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FCA warning notice

31 March 2023

The FCA recently issued a warning notice in respect of two individuals who the Regulator had considered to have "engaged in reckless conduct that demonstrates that they lack integrity".  

The main issues identified by the FCA are a "seriously flawed" pension transfer model, with the Firm failing to obtain sufficient information from its client, and failing to carry out adequate due diligence on the unregulated introducer or the end investment solution it promoted to its clients.

The initial failings were further compounded by the Firm's "failure to assess the obvious deficiencies" and lack of action when there were clear warning signs regarding their pension transfer model and the risks faced by its clients that they may be encouraged to transfer for the sole reason of investing in high risk investments.

The Regulator has indicated that there will be a monetary fine for each individual but has not stated how much it might be at this stage.

This serves as another reminder, if one is needed, of the FCA's focus on historic defined benefit transfers. There are three elements to this warning notice that Firms need to consider:

  • In-depth fact finding is vital to ensure Firms are acting in their client's best interests and that they are able to demonstrate that the advice provided to the client is the correct advice for them, based upon their circumstances;
  • It is not enough for a Firm to have identified an investment solution, or be aware of an onward destination for funds, that will help the client meet their objectives – the Firm must understand where their client's money is going. A documented due diligence process is a must and at the least should enable a Firm to understand the nature of the underlying assets that make up an investment proposition if it is being promoted to its clients. It should also not be forgotten that the investment solution or onward destination for funds following a defined benefit transfer is a key element of identifying whether or not to transfer is in the client's best interests at the outset; and
  • Introducers should be subject to the same level of scrutiny as the end investment. As a minimum, there should be an agreement between the Firm and the introducer that sets obligations for both parties but carrying out due diligence on an introducer should be structured and documented with all conflicts of interest explored and mitigated wherever possible.

We have worked closely with Firms across all of these areas. For example, a client looking to align expectations between the Firm's first line advice team and its second line Compliance team where opinions differed on how FCA regulations were being interpreted. We have also worked with a client undertaking a firm-led FCA thematic review to assess the level of compliance and quality of its historic pension transfer advice cases where there may have been material information gaps.  We are also working with a client to improve the Firm's business processes as a result of FCA developments.

For all clients, we have helped them develop robust advice and due diligence processes, and fact finding documentation, that ensures they have all of the information they need to provide the correct advice to their clients.

For support in this area or a review of your current processes to establish their effectiveness, please contact Andrew Jacobs or visit Regulatory Consulting

Further Reading