The FCA has a working definition of a ‘perfect storm’ for a financial services business:
“An expanding commercial opportunity, entrepreneurial industry sector, high value investments available and low levels of consumer knowledge.”
This statement is the perfect description of the specialist pension transfer advice sector which is under strong market and economic pressure and is facing a skills shortage among advisors.
The FCA is broadcasting its regulatory initiatives and findings not to enhance its own reputational standing but as a shot across the bows to this sector. Its expectations of the standard in advice processes, and firms’ monitoring and oversight of those processes, are becoming ever more demanding. The most recently published findings from the FCA’s review of 22 DB firms mean that this issue’s RAG status will have shifted from amber to red. The FCA is likely to crystallise its expectations of firms in a ‘Dear CEO’ letter on this point, possibly seeking attestations from either the Head of Compliance or the CEO.
Firms will appreciate that such requests carry a significant regulatory risk if the response is not supported by an adequate amount of due diligence on the issue. However, such an exercise also presents the challenge of applying the correct regulatory standards. The FCA has issued a consultation on the rule changes as it is seeking to enhance standards in this area.
However, for the purposes of its review of client files from 13 firms, it must have been applying the current standards.
That the compliance monitoring at these firms was reporting the same results and management were doing nothing is simply not believable.
It seems almost certain that this report indicates that the FCA’s expectations of the advice processes in this sector and current industry practice are not on the same page at all.
If a firm is looking for specialist support in this area before the FCA comes calling, they need to ensure that the advisor they choose is at the coal face on these issues and has seen the FCA’s specialist team in action at first hand.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.