The Financial Conduct Authority (FCA) has warned firms not to outsource their provision of advice to unauthorised third parties. The regulator is especially concerned about this in areas such as pension transfers (moving funds from an occupational pension scheme to a personal pension scheme) and pension switches (moving funds from one personal pension scheme to another).
It is a criminal offence under the Financial Services and Markets Act 2000 to give financial advice, or to carry out a range of other activities, without being authorised by the FCA. In respect of investment and pension advice, this requirement applies to both the firm and to the individual adviser, who both require separate authorisations.
However, whilst technically it would be the third party that was committing the offence, this warning from the regulator highlights that the firm carrying out the delegation would still be held responsible. Any client detriment that results from poor advice by the unauthorised third party would be the responsibility of the authorised firm. The FCA statement also raises the possibility of firms being subject to enforcement action if they improperly delegate their activities, and says some firms and individuals are already under investigation for this.
Pension transfers and pension switches are regarded as high risk areas by the FCA, due to the risks of being advised to switch without sufficient justification, the possibility that the client might be switched into high risk investments or the risk of the client falling victim to a fraud or scam.
The regulator gives the example of a firm it identified which was outsourcing its entire advice process to an unauthorised third party, and many clients were being placed into Self Invested Personal Pensions with high risk underlying investments as a result.
The FCA statement says:
“Delegating regulated advice to an unauthorised party will not mean that the firm can avoid liability or regulatory action for unsuitable advice. If approached in regard to this type of activity, we urge authorised firms to consider the significant implications that entering into this type of arrangement could have on their professional reputation and future livelihood.”
The statement ends by warning firms that improper delegation could pose a significant risk and could have implications for their professional indemnity insurance. The FCA also asks that any firm that is approached by an unauthorised third party reports the matter to them under their Principle 11 obligation to communicate openly with their regulator.
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.