Regulation 

FCA takes action against advisers passing pension buck

The Financial Conduct Authority has stated it is aware of some financial advisory firms delegating the entire regulated activity of providing advice to an unregulated third party.

A notice, published today (30 November), stated: “Firms that are approached to delegate their regulated activities, such as providing pension switching advice, to an unauthorised third party, need to be aware of the serious implications that may arise as a result of entering into this type of arrangement.”

It added that retail consumers had been recommended to switch their mainstream personal pensions into self-invested personal pensions with underlying high risk assets that may have been unsuitable for the customer.

The FCA said this had been done through an improper delegation of regulated advice to unauthorised firms or individuals associated with the underlying assets.

The regulator stated that this model was operated by these parties while purporting to be the financial adviser firms.

“The authorised financial adviser firms did not personally contact customers or review whether the recommendations were suitable before they were sent out, despite being responsible for the advice provided.”

As a result, the FCA said some adviser firms and associated individuals have been referred to the its enforcement division because there may have breached requirements in relation to the advice provided to customers.

It added that firms need to be aware that although developing new business models is attractive, improper delegation of authorised activities could carry high risks in terms of bad consumer outcomes.

David Heffron, head of financial regulation at international law firm Pinsent Masons, commented that the risk of consumers switching their retirement savings to unsuitable assets must be taken seriously and the advice process for pension switching provides important consumer protection.

“Unsuitable advice can lead real consumer detriment. The fact that the FCA is reminding adviser firms of the need to think carefully about relationships they have with third parties and not delegate their regulatory responsibilities is to be welcomed.

“The announcement makes it clear that the FCA will use enforcement action against firms who fail to consider, or turn a blind eye, to their regulatory responsibilities.”

ruth.gillbe@ft.com