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After a second breach of the requirements relating to payment protection insurance (PPI) annual statements, two of the UK’s five largest banking groups have been ordered to appoint external reviewers to scrutinise their practices.

The Competition and Markets Authority (CMA) gave this instruction to one banking group that failed to send around 11,000 customers over a six-year period; and to another that sent incorrect statements to around 3,400 PPI policyholders – 311 of these customers received incorrect information over a six-year period. The first bank has also been forced to pay approximately £1.5 million in refunds to the affected customers.

For several years now, PPI providers have been required to send out annual statements which state the amount the customer has paid under the policy, and which also sets out their right to cancel.

Once the external reviewers have completed their audit, they will then submit a formal written report on their findings.

Adam Land, the CMA’s senior director of remedies, business and financial analysis, said:

“It is unacceptable that some banks aren’t providing PPI reminders – or are sending inaccurate ones – eight years after our order came into force. The legally binding directions we’ve issued today will make sure that both [names of banking groups] now play by the rules.

“These are serious issues that, in the future, may result in fines if the Government gives us the powers we’ve asked for. For now, we expect [name of banking group] to repay all affected customers quickly, and for both [names of banking groups] to make sure that similar breaches do not happen again.”

Spokespeople for the two banks in question said:

“We’re sorry that as part of a communication about their PPI policies, a small number of customers who were in arrears received incorrect information on their mortgage balance. Customers were not financially impacted as a result and would have been aware of their correct mortgage balance through their annual mortgage statement and other communications. We informed the CMA as soon as we became aware of the issue and have taken steps to ensure it does not happen again.”

“We are contacting those customers who may not have received their annual PPI review letters and have put systems in place to ensure that this does not happen again. We would like to apologise to any customers affected.”

Two more major UK banking groups received directions from the CMA in 2018 for similar failings.

This issue is not connected to the Financial Conduct Authority’s PPI complaints deadline, which was August 29. Now this deadline has been and gone, it is likely that PPI providers will only consider complaints about new insurance sales, or about servicing and administration of policies sold prior to the deadline.

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

The Financial Conduct Authority (FCA) has been concerned about the quality of firms’ pension transfer advice for some time, especially as the regulator believes that transferring out of a defined benefit (final salary) scheme will only be suitable for a minority of clients.

The FCA has now issued a video aimed at savers who have defined benefit pension provision, as well as those that may have already been advised to transfer.

The video is presented by Mark Goold, who will be familiar to many firms who have attended FCA events. The initial points he makes are:

• Whether or not to transfer is a complex decision
• It will not normally be in someone’s best interests to transfer out
• Ideally, savers should seek professional advice before transferring out, even if the value of their pension pot is below the £30,000 threshold at which providers will not accept transfers without evidence of the individual having received professional advice
• Advisers must conduct a detailed analysis of the client’s circumstances before recommending a transfer

He then goes on to list the steps a pension adviser should follow:

• Disclosure – explaining the services that will be provided and the costs of these services, and this must be done at the start of the process. Here it is important that the firm clearly sets out whether it will offer independent or restricted advice, and if it offers restricted advice, the nature of the restriction must be explained. Mr Goold added that some advisers will only charge a fee if a transfer is completed, and that once again, this needs to be explained at the start of the process
• Asking detailed questions about the client’s financial situation – for example about:
• Level of investment experience
• Tax position
• Attitude to risk
• Capacity for loss
• Marital status
• Health
• Income and expenditure levels (both now and in retirement)
• Target retirement income
• Whether there is a need to provide for a spouse and/or dependants in retirement
• Likely retirement age
• Explaining the risks and benefits of transferring out, such as that a defined benefit scheme provides a guaranteed level of income, and that anyone who transfers out may risk running out of money at some stage of their retirement
• Research – this is where the adviser compares the defined benefit scheme and any scheme they are considering recommending. Key issues here include:
• The death benefits available (unless the client has no spouse or dependants to leave their pension to)
• How much income is guaranteed
• The options regarding tax free cash
• Whether early retirement is an option
• What level of investment performance would the new pension arrangement need to achieve to match the benefits of the defined benefit scheme
• Suitability report – a letter setting out what has been recommended and why, personalised to the client’s circumstances. Mr Goold said the FCA had seen firms writing letters which simply listed a series of options and asked the client to choose between them, and he highlighted that this is not acceptable, and the letter must provide a clear recommendation. The risks and benefits of the transfer should be explained in the report in a balanced way, such as explaining that the client is giving up a guaranteed income for life. Since late last year, firms have been obliged to issue this report even where no transfer is recommendation
• Informing the client of the ongoing service they can expect, such as annual reviews, and how much this service will cost. An important consideration here might be whether the firm will advise the client as to how much income they should draw down each year. The firm needs to make sure it delivers the ongoing service it has promised.

Mr Goold then encourages anyone who thinks that any of these steps were not followed to complain via the Financial Ombudsman Service.

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

Trade association the Personal Investment Management and Financial Advice Association (PIMFA) has written an open letter to Boris Johnson inviting the new Prime Minister to make a speech relating to the UK financial sector.

Although PIMFA has repeatedly called for as smooth a Brexit transition as possible, the letter makes no direct reference to the UK’s impending exit from the European Union. The only hint of a reference to Brexit is when the letter mentions the importance of the City of London, by saying:

“Like you, we are committed to protecting the UK’s position as a global leader and London’s competitive advantage as a financial centre. As you are well aware, the decisions taken by the Government will be crucial in maintaining this success.”

The Association also attempts to establish common ground with Mr Johnson in areas such as financial literacy, by saying:

“We believe, like you do, that there needs to be an increased level of financial literacy, particularly amongst young people and older people too as they approach key life-altering financial decisions and PIMFA’s aim is to promote a culture of savings and investments so that more individuals prepare and are equipped for their financial futures.”

Despite Mr Johnson’s quote during his campaign that a no-deal Brexit was “a one in a million chance”, exiting without an agreement seems to be increasingly likely. The PM has not only said on a number of occasions that he will not  re-open talks with the EU unless they first agree to scrap the Irish backstop entirely, but has now written a formal letter to European Council president Donald Tusk with a demand that technological solutions are used instead to manage the Irish border issue come the exit date of October 31.

Therefore, firms with overseas connections need to be aware that a no deal exit is a real possibility. There may be a need to prepare for Brexit if any of the following apply to a firm:

• The firm provides regulated products or services to customers resident in the European Economic Area (EEA)
• The firm has customers based in the EEA, including those who were previously UK resident but may now have moved abroad
• The firm markets regulated products or services within the EEA. This would include any firm whose website might in any way be targeted at EEA residents
• The firm has service providers who are based in the EEA

• The firm transfers personal data between the UK and the EEA or vice versa
• The firm is part of a wider corporate group that is based in the EEA
• The firm receives funding from an entity based in the EEA
• The firm outsource or delegates tasks to an EEA firm, or vice versa
• The firm is party to legal contracts which make reference to EU law

Perhaps the best-known feature of the existing EU financial regulatory system is the ‘passporting’ scheme. This scheme allows any firm authorised in a European Economic Area (EEA) member state to trade across the EEA without the need to obtain separate authorisation from the national regulator in each state. This scheme is now set to end abruptly on the exit date.

The Financial Conduct Authority (FCA) was given a ‘temporary transitional power’ by the Government. In the event that the UK leaves the EU without a deal, the regulator will be able to delay or phase in changes to regulatory requirements made under the EU (Withdrawal) Act 2018 so firms can generally continue to comply with their regulatory obligations as they did before exit. The power has so far been extended to December 31 2020.

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

The pensions dashboard is designed to allow pension savers to see all of their pension schemes in one place via a digital interface. The Government has handed responsibility for developing the dashboard to the Money and Pensions Service (MAPS), the single financial guidance body that was launched earlier this year to continue the work previously done by the Money Advice Service, The Pensions Advisory Service and Pension Wise.

MAPS has appointed Chris Curry as Principal of the Pensions Dashboards Industry Development Group and Angela Pober as the group’s Implementation Director. Mr Curry is a former director of the Pensions Policy Institute and Ms Pober has worked for prominent consultancy firms on major IT and change programmes in financial services.

Applications can still be made from any industry or consumer representatives wishing to be part of the 12-strong dashboard steering group. Once applications close on August 26, the successful candidates will be announced in September and the first meeting of the group is expected to be held in October.

New legislation will be required in the form of a Pensions Bill to compel organisations to provide data for the dashboard. It could be four years before the dashboard is fully functional and any individual can log in and see every one of their pension pots, from the state pension to occupational, personal and stakeholder pension plans.

Research has suggested that some people have around a dozen different pension pots by the time they retire, simply because of the number of different companies they have worked for. Some consumers have reported being unaware they had some of these ‘pots’ simply because their retirement savings had become so complex. The advent of auto-enrolment can only increase the number of pension plans an individual might accumulate, and had the Government not commissioned the dashboard it estimated that by 2050 there would have been 50 million dormant pension pots held by UK savers.

The Government also believes that highlighting the existence of all of these pension pots could prompt more people to seek guidance and/or professional financial advice; and could also encourage do-it-yourself pension savers, who would not seek guidance or advice, to put more aside for their retirement.

Work and Pensions secretary Amber Rudd MP said:

“With record numbers saving for retirement as a result of our revolutionary reforms, it’s more important than ever that people understand their pensions and prepare for financial security in later life.

“Dashboards have the potential to transform the way we all think about and plan for retirement, providing clear and simple information regarding pension savings in one place online.  I’m looking forward to seeing the first industry dashboards later this 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

With only days left before the payment protection insurance claims deadline, the Financial Ombudsman Service (FOS) chief executive has urged consumers who may have taken out this insurance in the past to “hurry up and claim”. More than £36million in compensation has already been paid by banks and other firms, and with a last-minute surge in complaints expected, the final bill could top £40 billion. The cost of the scandal is already well in excess of £40 billion when the cost of recruiting extra staff to process the complaints is taken into account.

Two of the biggest banking groups have claimed that there has been a decline in the ‘quality’ of claims as the deadline approaches, with many of the complaints coming from people who had never been customers of the bank. However, FOS chief executive Caroline Wayman said that she would not criticise consumers for making enquiries as to whether they may have had PPI with the bank, especially as many people were sold PPI without their knowledge.

Most banks are understood to be treating an enquiry about whether a PPI policy exists as a complaint, without requiring the customer to make contact again and explicitly state they want to complain about their policy.

The FOS currently has more than 1,000 staff dealing with PPI complaints, out of a total workforce of 3,800. The Service has already published its proposals for a post-PPI world, but its PPI staff will be required for a while longer, as after the August 29 deadline the firm will have eight weeks to investigate the complaint and issue its final response, then the customer will have six months from the date of the final response to decide if they wish to refer the matter to FOS.

Ms Wayman also revealed that she is seeing complaints from some customers with around 100 loans, and others with around 10-15 loans, raising questions as to whether the lender carried out sufficient credit and affordability checks. FOS demand that lenders carry out a more rigorous assessment for repeat borrowing applications. Lenders should also note that if FOS sees a pattern of needing to take out payday loans each month then they are likely to conclude that the borrower is taking these loans to meet essential expenses and that therefore the customer would not be able to afford repayments on a new loan. Firms need to think carefully before approving a loan application for someone whose credit record shows a reliance on short-term borrowing.

Firms are advised to regularly check the Ombudsman Decisions page on the FOS website and to look at the reasons why firms in their sector are having complaints upheld.

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

Senior figures at the Financial Conduct Authority (FCA) have repeatedly spoken in recent months about the importance of firms having the right culture, and that sometimes this requires firms to think about whether they are doing the right thing and not just consider whether they are complying with the documented FCA regulations.

Jonathan Davidson, FCA director of supervision, and Dame Jayne Anne Gadhia, former CEO of Virgin Money, spoke about culture and the Senior Managers & Certification Regime (SM&CR) in a recent FCA podcast. Dame Jayne has experience of implementing SM&CR in the banking sector – banks have been subject to the Regime for several years while it comes into force on December 9 for other firms.

Mr Davidson said he defined culture as “the characteristics, mindsets and behaviours that are typical for each organisation.” He said that when the regulator looked for the root cause of things that had caused customer detriment that either the firm’s culture or its business model was often to blame.

Dame Jayne-Anne was previously employed at one of the UK’s big four banking groups before taking her senior role with Virgin. She said that, in 2006, just before the financial crisis, the group’s priorities appeared to be “making money at all costs” and said that maximising shareholder returns over doing the right thing was likely to lead to individual employees receiving praise from their superiors.

She also criticised this large banking group for giving significant incentives to staff to sell payment protection insurance. She communicated her concerns to a senior manager but was told “of course it’s not right but we can’t be the first [bank] to pull it as it would affect our share price.”

She then spoke of an initiative at Virgin called “making everyone better off”, where the interests of all stakeholders (including customers and staff as well as shareholders) were considered when making a decision.

Mr Davidson said it was not possible for the FCA to write rules relating to a firm’s culture, even though SM&CR does include new formal written rules. He said there was a need for his organisation to communicate to firms the advantages of having the right culture.

He went on to describe the drivers of a healthy culture:

• Everyone within the firm is aware of what the firm’s culture is
• Senior management must set the right example and any incentive scheme approved by management should reward staff who conduct themselves in the right way
• The five Conduct Rules that form part of SM&CR must be the minimum standard of behaviour for staff at all levels – here he said that he often referred to SM&CR as the Accountability Regime to emphasise that even the most junior employees need to recognise they are accountable for the work they do, and that they need to observe the Conduct Rules at all times

Dame Jayne remarked that the SM&CR rules merely formalise what should already be accepted as good behaviour. She said that the right outcomes for customers might be:

• Ensuring products are appropriately designed and easy to understand
• Providing good customer service
• Ensuring products are appropriate for each individual
• Where customers have suffered detriment, the firm is willing to offer redress

Mr Davidson said that senior managers should consider whether a desire to do the right thing for customers means action is required in these areas:

• The way the firm is governed
• The training that needs to be provided to staff
• The incentive scheme the firm operates
• The design of the firm’s products

Dame Jayne urged all senior managers to embrace the Regime and not just leave it to the compliance function to implement.

SM&CR not only requires senior managers to be approved by the FCA, but it also requires anyone else who holds a position of responsibility to be approved by their firm on an annual basis – this is the Certification element of the Regime. Mr Davidson said this should encourage staff who are subject to these assessments to recognise that they need to keep doing the right thing in order to pass these annual assessments.

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

The House of Commons Treasury Select Committee has called for the Financial Conduct Authority (FCA) to work with the government to make it clear exactly what the regulator is responsible for, and what lies outside its remit.

In recent years, many ordinary investors and some smaller companies have suffered from the confusion caused by this issue, incurring sometimes significant losses when they incorrectly assumed the FCA would protect their interests.

The Committee is also concerned that some less scrupulous firms could exploit the confusion about whether a particular activity is regulated. When appearing before the Committee, FCA chairman Charles Randell said “bad people” could take advantage of any uncertainty in this area.

Many of the so-called ‘mortgage prisoners’ have been trapped in an unfavourable mortgage deal and have been unable to re-mortgage to a cheaper deal because their mortgages have been sold on to unregulated organisations. The FCA was then unable to force these unregulated firms to take any action to resolve the problem.

Two recent examples that illustrate the confusion relate to the global restructuring unit of a large banking group; and a firm that issued mini-bonds. In the first instance, no action was taken against the bank or any senior individuals, with the FCA saying that it could not act because commercial lending is unregulated, even though clearly the bank itself is subject to supervision by the FCA. In the second case, the firm was also regulated by the FCA, but mini-bonds themselves were unregulated, however if the firm gave advice to investors to take out mini-bonds then that activity may have been regulated after all.

Given these confusing circumstances, the Committee has called on firms to provide clear warnings when they promote or carry out unregulated activities, as sometimes customers are only realising that an activity or product is unregulated when widespread consumer harm has already occurred. Many customers of the mini-bond firm have suggested that the firm’s advertising prominently highlighted its regulated status.

Other recommendations of the Committee’s report include that the FCA be given the following powers:

• It should be allowed to approach the Treasury and formally recommend changes in the law to bring unregulated activities and products within its remit
• It should be allowed to highlight the potential risks to consumers of an unregulated activity
• It should be able to request data from non-regulated firms when it deems this to be necessary

A final recommendation in the report is that if the Government does not give the FCA the powers listed above then it must take responsibility for informing consumers of the issues and protecting the public from harm caused by unregulated activities.

However, the Committee is only an advisory body and has no direct power to change the law or the FCA regulations.

In June 2019 the FCA issued the first of what it says will be an annual perimeter report, explaining how the limits on the scope of regulation affect its supervision work.

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

The Financial Conduct Authority (FCA) has published the results of its latest annual survey of how firms perceive its performance. It says it has improved on two counts, while also reporting that smaller firms are more satisfied than larger ones.
The FCA has three operational objectives:
• securing an appropriate degree of protection for consumers
• protecting and enhancing the integrity of the UK’s financial system
• promoting effective competition in the interests of customers

The survey results show that firms are slightly more satisfied, compared to last year’s survey, with the FCA’s efforts to meet the first two objectives. Firms are however slightly less likely to agree that the FCA is meeting its competition objective satisfactorily.

88% were confident that the FCA was delivering on its strategic objective of ensuring financial markets function well. This represents a slight increase from 86% in 2018.

When we then look at the firms’ perception of the FCA’s performance against the operational objectives:

• 86% rated the regulator positively on the consumer protection objective, up from 85% last year
• 87% approved of the FCA’s efforts to protect market integrity, up from 85%
• 70% said it was doing a good job on the competition front, down from 72%

Asked to rate their degree of satisfaction regarding their relationship with the regulator, the average score from the respondents was once again 7.6 out of 10, the same as last year, but this score has risen steadily since the score of 5.9 in 2013, the year in which the FCA became the UK’s principal financial regulator. Some of the larger firms though were less satisfied, as the average fixed portfolio firm – one that receives a greater level of supervisory attention – gave a relationship score of 6.9, and this was down from last year’s figure of 7.3.

The average score when firms were asked to rate the FCA’s overall performance was 7.2, up slightly from 7.1 in 2018, but fixed firms only gave an average score of 6.8. Consumer credit firms were among those giving the highest score – this sector gave the FCA an average score of 7.5 here.

Lenders gave very good average scores of 7.9 for the relationship measure and 7.6 for the overall satisfaction question.

Perhaps the area where fixed portfolio firms’ views differ most from flexible portfolio firms is the subject of cybercrime, possibly because more larger firms have first-hand experience of the incidents that can happen in this area. 65% of fixed firms think the FCA is doing a good job in working with firms to prevent cyber incidents, compared to just 33% of flexible firms. Flexible portfolio firms receive less regulatory scrutiny, and the majority of authorised firms fall into this category.

The regulator acknowledges that perhaps the area where firms are most unhappy is in their view of whether the FCA’s staff have the experience and qualifications required to carry out their supervisory work. 63% of all firms said they believed FCA staff had the right experience and qualifications, but this fell to just 52% for credit firms and 39% amongst firms in the pensions sector.

Pension firms also gave a lower average score for their relationship with the FCA (6.8) and for their overall satisfaction (6.9).

Once again, many firms called on the FCA to improve some aspect of its communications. 56% said the regulator could simplify its written communications to firms, 55% called for the Handbook to be simplified and 52% said they would welcome communications which were better targeted to specific types of firm.

The research was carried out by Kantar Public on behalf of the FCA. Between January and March of this year Kantar sent the survey to around 10,000 authorised firms, and 29% of these responded, up slightly from 26% last 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

Most firms that provide high-cost credit will be all too aware that the Financial Conduct Authority (FCA) regards their sector as being one of its priority areas. The regulator has taken action against firms who failed to treat their customers fairly and has also introduced price caps in certain areas.

Now the FCA has turned its attention to examining the alternatives to high-cost credit, and has been prompted to do so by two factors:
• Many consumers will not be able to access lower cost credit
• When they may be able to obtain lower cost credit, some consumers will not know where to go to obtain it

The FCA’s paper on the subject also says that consumers may end up paying more than they need to for credit as they may have an immediate need for funds and so may not have time to shop around.

The regulator says that high-cost loans may be taken out for a number of reasons:
• To pay for living expenses and bills
• To meet the costs of emergencies, such as funeral costs or replacing broken household goods)
• To pay for expected one-off events, such as providing funds for Christmas or school uniform
• To provide funds to replace lost earnings following illness or unemployment
• To fund addictions to gambling, drugs or anything else
• To supplement lost earnings when work was not available under a zero hours contract or other flexible working arrangement
• To meet the costs of moving home, when it may be necessary to purchase a number of items and/or carry out a lot of maintenance work in a short period of time. Alternatively, some landlords may require an upfront payment of three months’ rent from their tenants
Credit unions are sometimes promoted as sources of lower cost credit, and these organisations are prevented by law from charging interest of 3% per month (1% per month in Northern Ireland). However, membership of a union is usually restricted to people who live in a specific area, or who work for the same company, or who hold a particular occupation. The FCA notes that there are now nine different trade associations who represent credit unions in the UK and suggests that this fragmented set up could be hampering the efforts of credit unions to effectively promote their services.

Furthermore, with the strict caps on the interest they can charge, many credit unions are unwilling to lend to higher risk borrowers. Some unions have a limited online presence, carrying out much of their business face-to-face, which may not satisfy the appetite for ‘instant credit’.

The FCA calls on the Government to consider carrying out a formal review of credit union legislation and for the various trade associations to work together and speak with a unified voice.

The next possible alternative examined in the FCA report is loans from community development finance institutions (CDFIs), who usually only accept customers from a limited geographical area. However, many of these organisations concentrate primarily on lending to small businesses, and when they do lend to individuals, they are not subject to any price cap. Seeing their customer base as high-risk, many CDFIs charge an APR of 200% or more.

With their significant overheads, their occasional difficulties in obtaining funds from banks and their limited online presence, again the FCA questions whether CDFIs will be a viable alternative for many consumers. However, it suggests matters could be improved if the law was changed to encourage entrepreneurs to invest in CDFIs, or if CDFIs were to partner with credit unions and take on consumers who are rejected for a credit union loan.

The paper then comments on retail finance, which helps consumers purchase the larger household goods they need when they are unable to pay the full price upfront. However, the terms on which retail finance is offered may mean that it is not available to many consumers with low incomes, low credit scores and/or a thin credit file.

The FCA summarises the crux of the problem by saying that most providers of lower cost credit are small, locally based organisations. They tend to have limited reach and aren’t linked to a national brand with marketing capacity.

Other recommendations of the FCA include:
• Charities, local government and lenders should be encouraged to refer consumers to sources of lower cost credit – the report notes that Lloyds Banking Group are already signposting consumers to credit unions. However, the FCA acknowledges that charities and local councils may need credit broking permissions in order to make these referrals, and encourages the Government to relax the rules in this area
• More effective promotion of the information on the Money Advice Service (MAS) website about low-cost credit options. Organisations who may not have the permissions to make referrals direct to low-cost lenders could instead direct consumers to the MAS website information
• Encouraging prospective providers of technology based low-cost credit to contact the FCA’s Innovation Hub

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

Despite opposition from some firms and trade associations, the Financial Conduct Authority (FCA) is pressing ahead with plans to outlaw contingent charging on defined benefit pension transfers. A formal consultation paper outlining these proposals was issued in late July 2019.

Contingent charging is where the adviser would only be paid if a transaction was completed, so if the adviser did not recommend a transfer then no fee from the client would be payable. The FCA says that fees are typically between 2% and 3% of the amount being transferred.

Clearly this could lead to some advisers recommending a transfer simply to ensure they receive payment. The FCA has stated on a number of occasions that in most cases transfers out of final salary schemes will not be in the client’s best interests.

The regulator’s consultation not only bans contingent charging, but also requires firms to charge the same advice fee to all clients who complete the full advice process, regardless of whether a transfer is recommended at the end of the process.

The only exemption to the ban will be for groups of customers who are highly likely to receive a recommendation to transfer. It would include those who have a specific illness or condition which means they have shortened life expectancy and those who may be facing serious financial hardship such as losing their home, for instance due to not being able to make mortgage payments. The FCA says it expects that this exemption will only apply to a small proportion of clients.

The FCA has also proposed that where a transfer would lead to the adviser receiving ongoing fees in the years following the recommendation, the adviser will be required to demonstrate that the recommended pension arrangement is more suitable than the occupational scheme. Simply demonstrating that the recommended arrangement is equally suitable will not be sufficient.

A third proposal is to introduce an ‘abridged advice’ service, which is designed to address concerns that a charging ban will limit consumers’ access to advice. Under existing rules, banning contingent charging could give rise to a difficult situation whereby the customer is told at an early stage that the transfer would not be in their interests, but is then asked to pay a substantial fee from their own pocket. The FCA is therefore proposing that advisers can carry out a triage service, which can be used to filter out clients for whom it can be quickly identified that it is not in their interests to transfer. The adviser can then charge a reduced fee in these circumstances. Where this triage process identifies that the individual could possibly benefit from transferring out, the firm will then proceed to full advice, and will consider in more detail whether to recommend a transfer.

Abridged advice will still require a full fact find to be completed, and the advice must still be checked by a pension transfer specialist. There will be no requirement to produce a transfer value analysis in these circumstances.

Finally, the FCA proposes that all pension transfer specialists will be required to complete 15 hours of Continuing Professional Development (CPD) each year. These 15 hours must specifically relate to their pension transfer work and will need to be carried out in addition to any more general CPD.

The FCA invites responses to the consultation, which closes on October 30. Final rules are expected to be confirmed in February 2019.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA said:
“The FCA’s supervisory work has revealed continued problems in the pensions transfer advice market.
“By making changes to the way advisers are paid for transfer advice and the other changes to transfer advice we are proposing today, we want to ensure people receive suitable advice and drive down the number giving up valuable defined benefit pensions when it is not in their interests to do so.”

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