Officially, the Senior Managers & Certification Regime will not apply to financial advisory firms, consumer credit firms and other institutions until early next year, and the Regime is only formally in force in the banking sector at present.
However, firms should be in no doubt that, ahead of the implementation of the Regime, it is already possible for senior managers to be held accountable when things go wrong at their firms. One senior manager who now knows this all too well is David Samuel Watters, who until 2011 was compliance oversight officer at FGS McClure Watters (FGS) and then at its successor firm Lanyon Astor Buller Ltd (LAB). The Financial Conduct Authority (FCA) has ordered Mr Watters to pay a fine of £75,000 from his own personal funds after serious issues were identified with the pension transfer advice process at the firms.
Mr Watters’ failings included:
• Not understanding his obligations as a compliance oversight officer (the CF10 controlled function)
• Allowing the pension advisers to design the advice process, without ensuring that this complied with regulatory requirements
• Not identifying ways in which the advice process breached the FCA’s Conduct of Business Reviews, even though he carried out file reviews himself from time to time
• Engaging an external compliance consultant who lacked the experience to provide effective advice on a complex area such as pension transfers, and in any case Mr Watters failed to act on the consultant’s recommendations
• Failing to disclose to clients a conflict of interest that existed with the advice process, and failing to put in place measures to manage the risks associated with this conflict. FGS and LAB were paid commission by the pension provider to whom customers transferred, and so benefitted financially from customers choosing to transfer. Additionally, one of the firm’s advisers received a proportion of the proceeds from the pension transfer advice business
• Not considering the changes that might be required to the advice process as a result of the Markets in Financial Instruments Directive II (MiFID II)
In every one of 17 files reviewed by the FCA, the firm failed to meet the disclosure rules, and in many of these cases there were also issues over the suitability of advice.
Pension transfers will always be classed as a high-risk area by the FCA. Approximately 500 clients of FGS/LAB, with combined pension funds worth some £12.7 million, transferred from a defined benefit (final salary) scheme to a defined contribution (money purchase) scheme. The FCA comments that “in many cases, it may have been unnecessary for customers to leave their DB schemes, thereby losing their guaranteed benefits.”
LAB will now contact the affected customers, and pay redress to them where appropriate.
Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said:
“It was Mr Watters’ responsibility to take reasonable steps to put in place a compliant advice process. His failure to do this placed customers at risk of needlessly losing valuable benefits for their retirement.”
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.