The usual pattern is for Supervision to email you to arrange a call to discuss the FCA's feedback and it's likely that the call will include a colleague from Enforcement. But, firms should not be overly alarmed by this, although it's hard to avoid the implicit feeling of good cop, bad cop.
After the call, written feedback will follow (generally within 48 hours), setting out a list of issues or findings together with the actions that FCA would like your firm to undertake.
FCA Feedback LetterTo date, the letters that we have seen are consistent in terms of content. Broadly, they:
- Set out the FCA's concerns in summary;
- Provide a list of actions/confirmations required, including:
- confirmation that the firm will remediate the identified unsuitable files;
- agreeing to collect information for file reviews marked as 'MIG' (Material Information Gap);
- whether the firm is willing and able to carry out a PBR (Past Business Review) in respect of its wider back-book;
- confirmation that the firm's PI insurers have been notified, including specifically about the prospect of a PBR. Insurers may be reluctant to accept notifications until the firm's views on liability are known;
- confirmation that the firm has appropriate resources to comply with PI and capital requirements and to provide redress where found due by the required PBR;
- whether the firm is willing to apply (i.e. agree to) a Voluntary Requirement (a VREQ) to maintain the assets within the firm, preventing any capital distributions or sale of assets without FCA approval; and
- what assurance the firm can provide the FCA that its current advice process is compliant, where it wishes to continue to provide DB Pension Transfer advice;
- Encloses detailed feedback on each file reviewed, in the form of a case report containing case details and the FCA's conclusions including on the suitability of the transfer and investment advice, and;
- Typically, firms are given a very short time frame to respond
A firm's initial responseWhen receiving this feedback, important considerations are:
- Don't accept on the call that the files are unsuitable. Say that you will need to see the written feedback before being able to comment in detail;
- Once you have received the written feedback, don't be afraid to ask for more time to consider the feedback before responding substantively;
- Understand the practical and commercial consequences of the VREQ on your business before agreeing to the 'standard' VREQ;
- If making concessions, ensure you consider whether they are manageable as part of the wider PBR and don't make any unrealistic or unachievable promises, however strong the urge is to please the regulator, or your desire might be to simply put matters right;
- Immediately update your Professional Indemnity Insurance brokers and providers and ensure insurers approve – or have an opportunity to object to – every step of your plans in response to the FCA's written findings. This is another reason you should not accept the feedback immediately as this may cause insurance difficulties. Don't also forget about D&O Insurance in the event of further FCA investigation;
- Be aware that, depending upon your personal situation, senior managers and advisers who have been identified as providing unsuitable advice may have difficulties with future regulated roles (whether as a Senior Manager or a Certified Individual).
- Discuss the FCA feedback, its contents and possible plans with those who have experience of dealing with regulatory interventions, whether these are professional advisers, Board Members, or your independent NED.
The immediate reaction may be dread but it is important not to panic, take a step back and consider everything in the round and make a plan. Your response and the actions that you take will have consequences and so should be carefully considered, with outcomes evaluated and recorded.
The harsh reality is that as a result of the current regulatory exercise, some firms will not survive. However, many others will come through the exercise stronger; with greater knowledge about the level of risk in the business, clarity surrounding advice processes and clients who take some comfort that their affairs have been considered, with the business surviving regulatory scrutiny. This in itself should be viewed as something positive, with firms having 'earned their stripes' to be able to continue providing DB Pension Transfer advice.
But, for all of these reasons, it is advisable to seek regulatory and legal advice, to help you manage all of the considerations and impacts of this type of regulatory exercise. You will also benefit from having legally-privileged discussions about the firm's position, its approach to clients and how to manage interactions with the FCA.
There are a myriad of over-lapping legal and regulatory issues to consider, particularly when dealing with PBR liabilities. You need 'trusted advisors' who will partner with you to devise a plan and approach that addresses all of the aspects outlined above, while minimising risk for the firm, its people and insurers, while of course, ensuring that the firm achieves fair outcomes for clients as a result of this review.
Our Financial Services Regulatory Legal, or Regulatory Consulting experts are always happy to have an initial 'free of charge' discussion with firms or individuals who are subject to this exercise, or experiencing related issues. We have a depth and breadth of knowledge in these areas and of regulatory matters in general. So, before taking any action in response to FCA supervisory contact, please speak to us to see how we are able to help.