Financial Conduct Authority  

FCA to continue crackdown on DB transfers into 2022

FCA to continue crackdown on DB transfers into 2022

The City watchdog is expected to continue reviewing firms’ defined benefit transfer advice until at least spring 2022.

According to the Financial Conduct Authority’s regulatory initiatives grid, published this morning (May 7), the regulator will continue with its fourth thematic review into defined benefit to defined contribution transfer advice for at least another year.

This includes taking supervisory and enforcement action to redress clients who had previously received poor DB transfer advice.

This means the FCA will continue to carry out firm reviews in the area of DB transfer advice into spring 2022.

The regulator has probed firms multiple times over the past couple of years as part of its ongoing crackdown on unsuitable advice in the market. 

Last year the regulator revealed hundreds of firms had quit the market following its intervention and warned too many firms were still failing to collect the necessary information to provide advice. 

In 2019 almost 80 per cent of advisers in the defined benefit market were probed about their transfer advice as part of the regulator's crackdown, with the watchdog writing to more than half of the 2,500 advice firms in the sector expressing concerns.

Earlier this year, data from the FCA showed the number of active firms in the pension transfer market had declined from 2,426 firms in 2015-18 to 1,310 firms in 2018-20.

But there were 103 (6 per cent) new entrants to the market. Overall, the regulator said there were currently 1,521 firms with DB transfer advice permissions.

The FCA said the reduction in firms could be as a result of not having adequate professional indemnity insurance for this form of advice, while other firms have given up their permissions as they had not used it for an extended period.

Property fund notice periods

Today’s publication also showed the regulator is planning to publish rules around the liquidity mismatch in open ended property funds during May.

The FCA floated rules back in August which would require investors to give notice — potentially up to 180 days — before their investment is redeemed from an open-ended property fund.

The FCA said there was a “liquidity mismatch” between the underlying property held in such funds and the daily basis in which investors bought and sold units and that the notice period would allow the fund manager to plan sales of property assets so it could better meet redemptions that are requested.

But some in the industry warned this could put advisers off of using open-ended property funds for anyone other than a small handful of clients, while others said these funds would become “unattractive” to the majority of investors.

Suitability review

Meanwhile, there is still no sign of the FCA’s second suitability review of retirement advice after it faced several delays.

In May 2020, the regulator confirmed its upcoming review of the advice consumers receive around retirement income had been delayed as the watchdog shed "non-critical" in the face of the pandemic.