection (7) refers), to grant a restraining order preventing a depositary or custodian from disposing of, or otherwise dealing with, UK-held assets of a European pensions institution whose main administration is elsewhere within the EU. Where such an order is granted, the Court may also grant subsequent orders enabling the pension scheme’s own ‘home’ regulatory authority to take any appropriate action in respect of the UK-held assets concerned.
1178.Subsection (4) ensures that the trustees or managers of a cross-border scheme involved in such proceedings have equal participation rights.
1179.Subsection (5) gives the Court discretion to award appropriate costs and/or expenses to any of the parties to proceedings concerned.