ICO deputy commissioner speaks about the impact of GDPR and on international co-operation

Steve Wood, Deputy Commissioner (Policy) at the Information Commissioner’s Office (ICO), spoke about the General Data Protection Regulation (GDPR) and about international co-operation in the data protection arena when he addressed the European Data Protection Days conference in Berlin in May 2019.

The Deputy Commissioner began by reflecting the changes in recent years by saying:

“The last few years have really seen a step change in the way that data protection is viewed – in the UK, across the EU and in many other parts of the world. It is no longer a compliance step that businesses think of to be completed at the end of a project but the incorporation of principles – accountability, transparency, fairness – that go to the heart of good business practice.”

Noting that May 2019 marked the first anniversary of GDPR, he went on to say:

“GDPR has built the foundation of high standards that have enabled data protection to become a mainstream consumer issue across the EU. Public awareness has never been higher, and more people than ever are exercising their rights. GDPR is influencing many laws around the world.”

Mr Wood then joined the long list of officials who, in recent times, have been forced to acknowledge that they do not know how Brexit will affect their organisation, largely because it is so uncertain what the UK’s wider relationship with the EU will be. On this subject, he commented:

“At some point our relationship with Europe and the way that we interact with our DP partners will change. We know that. What we don’t know yet is what precisely these changes will be.”

His next topic was the ever-increasing pace of technological change, where he described both the advantages of this rapid change, and the data protection issues it raises. Here, Mr Wood described how international co-operation between different national regulators would be vitally important, regardless of the form Brexit eventually takes. His comments on this subject were:

“Technology, media and creative industries are booming. Just last month, Bloomberg reported that the digital economy – or the ‘Flat White Economy’ – has become the UK’s largest economic sector. This demonstrates the opportunities that the digital world provides and these should be encouraged.

“But we also know the risks to personal data and privacy that the unregulated processing of personal data brings. This new economy disrupts notions of local laws and seeks a world where data has no borders. However, this does not mean a race to the bottom or that protections cannot be maintained across borders. This is why joining up our efforts is so important.”

In the closing section of his speech, Mr Wood warned UK firms that data protection regulations are tougher than ever, and that the UK public now expect much more from firms and other organisations when it comes to handling their personal data appropriately. On this subject, the Deputy Commissioner said:

“[GDPR] captures in law an onus on companies to understand the risks, and to mitigate those risks. It also reflects that people are increasingly demanding to be shown how their data is used and how it is being protected.

“Accountability requires a change of culture within organisations, and the bedding in of key governance systems and values. We know from our investigations and audits that this has not happened yet. We will therefore be doing more to ensure that this happens.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


Academic study recommends ban on night-time payday loan applications

Academics at Newcastle University have suggested a ban is imposed on people taking out credit during the night, after finding that payday loan borrowers are more likely to fall into arrears if they take out their loan between 11pm and 7am.

The authors of the report, entitled Digital Credit, Mobile Devices and Indebtedness, conducted in-depth interviews with 40 payday loan borrowers and various debt organisations. They also analysed 30 digital borrowing websites and conducted interviews with the designers of these sites.

Another serious concern raised by the academics is that many loan websites use ‘sliders’, where applicants can move the sliding bars to see how much they would need to repay for various loan amounts and over various terms. The report suggests that people could be falsely re-assured by the fact that they are borrowing much less than the maximum amount on the slider.

The authors even went as far as to say that the speed with which online credit can be provided, and the ease of obtaining it, encourages consumers to see the amounts they receive as cash, and not as debt that needs to be repaid. Another concern is that the speedy application process may be designed to minimise the chances of the applicant deliberating over whether to take out the loan.

The next issue raised in the report was that digital applications can be attractive to people who wouldn’t want to face the prospect of being rejected by a real person.

The researchers were also concerned by the fact that if an application is made digitally, this then allows lenders to target customers with messages through mobile devices. They say that once a lender is in possession of an applicant’s details they can then take a number of steps, all of which could cause or exacerbate mental health issues. These issues are:

  • Lenders pursuing borrowers by text and email regarding missed payments
  • Lenders sending messages encouraging existing borrowers to take out additional credit
  • Lenders contacting consumers who enquired about a loan but then did not complete an application, and then inappropriately encouraging them to restart their application

In addition to the central recommendation regarding possible restrictions on the times of day when loan applications can be made, other recommendations of the study include:

  • A formal recommendation to regulators and legislators to consider banning lenders from pursuing existing customers by text and email to take out more credit
  • The introduction of measures to reduce the risks of applicants making hasty decisions. For example, they suggest using automatic prompts on the final application page to encourage applicants to reflect before submitting a completed application, and requiring borrowers to confirm their understanding of the amount borrowed and the total to be repaid
  • A ban on lenders providing the monies within four hours of the application being made
  • A scheme allowing consumers to exclude themselves from products provided by short-term lenders

Lead researcher James Ash commented:

“The shift online has increased availability of payday loans to people previously excluded by mainstream lenders.

“But our research shows that digital access to credit only offers quick fixes – it doesn’t address borrowing’s root cause.

“Twenty-four-hour access to credit from any device is leading to unsustainable borrowing. This can contribute to long-term personal and financial hardship, and mental health problems.”

In a 24-hour society where most people have access to the internet, and where many lenders operate automated assessment models that don’t require an employee to be in the office to manually review an application, it is perhaps not surprising that many loans are taken out in the small hours.

Any ban could also unfairly disadvantage those who work irregular hours, as for shift workers and the like 11pm to 7am may not be an inappropriate time to be making decisions about whether to take out a loan.

However, all lenders do of course need to make sure they carry out rigorous credit and affordability checks on all applicants, regardless of the time of day in which the application was made.

This study primarily looked at payday loans, but the issues raised are certainly relevant to all types of lender.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


Money & Pensions Service issues first Business Plan

The Money and Pensions Service (MAPS) has issued its first Business Plan since assuming responsibility for giving financial guidance to the general public in the UK. MAPS now carries out the work previously undertaken by Pension Wise, the Money Advice Service and The Pensions Advisory Service.

MAPS chairman, the former Financial Conduct Authority (FCA) managing director Hector Sants, writes in the foreword to the report:

“2019/20 is an important transition year for the organisation in which we will continue our existing three services, invest and grow in areas where we have sufficient evidence that this is the right thing to do, and test and innovate where we know we need further evidence.”

Sir Hector cited the following statistics to emphasise how important the work of his newly formed organisation would be:

  • Nine million UK adults (more than one sixth of the total) are over-indebted
  • 7 million (more than one fifth) are not in the habit of saving regularly
  • 22 million (more than two-fifths) say they don’t have the necessary knowledge to plan effectively for their retirement

The report sets out the five main priorities for MAPS over the next 12 months.

Priority 1 is ‘Listen and Engage’, and here the Service says it will:

  • Carry out a comprehensive listening exercise, engaging with customers, firms paying the levy to fund MAPS, employers, regulators, parliamentarians in the UK Parliament and elected representatives in the devolved legislatures in the nations of the UK
  • Develop a National Strategy, to be published in November 2019, setting out how it will improve: consumers’ financial capability, the ability of consumers to manage debt issues and the provision of financial education to children
  • Advise HM Treasury as it seeks to develop a formal debt respite scheme (otherwise known as a ‘breathing space’ scheme)
  • Develop the pensions dashboard, which should allow people to see all of their pension provision in one place

In this section of the report, MAPS warns that it will notify the FCA when it becomes aware of practices being carried out by authorised firms that may cause customer detriment.

Priority 2 is ‘Streamline and Simplify’, and this mainly relates to how MAPS aims to deliver efficiency savings as it integrates the work of its three legacy organisations.

Priority 3 is ‘Invest and Grow’. Here, the Service announces plans to increase capacity so that, during this financial year, it can deliver 290,000 pensions guidance sessions, 205,000 pensions freedoms sessions, 560,000 debt guidance sessions and 170,000 money guidance calls, webchats or email exchanges.

Priority 4 is ‘Innovate and Test’, and areas mentioned in the report under this heading include:

  • Identifying whether those most in need of pension guidance are actually accessing MAPS’ services
  • Measuring the long-term effect of debt advice on those who are over-indebted
  • Working with the FCA to agree an accredited curriculum for debt advisers
  • Examining how it might make receipt of guidance the default option when a consumer seeks to access or transfer their pension savings

Priority 5 is ‘Build and Strengthen’, which concerns the ways in which MAPS will invest in staff development to ensure its employees can provide high quality guidance

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


FSCS considers whether it can compensate bondholders of failed firm

Although over the years the Financial Services Compensation Scheme (FSCS) has done a great deal to ensure that customers of failed firms do not lose out, recent events have illustrated the limitations of the cover provided by the FSCS.

For a long time, it was generally assumed that where a firm was authorised by the Financial Conduct Authority (FCA), FSCS protection would be available. However, in recent years all of the UK’s thousands of consumer credit firms have been brought into the FCA regime, as have the claims management companies, yet FSCS cover is not provided in either case.

There have of course been two high-profile failures of larger payday lenders in recent months, and anyone with a valid complaint against these lenders cannot take the matter to the FSCS or to the Financial Ombudsman Service. Instead, these customers have been forced to apply to the administrators of the failed lenders to register as unsecured creditors, and the expectation is that they will receive very little in the way of compensation.

Parliament’s Treasury Select Committee has highlighted that this is an undesirable situation, but in the short term at least, no alternative scheme will be put in place to compensate customers of failed credit firms.

Other recent events have also highlighted where FSCS protection may be limited in the pensions and investment sectors. Although the firms themselves may be regulated by the FCA, some of the products they offer may not be regulated, or if the products are regulated, some of the underlying investments may fall outside the scope of regulation.

Perhaps the most notable recent example of this was the collapse of a firm that issued mini-bonds. The customers of this firm were initially led to believe that they had no recourse to the FSCS, and that the bonds were unregulated. Administrator Finbarr O’Connell told the BBC Radio consumer finance programme Money Box that the 14,000 bondholders might expect to get no more than 20% of their money back, and that they might have to wait up to two years to receive it.

Now customers of the firm have been asked to contact the Service and register for updates on the situation. The FSCS says it is working closely with the FCA, the firm’s administrators and external legal advisors, and says that it will “continue to explore whether there are grounds for compensation”, and that “after further analysis of [name of firm]’s business practices, investment materials, and calls recorded with investors, FSCS is now investigating whether regulated activities were in fact carried out which might give rise to a claim.”

A spokesperson for the FSCS added:

“It is clear that [name of firm] investors were badly let down so to help we want to be as transparent as possible over our process. By registering with us they will get regular updates on our investigation and this will be the best way for them to hear whether we believe there are grounds for compensation. This is a highly intricate case though, so we expect our investigation may take some time. We appreciate investors’ need for certainty so we can assure them that we are treating the case with the utmost urgency.”

Some of the bondholders have told the Financial Times that, prior to investing, they contacted the FSCS and were assured that their investment would be protected.

Certain individuals associated with the firm that issued the bonds are now being investigated by the Serious Fraud Office, and the FCA has ordered an independent investigation into two specific issues:

  • Whether the existing regulatory system adequately protects retail purchasers of mini-bonds
  • Whether the FCA adequately supervised the firm

16 MPs have signed a motion calling on FCA chief executive Andrew Bailey to resign due to his organisation’s handling of this matter.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


FOS annual review makes uncomfortable reading for credit firms

The Financial Ombudsman Service (FOS) has published its annual review for the 12 months to March 31 2019.

The overall annual complaints total of 388,392 is the highest for five years and represents a 14% increase from the overall total for 2017/18. This was in spite of payment protection insurance (PPI) complaints having fallen by 3%, and one of the main reasons behind the increase was a huge increase in credit complaints.

39% of all FOS complaints concerned banking and credit, so this area now accounts for almost as many complaints as PPI (46%).

There was an 89% rise in consumer credit complaints when compared to the previous year, and credit complaints now account for one in three of FOS’s non-PPI cases.

Specifically regarding guarantor loans, complaint volumes rose by 152%, i.e. they increased by a factor of more than 2.5. This increase was higher than the 130% jump in payday loan complaints, even if it was also well below the 360% rise in instalment loan grievances.

The uphold rate across the credit sector was 50%. On some previous occasions, it has certainly been the case that a few rogue firms were giving the sector a bad name, but chief ombudsman Caroline Wayman thinks that in some areas, mistreatment of customers is more widespread. She notes in her foreword to the review that the uphold rate on short-term loans was around 60% and says that “diligent lenders have been the exception.”

Another quote in the report regarding lenders’ behaviour was:

“We’re concerned that businesses are failing to assess the affordability of debt and aren’t learning enough from the complaints we’ve resolved.

“The story of what we’ve seen in high-cost short-term lending this year is a story of vulnerability. In too many cases, customers of short-term lenders have been left to struggle with unsustainable and persistent debt, exacerbating what is likely to be their already vulnerable situations.

“Typically, this plays out through instances of repeat lending, where businesses provide high-cost credit – one loan after another – over many months and often years, even after it’s become clear that the borrower can’t repay what they owe.”

The report includes a case study based on repeat lending from a payday lender, with the consumer being approved for five loans with the same lender over just seven months:

  • FOS believed that the checks the lender carried out for his first two applications were proportionate
  • However, for the third, fourth and fifth loans, FOS did not believe it was proportionate just to keep on doing the same level of checks
  • FOS say that for the third application the credit check showed that he had taken out a lot of payday loans in the previous month. The amount of the third loan was double the amount of the previous ones, and in one month he borrowed more than his entire monthly salary from various payday lenders
  • FOS believes that the lender should have noticed that the third and subsequent loans were unsustainable despite what its checks might have suggested. The fact that he was applying for so many loans, for increasing amounts, in such quick succession was a clear indication that he was unable to meet his monthly expenses and getting trapped in a spiral of debt.
  • FOS ordered a refund of all the interest paid on loans three to five. It also instructed the lender to remove adverse entries from his credit file for these loans

The Consumer Finance Association (CFA), a trade body that represents short-term lenders, has blamed claims management companies (CMCs) for delaying assessment of complaints by its members. The CFA comments that many of these complaints are “badly constructed” making it difficult to process valid complaints. It also claims that some of its members have received 1,000 complaints from the same CMC in a 24-hour period, and that one lender told them that a quarter of their complaints were bogus and were from people that had never had a loan with the firm. The Association adds that it will report poor practice by CMCs to the Financial Conduct Authority.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


FOS annual review shows complaints up 14%, despite PPI fall

The Financial Ombudsman Service (FOS) has published its annual review for the 12 months to March 31 2019.

The overall annual complaints total of 388,392 is the highest for five years and represents a 14% increase from the overall total for 2017/18. In recent years, the payment protection insurance (PPI) scandal has dominated the Service’s workload, yet in the 2018/19 financial year PPI complaints were 3% down on the previous year, from 186,418 to 180,507.

Also, PPI no longer accounts for the majority of the complaints being made, with 46% being about this product. 39% of new cases were banking and credit complaints, 11% were about other types of insurance and just 4% concerned pensions and investments.

Even where total complaint volumes remain low, there were large increases in the numbers of complaints being made in some areas. There was an 89% rise in the number of consumer credit complaints, from 36,349 to 68,758; a 40% rise in the number of complaints about alleged fraud, taking the total to around 12,000; a 24% jump in pension and investment complaints, from 12,632 to 15,606; and an 8% increase in the number of cases concerning IT failures, taking the total to around 150,000.

Consumer credit now makes up one third of the Service’s non-PPI workload. Within the credit sector, complaints about payday loans were up 130%, from 17,256 to 39,715; guarantor loan cases were up 152%, from 210 to 529; home credit complaints were up 84%, from 808 to 1,846; and instalment loan cases were up by a massive 360%, from 1,122 to 5,162.

Chief ombudsman Caroline Wayman said of the rise in credit complaints:

“What we’ve seen in this sector has been unacceptable: in too many cases, customers have been left to struggle with unsustainable debt. Looking at short-term lending in particular, the proportion of complaints we upheld – around six in every ten – shows diligent lenders have been the exception. At the end of a volatile year that saw lenders collapse as a consequence of past unfairness, it’s vital that those remaining don’t allow history to repeat itself.”

Within the pensions marketplace, Self-Invested Personal Pension complaints rose by 86%, from 2,051 to 3,811; and Small Self-Administered Scheme cases jumped by 181%, from 27 to 76.

In the investment arena, investment-based crowdfunding complaints trebled from 26 to 78.

21% of the PPI complaints during the financial year were upheld by FOS, and excluding PPI, the uphold rate was 38%. For consumer credit, the overall uphold rate was 50%, however there were larger numbers of complaints being decided in favour of the customer for products such as short-term loans (around 60%).

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


PPI CMC fined over marketing texts

The Information Commissioner’s Office (ICO) has imposed a fine of £120,000 on a Manchester-based claims management company that sent almost five million illegal text messages. The organisation described the breach as “a serious contravention” of the relevant regulations.

In the first half of 2018, the company sent 4,833,167 direct marketing text messages, 3,560,211 of which were successfully delivered, and after receiving a large number of complaints, the data protection regulator investigated. In total, 1,353 complaints were made either to the 7726 spam reporting service or directly to the ICO.

The company used four third-party websites to generate its leads, and argued that when subscribing to these sites, the recipients had consented to receiving the texts. However, the CMC was only named on only two of these websites’ privacy policies and users were also required to give consent to receive marketing from third parties as a condition of subscribing, which is itself against the law. Even on the two websites where the CMC was named, they were just one of a number of listed companies, and there was no facility for users to choose to receive marketing from some of the named companies and not others.

The fine will be reduced by 20% to £96,000 if payment is made by June 4 and if the CMC waives its right to appeal.

Complaints received by the ICO included:

“I have not consented to these types of messages and it is very concerning and worrying how this company got hold of my mobile number.”

“I have not given this company any of my personal information. I have never had any contact with this company. Receiving text messages like this is very concerning as I don’t know what other information they have on me, or where they got this information.”

Steve Eckersley, ICO Director of Investigations, said:

”Companies which are responsible for generating these types of marketing messages should make sure they are operating legally or face a potential fine. [name of company] should have known better. The laws on these types of marketing messages are strict because they can be very intrusive.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


FCA proposes changes to mortgage advice rules

The Financial Conduct Authority (FCA) has issued a series of proposals which are designed to lead to more consumer choice and better consumer outcomes in the mortgage sector.

The first proposal is one to make it clear that firms that provide tools to allow customers to search and filter available mortgages will not necessarily be considered to have given advice. At the present time, around three quarters of new mortgages are sold via an intermediary.

Another proposal will allow firms to help customers with their applications, again without crossing the line into giving advice. The FCA’s current rules forbid consumers from taking out mortgages on an execution only basis where there is some form of interaction between that consumer and a regulated firm. However, the FCA says it has heard of firms who have interpreted this requirement in a rather extreme way, and it gave the example of a customer phoning a firm to seek assistance when their online application screen froze. Because this is an interaction, some firms may then have decided that the customer needed to proceed with an advised sale, rather than simply giving assistance with the technical issue.

The proposed new rules make it clear that firms are not duty bound to offer advice when the customer’s query concerns something that is ‘unconnected with regulated advice’, and examples of things falling under this definition include: providing support with an application, conducting ongoing case management, or providing generic information in response to customers’ queries. However, firms should consider that if a customer asks what product they should buy, even if a recommendation is not given, it is likely that the firm is giving advice.

Any mortgage adviser who recommends a mortgage which is not the cheapest of the available deals that could meet the customer’s needs and circumstances will now be required to explain why the cheaper mortgages have not been recommended. In practice many firms will already be doing this, however, it would appear that this concept has not been universally adopted. The FCA says its Mortgage Market Study found that around 30% of consumers could have found an identical or better mortgage that was cheaper than the one they bought, and that whether they received advice or not made no difference to the likelihood that they would end up with a more expensive deal.

The FCA says it is not proposing that advisers will be required to recommend the cheapest product in all circumstances, and gives an example of where if the adviser has experienced poor service from the top-ranking lender in the past, it may be appropriate to recommend the second cheapest mortgage instead.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA said:

“The mortgage market is working well for most customers but we have identified some areas where our rules are acting as a barrier to innovation. The changes we’ve announced today will allow firms to develop products and services which can truly meet the needs of customers.”

The FCA’s consultation on these proposed changes closes on July 7 2019, and feedback and final rules will be published around the end of the year.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


FCA director speaks about the future of regulation

Christopher Woolard, Executive Director of Strategy and Competition at the Financial Conduct Authority (FCA) spoke of the need for his organisation to respond and adapt to changing external factors when he addressed the Deloitte Conduct Risk Roadshow in May 2019.

He began by saying that “constant change is the defining feature of the landscape in which we work”, and said that this was the main reason why so much of the FCA’s recent Business Plan focussed on the future of regulation.

However, in spite of the theme of the speech being ‘change’, Mr Woolard said that there were four areas that the FCA was always likely to continue to focus on, which are:

  • Financial crime and anti-money laundering
  • Firms’ culture and governance
  • Operational resilience of firms
  • The fair treatment of customers

The FCA director cited fraud, market abuse, mis-selling and the Senior Managers and Certification Regime as topical examples of things that fell under one or more of these four areas of focus.

Then he moved on to describing some of the technological initiatives the FCA was participating in:

  • Using machine learning techniques to identify firms or individuals who could pose a regulatory risk
  • Hosting TechSprint events to develop solutions related to anti-money laundering
  • Launching the Regulatory Sandbox, where firms can apply to the FCA to test new technological ideas
  • Sharing knowledge with 34 other national regulators via the Global Financial Innovation Network
  • Employing more science, technology, engineering and mathematics graduates to increase the regulator’s capability in areas such as cybersecurity, data science and technology

Other ways the FCA may be reacting to a changing world, and which were mentioned in the speech, include:

  • Considering whether to introduce a new requirement for authorised firms, namely a duty of care towards their customers
  • Forging new links with regulators across the world as it seeks to adapt to the post-Brexit world
  • Considering the conflicting financial needs of different generations

The FCA has also published an interview where its chief executive Andrew Bailey is quizzed by the regulator’s Head of Business & Consumer Communications, Emma Stranack; and this also focusses on the regulator’s vision for the future.

Mr Bailey echoed the comments of his colleagues by speaking of “the need to invest in data analytics to stay ahead of the times”.

Although he acknowledged that the recent Business Plan may need to be adapted according to the nature of the eventual outcome of the Brexit process, he said that the FCA’s focus on protecting consumers would continue. Here he mentioned two areas of particular focus:

  • The initiatives on high-cost credit, which have already resulted in several sectors of the credit industry being forced to adopt price caps and/or other new rules
  • The ‘loyalty penalty’ being applied to consumers in a number of sectors should they fail to shop around

Next, he turned directly to how the future of regulation may impact the treatment of consumers, and also mentioned the consultation around the possible introduction of a duty to care.

In recent months, the FCA has focussed extensively on the treatment of vulnerable customers, and Mr Bailey said that there would shortly be a consultation on proposed new guidance regarding how firms should treat vulnerable individuals.

The FCA chief then said that operational resilience was the fastest growing risk in financial services and added that data protection and data security issues are also becoming ever more relevant. He added that cyber risks “forever evolve and mutate” and that there will never be a final decisive action that the FCA or firms can take to solve the problem. He called on all firms to carry out more rigorous testing of their systems and cyber defences.

Turning to culture and governance, Mr Bailey said firms should “do the right thing, rather than just do what the rule says.” He said some firms had made “big changes” in this area, but that there was “much more to do”.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


FCA takes action against three firms and five individual pension advisers who acted without integrity

The Financial Conduct Authority (FCA) has announced that it intends to impose a variety of bans, fines and censures on three firms and five individuals. In each case, the FCA believes that the firm and their advisers failed to act with integrity when giving pension advice.

A Gloucestershire-based firm has been fined £311,639, while firms based in Cheshire and Shropshire have been publicly censured, and these two firms only escaped significant fines because they are in liquidation and would not have the means to pay a monetary penalty.

All five of the individuals have been prohibited from carrying out any role within financial services and will be required to pay fines of between £52,725 and £416,558.

The main criticisms the FCA makes of the firms are:

  • They operated a pension review and advice process which involved outsourcing important functions to two unauthorised third parties. The FCA makes it clear that it is not alleging any wrongdoing is made against these two third parties, or against any of their directors or senior management. In the regulator’s eyes, the fault lies squarely with the authorised firms that inappropriately delegated these functions
  • The firms marketed themselves as offering independent investment advice based on a comprehensive and fair analysis of the whole market, when in reality customers were recommended to transfer their pension savings into Self Invested Personal Pension schemes that invested in high risk, illiquid assets which were unlikely to be suitable, and where the underlying assets were not regulated by the FCA
  • Two of the directors of one of the third parties were directors of the companies that issued these underlying assets, but the three firms that have been punished took no steps to manage these conflicts of interest or to disclose the conflicts of interest to customers
  • The firms did not have appropriate systems and controls and compliance arrangements to oversee and monitor the advice being provided
  • The firms completed pension transfer business even though they were not authorised to do so

The FCA says that four of the five individuals, all directors of the firms in question:

  • Knew that the products they were recommending were unlikely to be suitable for retail customers, except in very limited circumstances and “acted recklessly in closing their minds to the obvious risks”
  • Acted dishonestly by providing false and/or misleading information to the FCA, in some cases on more than one occasion

The largest fine is reserved for a de-facto director of the Shropshire-based firm, who is said to have tried to exert influence over the information that his firm disclosed to the FCA. The regulator adds that it found that this de-facto director encouraged his fellow director to withhold important information and deliberately drafted communications that were false and/or misleading.

The FCA has so far been unable to enact these sanctions, as all five individuals and the firm which is not in liquidation have all indicated that they will appeal the FCA’s findings to the Upper Tribunal.

As of January 29 2019, the Financial Services Compensation Scheme had paid compensation of £26.8 million to 1,106 customers of these firms.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article

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