687 firms give up DB permissions post contingent charging ban

687 firms give up DB permissions post contingent charging ban

Close to 700 advice firms have given up their defined benefit transfer permissions since the regulator's ban on contingent charging came into force last June.

Data from the Financial Conduct Authority shows from June 5, 2020 to July 31, 2021, the total number of firms that gave up their permissions was 687.

It comes after a similar number, 700 advice firms, relinquished their permissions in the lead up to June 5, in the wake of the FCA's crackdown on unsuitable advice.

Over the past couple of years, the regulator has probed firms multiple times as part of its ongoing work on pension transfer advice, sparked by the British Steel pension transfer scandal.

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

On June 5, 2020, following a consultation in the previous year, the regulator published new rules and guidance, and in particular on contingent charging.

The regulator banned charges for advice that consumers only pay when a transfer or pension conversion proceeds, except in certain limited circumstances. 

It said it was concerned that contingent charging created an obvious conflict of interest. 

In January 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 1,521 firms with DB transfer advice permissions, some inactive.

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. 

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

Elsewhere, FTAdviser reported the FCA has seen 365 advice firms give up their Part 4A permissions over the course of the pandemic.

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