The regulatory ambition is that pension transfer advice reaches the same standard as the wider financial market, where advice is suitable in around 90 per cent of cases.
Despite firms adding steps around adviser qualifications and pre-checking all pension transfer advice in cases, evidence from the FCA’s last three reviews show that around half of all cases remain non-compliant and therefore not evidently suitable – a long way off the 90 per cent target.
It is our understanding that the latest FCA thematic review was completed at the end of February, although it has not been confirmed when the final results will be published.
We anticipate the FCA is likely to conclude that the current cohort of 1,454 files shows an unacceptably high proportion of at best, non-compliant and at worst, unsuitable results.
If history repeats, one in two cases will be found non-compliant, highlighting a fundamental issue with the way that standards are being interpreted and enforced.
The key question should be, not only why unsuitable advice persists, but why there is a lack of evidence and why this is not being identified and addressed by compliance oversight functions.
Role of a compliance officer
We are often asked about what personal liability a firm's compliance officer might have for oversight in this regard.
The compliance oversight function (SMF16) has responsibility for oversight of the firm's compliance with relevant regulations, and reporting to the firm's governing body in respect of that responsibility.
You only have to look to the headlines to understand how seriously the FCA takes the SMF16 role in firms.
The financial press regularly carries stories of large fines and occasionally of bans being imposed on individual compliance officers (examples below).
In many ‘traditional’ adviser firms, compliance oversight may be combined with other functions, which can further compound the risk.
Enforcement action | Compliance officer failing |
£200,000 personal fine | - Inadequate oversight of products sold through independent advisers;
- Failure to ensure the product non-performance was addressed and notify the FCA of the actual non-performance of those products;
- Mis-leading the FCA.
|
£105,000 personal fine and banned | - Contributing to a culture that permitted LIBOR manipulation to take place and failing to take steps to prevent it.
|
£33,800 personal fine | - Systematic weaknesses in the design and execution of compliance systems and controls.
|
£19,000 personal fine | - Failing to deal with the FCA in an open and cooperative manner.
|
The compliance officer needs to have a thorough grasp of the rules and the business. One without the other is a problem waiting to happen.
We often see advice firms where one of the directors/partners takes on the role but does not have enough of a grasp of the rules and how to make them work (and may see the role as a distraction from doing business anyway).
Other firms take on a dedicated individual who might know the rules but has little or no authority and/or little or no grasp of the business and how to make it compliant with those rules. Cutting costs in this area can generate severe consequences.
A relevant example
